Is Coal Dead After the Election?
Coal stocks enjoyed substantial gains in the months before election day, fueled in part by the idea that a Republican in the White House would be good for business. The industry has suffered crippling blows from low natural gas prices and a weak global economy, and now unfavorable election results are being compounded by weak earnings.
James River Coal Company (NASDAQ:JRCC) closed down 30 percent on Wednesday. Third-quarter results showed a net loss of $0.59 per diluted share, bringing losses for the first nine months of the year to $1.78 per diluted share.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.
Production for the quarter dropped by about 600 tons, while revenue per ton dropped from $92.18 to $83.64. However, the cost of coal sold dropped by about 30 cents per ton.
“Despite the soft coal markets, we continue to be pleased with the performance of our mine operations team,” commented chairman and CEO Peter Socha in the release. “They made a series of adjustments to their operating plans in response to the current markets. In the financial area, we decided to take the opportunity to reduce our debt at very advantageous market prices due to external events.”
The company was able to repurchase $61.4 million in debt at about 39 cents on the dollar.
James River Coal is leading declines across the coal industry on Wednesday. Alpha Natural Resources (NYSE:ANR) closed down 12.16 percent, Peabody Energy (NYSE:BTU) closed down 9.64 percent, and Arch Coal (NYSE:ACI) closed down 12.47 percent. CONSOL Energy (NYSE:CNX) closed down 6.11 percent.
The extraordinary difficulties that the coal industry faces are well documented. Support from Washington would have been a welcome break for an industry burdened by regulation, but other problems may prove overwhelming.
Jeremy Richardson, a fellow at the Union of Concerned Scientists who is studying the coal industry, told the West Virginia Gazette, “It’s absolutely simplistic to say that once we get this election over we’re going to save the coal industry. We’re in the middle of a steep decline and it’s not going to come back.”
Speaking about the West Virginia coal industry in particular, he said, “The conversation we need to have is not how do we protect the coal industry, it’s how do we diversify our economy so it’s not just based on one thing.”
The growing perception of reality is that even with federal support, coal production is headed for contraction. The resource is increasingly difficult to mine as the best seams are dug out, and oil majors like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are ramping up their acquisition of natural gas fields. While coal accounted for 42 percent of electricity generated in the United States in 2011, natural gas clocks in at a growing 25 percent.
Coal is not dead, but hard times are still ahead. As the global economy recovers and nations like India and China continue to industrialize, export could become a saving grace. Until then, coal companies will have to fight hard and fight smart to stay operational.