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The Midnight Ride of Patriot Coal

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Paul Revere's famous ride to Lexington was fraught with danger, and even resulted in his temporary capture. After a wild ride of its own, Patriot Coal (NYSE: PCX  ) is keen to escape from the shackles of recession.

Galloping with conviction from a 2007 IPO beneath $20 to a 2008 high above $80, shares of Patriot Coal have been thrown from a fickle steed to land 94% from their peak. Beneath $5, Fools might be tempted by perceived value in the shares, but recent earnings results may give them pause.

Patriot Coal reported net income of $65.2 million -- or $0.85 per share -- for the fourth quarter of 2008. Unfortunately, there's much more to the story. The company logged $127.7 million in non-cash accounting benefits on under-priced coal contracts from last year's acquisition of Magnum Coal. Subtracting that gain, we actually have a substantial loss of about $0.82 per share, or 17% worse than analysts had feared.

Reminiscent of similar challenges at Foundation Coal (NYSE: FCL  ) , Patriot Coal encountered sandstone at two longwall mines that contributed to disappointing production of 9.4 million tons. Like fellow Appalachian miner Massey Energy (NYSE: MEE  ) , Patriot Coal hit a legal snag relating to environmental issues and recently agreed to pay $6.5 million for violations of the Clean Water Act. To make matters worse, increased regulatory activity and ongoing restructuring continue to drive costs higher.

With domestic steelmakers like United States Steel (NYSE: X  ) operating beneath 45% of capacity, and thermal coal prices down 50% in recent months, miners are being forced to adapt quickly. Patriot already announced the idling of four West Virginia mines and about 500 layoffs. In all, some 35 million tons have been trimmed from U.S. production, with another 20 million tons cut overseas. Miners like Patriot and Arch Coal (NYSE: ACI  ) hope that such measures will help to restore a balance between production and demand to stop these falling prices.

All of these challenges aside, the primary concern for this Fool involves Patriot's balance sheet. With less than $3 million in cash, as little as $60 million remaining on a $500 million credit facility after looming expenditures, and more than $240 million in debt, I believe these factors are contributing to Patriot's low share price. With better-positioned miners like Peabody Energy (NYSE: BTU  ) and CONSOL Energy (NYSE: CNX  ) available, I see no reason to ride with Patriot Coal.

Further Foolishness:

The "Coal" tag within the Motley Fool CAPS community lists 21 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker wishes he could squeeze mediocre coal miners into diamonds. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Arch Coal, Massey Energy, and Peabody Energy. The Motley Fool scrubs its disclosure policy before releasing it into the atmosphere.

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