Coal news and updates

Consider using railroads to play the urge for coal exposure

Summary

* James River Coal has entered the bankruptcy process to deal with industry challenges, and significant financial risk at Arch Coal and Walter Energy remain.
* Even long-term bull on coal BHP Billiton sees no near-term relief on coal prices.
*We prefer indirect exposure to the coal industry via our favorite railroad idea Union Pacific.

In July of last year, we offered a comprehensive outlook for the coal and railroad industries. Since that time, Union Pacific (UNP), our favorite railroad idea, has surged to $185 per share from $155 per share, while some of our biggest concerns regarding the coal miners have come to fruition. James River Coal (JRCC), one of the most indebted miners in the industry, filed for Chapter 11 bankruptcy Tuesday, a process that will likely result in the complete eradication of shareholder equity as the firm restructures:

James River Coal intends to use the Chapter 11 process to continue implementing a comprehensive turnaround plan aimed at addressing its challenges in the changing coal mining industry. James River expects its mining operations and customer shipments to continue in the ordinary course throughout the restructuring process. In conjunction with its restructuring, James River will enter into a $110 million debtor-in-possession (DIP) financing facility with several large financial funds. Upon approval by the Bankruptcy Court, the new financing and cash generated from James River's ongoing operations will be used to support the business during the restructuring process.

Peter T. Socha, Chairman and Chief Executive Officer commented: The coal markets in the U.S. have changed dramatically during the past several years. Some of these changes are cyclical due to continued weakness in the real economy. Other of the changes are more permanent like changes in government environmental regulations, improved methods to produce natural gas, and switching between coal basins by domestic power utilities. We have made a number of large and significant changes to our mine operations and administrative overhead in response to the changes in the coal markets. Now we need to adjust our balance sheet and debt structure to align ourselves to the new industry.

Source: Seeking Alpha