November 16, 2018 Read More →

Analyst sees few options for troubled Cloud Peak coal company

S&P Global Market Intelligence ($):

Struggling coal producer Cloud Peak Energy Inc. recently announced a strategic review of options that include selling the company, but a bleak outlook for Powder River Basin coal and a looming debt maturity could make for a tough sales pitch.

Cloud Peak is the only pure-play Powder River Basin coal producer and thus has no exposure to the booming metallurgical coal market. The company has marketed some of its coal abroad, but its focus on thermal assets limits the customer base for one of the few large, publicly traded coal miners that escaped a wave of bankruptcies in recent years.

“We think the most likely scenario is that Cloud Peak continues to operate as it does now and hopes for a major market recovery (perhaps the seeds of which are being laid currently with the spike in natural gas prices) between now and when it needs to refinance its 2021 debt,” Seaport Global Securities LLC analyst Mark Levin wrote Nov. 15. “As for the [Powder River Basin], we think demand and prices have the potential to move higher in the short term on high natural gas prices and low inventories, but continue to see long-term challenges for the basin based on continued coal plant retirements.”

Cloud Peak produced about 58 million tons of coal in 2017 from three coal mines in Wyoming and Montana and owns about 16% of the region’s capacity, Levin wrote. The company is the third-largest producer in the Powder River Basin, behind Peabody Energy Corp. and Arch Coal Inc.

The region’s coal yields narrow margins, competition is tough, and demand has been in secular decline as coal plant retirements have continued at a steady pace. Due to increased stripping ratios at its mines and recent weather-related challenges, Cloud Peak has higher cash costs than any other publicly traded coal company in the basin, Levin wrote.

More ($): U.S. coal market leaves Cloud Peak few options in strategic review, analyst says

Comments are closed.