22/01/2016

The Coal Miner `On Everybody's List' as Next Bankruptcy Victim

Bloomberg & 


Plummeting coal prices have pushed almost half the debt issued by U.S. coal companies into default, and for miners and their investors there’s no end in sight.
Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc. have all filed for bankruptcy in the past year. Now that Arch Coal Inc., the second largest coal miner in the U.S., has joined their ranks, investors are wondering if the biggest, Peabody Energy Corp., could be next.
Peabody’s shares have been sliced roughly in half since Arch filed for Chapter 11 on Jan. 11, closing at $3.38 Wednesday. The company’s 6.5 percent unsecured bonds have lost 27 percent, or 3.1 cents on the dollar, over the same period, most recently trading on Jan. 14 at 8.6 cents and yielding 99 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
“Lots of people are wondering: What’s the next shoe to drop? Who might be the next company? Peabody’s on everybody’s list,” said Spencer Cutter, a Bloomberg Intelligence analyst in Skillman, New Jersey, in a webcast presentation about the global coal industry on Jan. 14.
Coal producers are suffering through a historic rout. Over the past five years, the industry has lost 94 percent of its market value, from $68.6 billion to $4.02 billion.


In addition, Fitch Ratings said in a Jan. 11 report that Arch’s bankruptcy pushed the sector’s default rate to “an unprecedented peak” of 43 percent. So investors are now raising questions about the viability of other miners, such as Consol Energy Inc., Foresight Energy LP, Cloud Peak Energy Inc. and Murray Energy Corp.
“This once mighty industry is destined to gradually shrink in importance, and virtually disappear as an investable sector,” said Margie Patel, a portfolio manager with Wells Fargo Asset Management in Boston, which manages $351 billion.

Big Debt
Peabody and Arch were among the miners that raised a total of $6.4 billion of debt in 2010 and 2011, betting that prices for metallurgical coal, which is sometimes used to produce steel, would continue to rise thanks to China’s growing demand to build its cities. After reaching $330 per metric ton in 2011, prices have since tanked to a quarter of that level. Goldman Sachs Group Inc. forecasts benchmark metallurgical coal prices to fall to $75 this year.
Peabody has been working on a debt exchange with its lenders since last year, but has yet to agree to a deal -- Arch tried a similar tact before it went under and failed, accelerating its demise.
“Could Peabody do a debt exchange? Possibly, but does that really solve the big picture problem?” Mark Levin, an analyst at BB&T Capital Markets in Richmond, Virginia, wrote in a note to clients Wednesday. “The board has to ask itself if it’s better off restructuring.”

Capital Cushion
In terms of capital, Peabody had $1.4 billion in liquidity including cash and availability under its revolving loans as of Nov. 5, according to a company filing. Its cash dropped to $167.4 million on that day from $334.3 million at the end of September. At that rate, the company is going to run out of cash in nine months, Bloomberg data show.
Peabody’s cushion will be pressured with coal prices so low. Its interest expenses are more than its cash on hand, according to Bloomberg data. For the 12 months ended Sept. 30, it burned through $445 million.
“In a challenging market backdrop, Peabody continues its aggressive efforts to
improve the business with a major focus on operational, portfolio and financial
initiatives,” Peabody spokeswoman Beth Sutton said via e-mail. “Our dual financial objectives are to optimize liquidity and deleverage, and we continue to pursue multiple actions on this front.”

Going Bankrupt
If Peabody does file for Chapter 11, it will have plenty of company among its competitors. In less than two years, as many as five coal miners have filed for bankruptcy to restructure a total of $22 billion in debt, according to data compiled by Bloomberg.
James River Coal Co. filed for bankruptcy in April 2014 to restructure its $819 million in debt. Patriot Coal, which emerged from Chapter 11 at the end of 2013, filed again in May. Walter Energy and Alpha Natural, two of the biggest metallurgical coal producers in the U.S., filed in July and August with a combined total of $12.1 billion in debt.
In addition, Cliffs Natural Resources Inc. sold its coal business to Seneca Coal Resources for $268 million in December. Lourenco Goncalves, Cliffs’ chief executive officer, explained in a statement that the sale was made “in light of the many headwinds the industry has faced over this past year.”

