Publicly traded US coal producers aren’t likely to splurge on acquisitions or growth projects in the coming years, and instead should distribute their earnings to shareholders, an equity analyst report said Tuesday.
Seaport Global’s Mark Levin said a number of producers, including Peabody Energy, Arch Coal and Contura Energy, have emerged from reorganization with little debt and “are now in excellent position to generate substantial cash flow, particularly in 2017 with met[allurgical] coal prices likely to remain elevated for some time.”
Given that acquisitions saddled many coal companies with too much debt the last time met coal prices spiked, Levin said company officials will be leery to make the same mistake twice, and “investors simply don’t want it.”
In addition, declining thermal coal demand isn’t likely to trigger development of any new mines, argued Levin, who said the US thermal coal market is “at best mature and more likely in secular decline.”
He added that new US met mines are also unlikely without the benefit of a long-term contract, particularly given the country’s role as a swing producer.