JRCC data by YCharts
Will James River Coal Follow Patriot Coal Into Bankruptcy?
This is ultimately the most important question investors in JRCC must ask themselves. It is my belief that JRCC will not file for bankruptcy right now, but a future filing is likely. As outlined by fellow Seeking Alpha contributor Adam Gefvert, JRCC currently has over $200 million in cash that should keep JRCC out of bankruptcy for a while. However, the company still faces significant challenges because of its $585 million in debt.
How James River Could Avoid Bankruptcy
Ultimately, there are only a few ways for JRCC to avoid bankruptcy:
- Business improves leading to a turnaround for the whole coal sector including JRCC. Possible catalyst could include a Romney victory in the 2012 election, higher natural gas prices, or an improvement in the Chinese economy.
- A larger coal company, or steel company (as JRCC is a metallurgical coal company) decides to buy JRCC. Possible, but unlikely given the current business outlook.
- The company is able to secure more funding. Unlikely given Patriot coal's inability to do so, but not impossible.
My view on JRCC remains unchanged from my previous commentary. Simply put, for those looking to bottom fish in coal better opportunities exist. For example, both Alpha Natural Resources (ANR) and Arch Coal (ACI) are trading lower Tuesday following Patriot's bankruptcy filing. I believe that both of these companies are in better shape than JRCC and are better speculative plays on the sector. While JRCC might not be facing an immediate bankruptcy, a filing is likely at some point in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.