‘Many Headwinds’
Consol spokesman Brian Aiello and Cloud Peak spokesman Rick Curtsinger didn’t respond to requests for comment. Gary Broadbent, spokesman for both Murray and Foresight, declined to comment.
While there’s plenty of uncertainty surrounding the coal business, there is one thing that traders and industry insiders agree on: There won’t be a rebound anytime soon.
“The world of coal will be very ugly in 2016,” said Ted O’Brien, chief executive officer at Doyle Trading Consultants, an independent consulting firm specializing in metals and mining. “All the bankruptcy filings that took place only helped on paper. It didn’t take away supply in the markets.”

Links

Bill McKibben: The Fossil Fuel Industry Is Leading Its Own Zombie Apocalypse

Salon - Bill McKibben

No matter how many head shots it takes, it simply refuses to die. Big Oil could take the entire planet down with it
(Credit: Time Books/Steve Liptay)
When I was a kid, I was creepily fascinated by the wrongheaded idea, current in my grade school, that your hair and your fingernails kept growing after you died. The lesson seemed to be that it was hard to kill something off — if it wanted to keep going.
Something similar is happening right now with the fossil fuel industry. Even as the global warming crisis makes it clear that coal, natural gas, and oil are yesterday's energy, the momentum of two centuries of fossil fuel development means new projects keep emerging in a zombie-like fashion.
In fact, the climactic fight at the end of the fossil fuel era is already underway, even if it's happening almost in secret. That's because so much of the action isn't taking place in big, headline-grabbing climate change settings like the recent conference of 195 nations in Paris; it's taking place in hearing rooms and farmers' fields across this continent (and other continents, too).  Local activists are making desperate stands to stop new fossil fuel projects, while the giant energy companies are making equally desperate attempts to build while they still can. Though such conflicts and protests are mostly too small and local to attract national media attention, the outcome of these thousands of fights will do much to determine whether we emerge from this century with a habitable planet. In fact, far more than any set of paper promises by politicians, they really are the battle for the future.
Here's how Diane Leopold, president of the giant fracking company Dominion Energy, put it at a conference earlier this year: "It may be the most challenging" period in fossil fuel history, she said, because of "an increase in high-intensity opposition" to infrastructure projects that is becoming steadily "louder, better-funded, and more sophisticated." Or, in the words of the head of the American Natural Gas Association, referring to the bitter struggle between activists and the Canadian tar sands industry over the building of the Keystone XL pipeline, "Call it the Keystone-ization of every project that's out there."

Pipelines, Pipelines, Everywhere
I hesitate to even start listing them all, because I'm going to miss dozens, but here are some of the prospective pipelines people are currently fighting across North America: the Alberta Clipper and the Sandpiper pipelines in the upper Midwest, Enbridge Line 3, the Dakota Access, the Line 9 and Energy East pipelines in Ontario and environs, the Northern Gateway and Kinder Morgan pipelines in British Columbia, the PiƱon pipeline in Navajo Country, the Sabal Trail pipeline in Alabama and Georgia, the Appalachian Connector, the Vermont Gas pipeline down the western side of my own state, the Algonquin pipeline, the Constitution pipeline, the Spectra pipeline, and on and on.
And it's not just pipelines, not by a long shot. I couldn't begin to start tallying up the number of proposed liquid natural gas terminals, prospective coal export facilities and new oil ports, fracking wells, and mountaintop removal coal sites where people are already waging serious trench warfare. As I write these words, brave activists are on trial for trying to block oil trains in the Pacific Northwest. In the Finger Lakes not a week goes by without mass arrests of local activists attempting to stop the building of a giant underground gas storage cavern. In California, it's frack wells in Kern County. As I said: endless.
And endlessly resourceful, too. Everywhere the opposition is forced by statute to make its stand not on climate change arguments, but on old grounds. This pipeline will hurt water quality. That coal port will increase local pollution. The dust that flies off those coal trains will cause asthma. All the arguments are perfectly correct and accurate and by themselves enough to justify stopping many of these plans, but a far more important argument always lurks in the background: each of these new infrastructure projects is a way to extend the life of the fossil fuel era a few more disastrous decades.
Here's the basic math: if you build a pipeline in 2016, the investment will be amortized for 40 years or more. It is designed to last — to carry coal slurry or gas or oil — well into the second half of the twenty-first century. It is, in other words, designed to do the very thing scientists insist we simply can't keep doing, and do it long past the point when physics swears we must stop.
These projects are the result of several kinds of momentum. Because fossil fuel companies have made huge sums of money for so long, they have the political clout to keep politicians saying yes. Just a week after the Paris accords were signed, for instance, the well-paid American employees of those companies, otherwise known as senators and representatives, overturned a 40-year-old ban on U.S. oil exports, a gift that an ExxonMobil spokesman had asked for in the most explicit terms only a few weeks earlier. "The sooner this happens, the better for us," he'd told the New York Times, at the very moment when other journalists were breaking the story of that company's epic three-decade legacy of deceit, its attempt to suppress public knowledge of a globally warming planet that Exxon officials knew they were helping to create. That scandal didn't matter. The habit of giving in to Big Oil was just too strong.

