Black Coal

The coal stocks continue to trade like grim death.  Most of the names are making fresh lows and I do not own any at the moment.  Twice in the past I have been deeply involved with stocks trading below one year of cash flow and some of these act like that is where they are going.  The hairy part is trying to get a position.  Perhaps the coal sector will bottom around this fall’s natural gas shoulder season.  Today’s natty decline is not helping the coal names.

Coal output to shrink as mining margins in retreat at Mining Weekly.

One take on Peabody’s results at Business Week.  BTU’s conference call transcript.  Ironically, there are signs of a bottoming U.S. coal market, but Peabody looks to be weighed down by their Australian operations going forward.

In looking at Arch Coal in advance of the their second quarter earnings release on Friday, I can report the results will be a mess.  ACI will report a loss from continuing operations and a huge write-down.  With a new CEO this could be a kitchen sink quarter.  The headline GAAP number could be near a $2.50 loss per share.  Closing mines they borrowed money to purchase a year earlier is not working out.  In May Arch obtained a large term loan and pushed out debt maturities to give them some cushion through this down cycle.  Expect them to have have near $450 million in cash on hand to go with their $4 billion in debt.  The stock market cap is $1.15 billion.  Nevertheless, parsing management’s happy talk for nuggets about U.S. coal supply and demand will be vital.

Arch Coal Inc forms bearish “Descending Continuation Triangle” chart pattern at Recognia.

Teck Resources (TCK) reported strong operating results while weak commodity pricing hurt profits.  Also, “Concern is building that the so-called commodities supercycle is drawing to a close as a period of aggressive economic growth becomes more subdued in China, which powered prices for many materials to record highs over recent years.”  Globe and Mail

Coal investors ought to be sure to check out my morning oil and gas posts for more color on natural gas.  Natural gas, after all, is a key to the thermal coal story.