More coal companies filing for chapter 11 news register-herald.com electricity song omd

Well into an era of weak demand that led to multi-year lows, the industry is now being clobbered by new costly environmental regulations. That one-two blow has led the industry to its present financial fiasco. According to SNL Financial, the combined market capitalization of the entire publicly listed coal companies was less than $9.30 billion last month. The coal sector’s market cap — total market dollar value of all outstanding shares — is down more than 80 percent from four years ago.

Things aren’t expected to improve anytime this year. The U.S. Energy Information Administration recently projected a 75 million short ton decline in coal production in 2015. Given this, lowering operating cost by shuttering mines, scaling down the work force or selling mines isn’t going to work for coal companies.

Analysts are saying claiming bankruptcy to restructure finances could be the way for debt-laden companies to come back strong and better. However, they also caution, there is no guarantee that coal companies’ employees will not go the way of the switchboard operator or paper boy.

Regionally, the first mining company to file Chapter 11 was Xinergy, which operates three mines in southern West Virginia: the midvolatility metallurgical South Fork facility in Greenbrier County and Raven Crest and Brier Creek thermal mines in Boone County.

Xinergy Chief Executive Officer Bernie Mason said at the time continued weakness in the metallurgical and thermal coal, “combined with an extremely harsh winter that impacted the mining and shipment of coal, has continued to erode Xinergy’s cash position,” Mason said.

“After careful consideration of all available alternatives, Xinergy determined that a Chapter 11 filing was a necessary and prudent step and the best way to obtain the financing necessary to maintain regular operations and allow for a successful restructuring,” he said.

Walter’s Energy has also filed for bankruptcy protection. The company has four mines on two properties in West Virginia. The two properties are the Gauley Eagle and Maple properties and each has an underground mine, a surface mine and a coal preparation plant. The Maple mines are in Fayette and Kanawha counties and the Gauley Eagle mines are in Nicholas County.

“In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality of our industry,” said Walt Scheller, the company’s CEO. On Friday, Walter Energy’s stock was trading at 2 cents a share.

If Walter Energy’s and Xinergy’s are proceeding without an opposition, that cannot be said about Patriot Coal. Irate union members, retirees and analysts are asking how a company can file for bankruptcy again after only two or so years and a public relations black eye when it asked — and received — a bankruptcy court’s OK to give more than $6 million in retention bonuses to executives and insiders while trying to slash pension and other blue-collar worker benefits.

During a CNBC roundup last week, several energy analysts said Patriot Coal is doing everything it can do wrong. The company is asking permission to reject collective-bargaining agreements with union members and to alter health benefits, stating it has “no other choice” under the terms of its proposed partial sale to Blackhawk Mining.

Two weeks ago, in a filing at the U.S. Bankruptcy Court in Richmond, Va., Patriot stated that without adjustments in the collective-bargaining agreements and modifying retiree health benefits it risks default under its $100 million debtor-in-possession facility.

As a result of Patriot trying to eliminate its pension obligations, UMWA’s pension plan filed suit against Arch Coal and Peabody Energy after it was learned the Scott Depot-based company may escape hundreds of millions of dollars in pension liabilities because of bankruptcy proceedings. The multi-employer pension plan is underfunded between $600,000 to $800,000, according to various sources. Patriot was formed from assets from Arch and Peabody in October 2007.

As early as this week, Alpha Natural Resources could obtain financing for a potential bankruptcy filing. Last Wednesday there were Wall Street rumors of Alpha selling half a dozen mines in Virginia and Kentucky. This follows announcements of massive layoffs and plans to idle operating facilities in West Virginia, Virginia and Kentucky, resulting in a total of 510 layoffs, including 439 employees at Rockspring Development’s Camp Creek Underground Mine and Processing Plant in Wayne County in May.

The company admits to being burdened with heavy debts, but remains mum on whether it is negotiating a debtor-in-possession load with its creditors. Debtor in possession is one of the warning signs a company is considering bankruptcy. It also allows the company to have financing as it works through Chapter 11 restructuring.

Last week, two energy companies with interest in coal held their quarterly earning reports conference calls. Consol Energy and Arch Coal both reported hundreds of millions of dollars in loss during the second fiscal quarter mainly due to a slump in demand. However, both companies are expected to stay afloat … for the time being.

Meanwhile, some coal companies are exploring other options to bankruptcy. Cliffs Natural Resources, which is trying to sell its mine in Pinnacle after shedding its Logan County complex in January, is in talks to sell off two U.S. metallurgical mines and sees a deal in the “very near future,” said its CEO Lourenco Goncalves.

At least publicly, company officials say they have faith in the company’s future. “As we have done in the past, I believe that we can continue to prudently grow the business in an accretive fashion,” CEO Keith Alessi wrote in his rejection letter to Frisher’s suggestion.

The 11-page report, authored by analyst Jairo Chung, states over the next several years the decline in coal-fired generation capacity is “expected to be minimal — no massive coal-fired generation retirement is expected beyond 2015. Furthermore, the output also increased form 2012 to 2014, although there were some coal-fired power plants retired.”

Also, the report states, coal plants are becoming more efficient, especially as less efficient plants are decommissioned. The report states it doesn’t make economic sense for most states to replace coal-fired plants with solar, wind or nuclear power.