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Wednesday, June 10, 2015 1:55 PM ET
US coal industry market value plummets by nearly half in under a year
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The market value of publicly traded U.S. coal companies was sliced nearly in half over the past year, falling almost 50% since August 2014 amid deep market turbulence.

The June 2015 low continued a multiyear decline, putting the industry's publicly traded value down about 80% since April 1, 2011.

According to an SNL Energy analysis, the total market capitalization of 12 selected publicly traded coal companies in the U.S. slid from $25.73 billion in August 2014 to $12.94 billion on June 8, or 49.7%.

As seen in earlier SNL Energy analyses of the industry's market value, producers that have relied heavily on the metallurgical coal market have seen some of the largest losses in value over the past year.

Once again, CONSOL Energy Inc. led the pack with the highest market value in June despite falling from nearly $9.20 billion in August 2014 to just $6.27 billion as of June 8. While the growth of low-cost natural gas has proven to be a significant challenge to the industry as a whole, CONSOL's exposure to the sector has helped it sustain through the past four years.

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However, the company's near-term goals are not limited to natural gas options. CONSOL is in the process of spinning off some of its coal operations into a master limited partnership in hopes of positioning its business for further growth and profitability.

Both Alliance Resource Partners LP and Foresight Energy LP remained north of the billion dollar mark despite substantial losses in value since last summer, with Alliance falling from $3.55 billion in 2014 to $2.14 billion in June of this year.

Alliance President and CEO Joseph Craft III recently praised the company's performance, but said it was being dragged down by the same headwinds as others and "extreme coal-on-coal competition for what little spot activity exists."

Colorado-based Westmoreland Coal Co. saw year-over-year losses in market value, from $728.4 million in 2014 to $491.2 million on June 8, though the company saw a slight improvement since March of this year when its value was reported as $442.4 million.

Following a slight recovery in value in early 2015, Illinois Basin producer Hallador Energy Co. fell once again in the second quarter, down from $401.1 million in August 2014 to $229.4 million in June.

Producers Peabody Energy Corp. and Rhino Resource Partners LP both saw their values decline about 80% and 90% respectively since last summer, while Cloud Peak Energy Inc. fell about 65% to $327.1 million. Peabody, the country's largest coal producer by volume, had a market value of $850 million at June 8, down from $4.32 billion in August 2014.

May was a particularly bad month, even by coal equity standards. BB&T Capital Markets analyst Mark Levin wrote in a recent research note that "to say coal equities had an abysmal May would be an understatement. On average, US coal stocks were down 19% versus a 1% gain in the S&P 500."

Bankruptcy watch for some

The industry's dramatic contraction comes as it continues to struggle with regulatory uncertainty, competition from low-cost natural gas, weak export markets and the effects of a slowing economy.

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This host of challenges has left many U.S. producers struggling to survive, especially among those most exposed to the metallurgical coal market. In an effort to avoid bankruptcy, many have adopted cost-reduction measures and cut investment in new projects.

However, the sustained industry downturn has forced some U.S. producers to seek bankruptcy protection and spurred speculation that others will pursue that option in the weeks and months to come.

Since January 2015, six domestic producers have filed for bankruptcy, including Covington Coal Co. LLC, Xinergy Ltd., Grass Creek Coal Co., Birmingham Coal & Coke Co. Inc. and most recently, eastern Kentucky coal mining company A & M Coal Co Inc.

Patriot Coal Corp. also sought Chapter 11 protection for the second time, which Chief Restructuring Officer Ray Dombrowski blamed on an array of daunting market challenges.

"The lethargic economic environment, lack of growth in energy demand generally, and a number of scheduled coal-fired plant retirements have precipitated this decline," Dombrowski wrote. "Additionally, the demand and price for metallurgical coal are dependent on the strength of the global economy and, in particular, on steel production in countries such as China and India, as well as Europe, Brazil and the United States. The global metallurgical coal market continues to suffer from oversupply in addition to reduced demand from China, further depressing the price of coal."

Patriot eventually announced that it would seek approval for the sale of the majority of its remaining assets to Blackhawk Mining LLC.

While not yet on the list of industry bankruptcies, Walter Energy Inc. continued its striking decline in 2015, with its market value down almost 95% since last year from $422.6 million in August 2014 to just $24.2 million this month, or less than half a percent of the company's value in April 2011.

The company's continued value collapse comes despite a host of efforts to address its liquidity and debt issues, leading to speculation that Walter could seek bankruptcy protection by the end of this month.

The especially battered met coal market could see some relief if May pricing trends hold. After five months of consecutive losses, the met coal market reversed course during the month, raising hopes that the market has finally hit bottom.

"There are increasing signs the worst may finally be behind us," Levin wrote in a June 2 research report. "These signs include more (albeit still weak) Chinese buying, cutbacks in Chinese coal production in key met producing regions, and a more accelerated pace of mine closures in North America."

Unlike earlier analyses of market value, this latest SNL Energy review no longer includes James River Coal Co., which filed for bankruptcy protection in April 2014 before seeking buyers for its remaining mines.

This analysis also no longer includes Ohio-based thermal coal producer Oxford Resource Partners LP, which was acquired by Westmoreland Coal Co. and renamed Westmoreland Resource Partners LP.

Angelo Gonda contributed to this article.

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