Will Other Coal Miners Follow Walter Energy's Path?

Alpha Natural Resources suffers from its high exposure to met coal, while the situation for Arch Coal and Peabody Energy is less tense.

Mar 27, 2014 at 10:19AM

Met coal miners find themselves under tremendous pressure this year, as market oversupply continues to weigh on met coal prices. The impact of prolonged met coal price softness is especially severe for the met coal producer Walter Energy (NASDAQOTH:WLTGQ), which is already down more than 50% this year. Will other met coal companies follow Walter Energy's fate and experience even more downside?

Alpha Natural Resources' reliance on met coal suggests further downside
Alpha Natural Resources
(NYSE:ANR) shares several of Walter Energy's problems. Although Alpha Natural Resources is not a pure met-coal play, it got as much as 50% of its revenue from met coal sales in 2013. Like Walter Energy, Alpha Natural Resources is plagued by the high debt load generated by the ill-timed acquisition of Massey Energy back in 2011.

The company had negative operational cash flow in the fourth quarter. As met coal pricing has deteriorated in the first quarter of this year, Alpha Natural Resources could suffer another quarter of negative results. The recent debt offering made by Walter Energy clearly showed the increasing difficulty in receiving financing for met coal miners. However, Alpha Natural Resources' debt schedule is easy in the coming years, so the company may not be forced to enter the debt market.

All in all, the company's position looks weak. Alpha Natural Resources' shares are already down 41% this year, but I expect further downside in case met coal prices fail to recover. Interestingly, Alpha Natural Resources got committed and priced contracts for most of its steam coal production. At the same time, it fixed contract prices for only 56% of its met coal production, which leads to lower realized prices for the remainder of production as met coal prices continue to fall.

Arch Coal and Peabody Energy are in a better position
Thermal coal-heavy Arch Coal (NYSE:ACI) and Peabody Energy (NYSE:BTU) are less exposed to the met coal pricing story. Peabody Energy targets to sell 16 million-17 million tons of met coal from its Australian mines, while Arch Coal plans to sell 7.5 million – 8.5 million tons of met coal in 2014. The lack of exposure to met coal has clearly helped Arch Coal's shares, which are roughly flat this year.

The debt loads of both companies remain high and continue to weigh on their performance through the incurred interest expense. Still, both Arch Coal and Peabody Energy are in a better situation than Walter Energy and Alpha Natural Resources. In fact, Peabody Energy managed to stay profitable for three quarters in a row. This distinguishes Peabody Energy from other coal miners that are suffering from continuing losses.

Bottom line
Alpha Natural Resources will most likely follow Walter Energy's path and continue to lose value. The fact that Alpha Natural Resources supplies lower quality met coal, which is priced lower, adds to the pressure. As met coal prices continue to fall, so will Alpha Natural Resources' shares.

While Arch Coal and Peabody Energy feel less pressure from the met coal side, their upside is limited. It is difficult to expect significant improvements on the thermal coal price front, as natural gas prices remain weak. This fact will continue to pressure both companies' margins.

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers