|The North Antelope Rochelle mine owned by Peabody Energy Corp. is the largest coal mine in the U.S.
Source: Alan J. Nash
U.S. coal executives are keeping an eye on a turbulent market for seaborne coal as domestic demand continues to retreat, but several publicly traded names in the space reported their organizations are built to handle the stress, according to a review of second-quarter earnings calls.
While most U.S. coal companies are in better financial shape than they were a few years ago after cleansing balance sheets in bankruptcy reorganizations, a new wave of restructurings has left some uncertainty about the future of the sector. This uncertainty has been compounded by a weakening export market, forcing many to turn back to a shrinking domestic sector many see as already oversupplied.
"We're a low-cost producer," Hallador Energy Co. President and CEO Brent Bilsland said on the company's second-quarter earnings call. "You're going to see the contracts flow to the low-cost producers, and you're going to see production curtailed at the higher-cost producers."
As lower prices make exports less attractive, Hallador is not the only company eyeing the potential to capture share in the domestic market this year.
"I think that there could be rationalization by high-cost producers that will be cutting back supply and that they will be giving up market share if they do that," Alliance Resource Partners LP CEO Joseph Craft said. "So, I'm not suggesting that we see a growing domestic market. I'm suggesting that, yes, we will either compete with them and we will bid lower and win that business because we have got low-cost operations or there will be some form of supply response by the high-cost producers that will free that market share up for the low-cost guys."
Foresight Energy LP, an Illinois Basin coal producer that regularly touts its high productivity relative to its peers, has struggled to get some of its coal to customers abroad due to recent challenges created by the flooding of the Mississippi River.
"We can compete against every other basin out there," Foresight President and CEO Robert Moore said. "That gives us a benefit in terms of getting our coal into plants. If these export markets aren't there, then we're poised to take domestic share. That's what we're going to do."
Meanwhile, executives with Pennsylvania-based producer Consol Energy Inc. anticipate exporting more coal this year than in 2018.
"For 2019, we are planning to ship around 9 million tons of our coal into the international markets, compared to 2018 levels when we shipped 8.1 million tons into the international markets," Consol President and CEO James Brock said. "We're expecting to grow our crossover and Indian shipments each by double-digit percentages. Both of these should continue to be growth paths for the Pennsylvania mining complex coal business for 2020 and into the future."
Brock said Consol Energy is also going to focus more on shareholder return initiatives such as stock buybacks in the coming months, a growing trend in a coal space where investors remain tepid on new growth projects. Arch Coal Inc. advertised a similar focus on shareholder value initiatives but, like Consol, is also building out its metallurgical coal mining portfolio through a modest investment in an organic growth project in West Virginia.
"Of course, trade tensions and the overall health of the global economy represent a risk to the marketplace going forward, but Arch is built to weather such downturns when they come, just as it's structured to deliver exceptional value when the markets are healthy," Arch Coal CEO John Eaves said on an earnings call.
Peabody Energy Corp., which recently announced a proposed joint venture of western U.S. coal assets with Arch, also took time on its earnings call to reiterate a focus on share buybacks, dividends and similar initiatives while focusing on keeping operations lean.
"Given the challenges that remain in the current U.S. environment, Peabody is taking what we believe to be the appropriate actions to improve our competitiveness within an all-fuels market," Peabody President and CEO Glenn Kellow said. "To start, we are continuing to operate complexes where possible, allowing us to move contracts, people and equipment as needed to meet customer demand."
Executives with metallurgical coal producers Contura Energy Inc. and Ramaco Resources Inc. also emphasized reining in costs as markets become turbulent.
"There is an old Chinese curse which goes, 'Yours shall be a life lived in interesting times.' I think the events of the last few weeks in both the financial and coal markets certainly bear this out," Ramaco Executive Chairman Randall Atkins said. "Although we see some choppiness in the near term in both financial and coal markets, we feel the intermediate outlook is still good."