Patriot Coal: Death Rattle or New Birth?

Patriot Coal Corporation (NYSE:PCX) started this morning by gaining 4%, but soon after lunch traders changed their mind and pushed the stock down nearly 5%. Why all the confusion?

Patriot Coal is the third-largest coal producer and marketer in the Eastern U.S. And it’s perfectly positioned to profit as the weather turns colder and we turn on our heat. So why would the stock price be falling?

Well, the short answer is "oil prices." And the long answer is, "you see, there was a shortage of energy, and now there’s not so much." Coal prices fell along with the rest of energy when oil proved it couldn’t maintain $140… or even $114. And Patriot and its compatriots have lost a lot of value in the eyes of investors since then.

Patriot peaked around $80 in mid-June, but now it’s running below $40. That’s a 50% drop in little more than three months. And it doesn’t look like it’s over.

When Patriot sent out an announcement about its sales and marketing structure, we all thought something had changed, only to discover it was simply an outline of the company’s existing sales system in the form of a press release (also known as "free advertising")… And a bounce that began last week petered out into nothing today. Too bad.

But some analysts believe the crash isn’t going to continue. What do you think? Are the old cyclical laws of energy dead? Or will coal see a renaissance as temperatures fall? Let us know where you think coal companies, the unsung victims of the oil collapse, are headed this fall. Just drop a line in the comments section below.

Disclosure: none

Comments

[Bettyblue:]

Who knows. PCX may soon become a target for the Chinese since it is so cheap now and the dollar is going down. Also, Saudi Arabia is building a number of coal-fired plants to cover their energy requirement. So, I think the price of these companies is going to change dramatically through mergers in the future. Now is a great time to buy.

2008 Sep 24 06:17 PM

[GKM:]

Death rattle.

2008 Sep 24 06:24 PM

[GKM:]

Actually it's probably a buy around $20.

2008 Sep 24 06:33 PM

[admar:]

Untill China is back in the market big time, coal, copper,aluminum,and steel are going nowhere.

2008 Sep 25 10:15 AM

[admar:]

China has been buying mines in Australia, with the exception of transportation cost, with the value of the dollar and the low pe's for american assets they could shift to North America?

2008 Sep 25 10:19 AM

[Steven Ward:]

I think coal becomes an investment again wholly dependent on the new administration's, whoever that might be, tax policy, carbon credit scheme ( emphasis on 'scheme"), funding and acceptance of Clean Coal Technologies, and maybe, just maybe an initial coal to transportation fuels contract with a government agency.

Until then, I prefer to watch and wait.

2008 Sep 25 10:34 AM

[Coaltrader:]

Something I don't think the author took into consideration is that Patriot did a 2 for 1 stock split in August. So that is one of the reason it gives the author the perception that the stock has drop 50% when it is actually the same value as it was in June.

2008 Sep 25 02:13 PM

[Urbane Gori...:]

I didn't bother rooting around to find out if PCX is surface mine or shaft style extraction. I did see on Yahoo Finance under their profile that they have about 1/2 their mines in Virginia. A court case was just awarded in favor of the environmentalists against open-pit coal miners. The offshoot is that shaft miners are not impacted by the ruling and this could cause a shutdown of pit mines. (As to whether the ruling will hold up on appeal... Who knows..)

Another obscure article I read is that both Indian and Chinese coal buyers are dealing a lot with Malaysian sellers. Apparently, they refuse to buy quality coal and are strictly looking at 'cheap'. They also save on shipping costs as clearly, Malaysia is closer than the US.

Long term though, I'd look at BHP, which is joined at the hip with China for just about everything, minerals, iron, copper... And coal. (Just read today that they have also contracted to begin selling uranium to China as well). My other choice would the BTU, which also has coal mines in Australia and is a solid presence here in the US... If you don't mind companies being tied to the government, you might also consider Yanzhoo (YCZ). It had a heck of a run up ($3.50 to $18 in a couple of months and is presently dropping....) when it gets its feet back on the ground....

Happy Bailout! jegan ;-)

2008 Sep 25 04:10 PM