Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Possible Debt Refinancing Is Good for This Coal

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Falling coal prices have hit coal miners with a lot of debt on their balance sheets. Peabody Energy (NASDAQOTH: BTUUQ  ) is not an exception. The company has $6 billion in long-term debt. As coal prices do not show signs of a serious rebound, refinancing the debt becomes a tempting target. Peabody is rumored to be seeking refinancing of its $1.2 billion term loan.

At the beginning of this summer, another coal miner, Walter Energy, announced that it was trying to refinance $1.55 billion of its debt. The company gave up these efforts just a week after the announcement. Will Peabody share the same fate?

Guidance reaffirmed
Peabody recently reaffirmed its full year 2013 guidance. The company expects to sell 230 million–250 million tons of coal. If Peabody could make it to the high end of the guidance, it would replicate the previous years' results. It sold 248.5 million tons of coal in 2012 and 249.4 million tons of coal in 2011.

It would not be the easiest thing to do. Coal's share in energy consumption has fallen from 18.3% in 2012 to 17.5% in the first five months of 2013. Natural gas prices remain low, providing an attractive alternative to coal.

Other suppliers of steam coal were not as reassuring as Peabody. Arch Coal (NASDAQOTH: ACIIQ  ) guided that it would sell 130 million – 137 million tons of steam coal in 2013, down from 140.8 million tons in 2012. Alpha Natural Resources (NASDAQOTH: ANRZQ  )  lowered its guidance in the second quarter report and now expects to ship 64 million – 70 million tons of steam coal this year, down from 88.5 million in the previous year.

Debt burden
Interest payments put a serious burden on coal miners' earnings. Peabody had to pay $110.8 million in interest in the second quarter of this year. The company had just $26.4 million of operating profit, and only $184.7 million of income tax benefit helped Peabody finish the quarter with a profit.

Peabody expects to finish the year with earnings of -$0.16-$0.09 per share. Analysts are more optimistic, predicting earnings of $0.14 per share. So far, the company has earned $0.24 per share. It means that both the company and analysts are expecting that Peabody will finish the second half of this year with a loss. It also means that they do not expect coal prices to rebound soon.

Recent news from China will not help coal prices. Beijing plans to cut annual coal consumption by 13 million tons. At the same time, BHP Billiton has just opened the Daunia mine in Australia, which is expected to produce 4.5 million tons per annum. These developments highlight the problem of excess supply that plagues coal prices. The demand is restrained by environmental and economic worries, while more coal continues to enter the market. 

It's important to notice that all those miners have relatively easy debt schedules. The first major payment for Alpha Natural Resources comes in 2015, when it will have to pay $823 million. Arch Coal and Peabody have time until 2016, when they would have to pay $600 million and $650 million respectively. However, time is running out fast for these miners, and we will probably see more refinancing attempts to improve the debt schedule.

Bottom Line
Among these miners, Peabody is the only company that can finish the year profitably. It gives it the edge in the debt market. As Peabody has shown its ability to operate more or less profitably in the current environment, I think that its refinancing effort would be successful. This will enhance the company's financial position and provide support for the stock.

One home run investing opportunity has been slipping under Wall Street's radar for months. But it won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock… because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2635506, ~/Articles/ArticleHandler.aspx, 9/25/2016 8:34:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 3:59 PM
BTUUQ $1.58 Up +0.06 +3.95%
Peabody Energy Cor… CAPS Rating: *
ACIIQ $0.41 Down -0.09 -18.00%
Arch Coal, Inc. CAPS Rating: *
ANRZQ $0.00 Down +0.00 +0.00%
Alpha Natural Reso… CAPS Rating: *