Driving a Stake Through a Fossil-Fueled World
The money, however, is only part of it. There's also a sense in which the whole process is simply on autopilot. For many decades the economic health of the nation and access to fossil fuels were more or less synonymous. So it's no wonder that the laws, statutes, and regulations favor business-as-usual. The advent of the environmental movement in the 1970s and 1980s introduced a few new rules, but they were only designed to keep that business-as-usual from going disastrously, visibly wrong. You could drill and mine and pump, but you were supposed to prevent the really obvious pollution. No Deepwater Horizons.  And so fossil fuel projects still get approved almost automatically, because there's no legal reason not to do so.
In Australia, for instance, a new prime minister, Malcolm Turnbull, replaced the climate-change-denying Tony Abbott. His minister for the environment, Greg Hunt, was a particular standout at the recent Paris talks, gassing on at great length about his "deeply personal" commitment to stopping climate change, calling the new pact the "most important environmental agreement ever." A month earlier, though, he'd approved plans for the largest coal mine on Earth, demanding slight revisions to make sure that the habitat of the southern black-throated finch would not be destroyed. Campaigners had hung much of their argument against the mine on the bird's possible extinction, since given the way Australia's laws are written this was one of the few hooks they had. The fact that scientists have stated quite plainly that such coal must remain in the ground if the globe is to meet its temperature targets and prevent catastrophic environmental changes has no standing. It's the most important argument in the world, but no one in authority can officially hear it.
It's not just Australia, of course. As 2016 began in my own Vermont — as enlightened a patch of territory as you're likely to find — the state's Public Service Board approved a big new gas pipeline. Under long-standing regulations, they said, it would be "in the public interest," even though science has recently made it clear that the methane leaking from the fracked gas the pipeline will carry is worse than the burning of coal. Their decision came two weeks after the temperature in the city of Burlington hit 68 on Christmas eve, breaking the old record by, oh, 17 degrees. But it didn't matter.
This zombie-like process is guaranteed to go on for years, even decades, as at every turn the fossil fuel industry fights the new laws and regulations that would be necessary, were agreements like the Paris accord to have any real teeth. The only way to short-circuit this process is to fight like hell, raising the political and economic price of new infrastructure to the point where politicians begin to balk. That's what happened with Keystone — when enough voices were raised, the powers-that-be finally decided it wasn't worth it. And it's happening elsewhere, too.  Other Canadian tar sands pipelines have also been blocked. Coal ports planned for the West Coast haven't been built. That Australian coal mine may have official approval, but almost every big bank in the world has balked at providing it the billions it would require.
There's much more of this fight coming — led, as usual, by indigenous groups, by farmers and ranchers, by people living on the front lines of both climate change and extractive industry. Increasingly they're being joined by climate scientists, faith communities, and students in last-ditch efforts to lock in fossil fuels. This will undoubtedly be a key battleground for the climate justice movement. In May, for instance, a vast coalition across six continents will engage in mass civil disobedience to "keep it in the ground."
And in a few places you can see more than just the opposition; you can see the next steps unfolding. Last fall, for instance, Portland, Oregon — the scene of a memorable "kayaktivist" blockade to keep Shell's Arctic drilling rigs bottled up in port — passed a remarkable resolution. No new fossil fuel infrastructure would be built in the city, its council and mayor declared. The law will almost certainly block a huge proposed propane export terminal, but far more important, it opens much wider the door to the future. If you can't do fossil fuel, after all, you have to do something else — sun, wind, conservation. This has to be our response to the living-dead future that the fossil fuel industry and its allied politicians imagine for our beleaguered world: no new fossil fuel infrastructure. None. The climate math is just too obvious.
This business of driving stakes through the heart of one project after another is exhausting. So many petitions, so many demonstrations, so many meetings. But at least for now, there's really no other way to kill a zombie.

*Bill McKibben is the Schumann Distinguished Scholar at Middlebury College, and founder of the global climate campaign 350.org. His latest book is "Eaarth: Making a Life on a Tough New Planet.".

Links