Which Coal Miner Is The Next To Bankruptcy Protection?

Jul. 11, 2012 12:37 PM ETARCH, BTU, PCXCQ, WLB, JRCCQ, ANR26 Comments
Gutone profile picture
Gutone
343 Followers

Patriot Coal (PCX) filed for bankruptcy protection on July 10. It wasn't entirely surprising for investors who have been following the coal business closely.

Entangled with wild swing of commodity prices, heavy debt, environmental issues, regulations, accidents, and ample supply of a strong substitute (natural gas), the coal industry often has roller coaster rides in share prices. Hedged with assets, these firms often come out of bankruptcy protection intact, leaving equity holders wiped out in the process.

The big picture? Considering how much coal produced in the United States has been exported to overseas during recent years (mainly Europe and Asia), one has to be concerned about the future for coal in the United States. As supply consistently went above demand, coal miners can only survive with capacity cut and further consolidation in the industry. With this in consideration, I'm not bullish about the sector in general.

More specifically, given what happened to Patriot Coal, which of the other big coal companies are at risk of bankruptcy? In this article, I'll given a quick answer based on the financial strength of each company.

First, let's examine how Patriot Coal went Chapter 11.

Patriot Coal Corporation had a market cap of approximately $200 million right before it filed for bankruptcy protection. Here are the alarming signs:

1. Its price/book ratio was 0.39. Such a low price/book ratio often suggests the market is discounting the asset value of the company, suggesting the likely risk in the company in general.

2. The company had a net income of $-198.52 million and EBITDA of $10.69 million on revenue of $2.31 billion. The company had $114.99 million cash on its balance sheet. Its debt burden was $443.58 million. The net debt minus cash was a little over $300 million, but the company had EBITDA of only $11 million. Even at today's low interest rate, it is not hard to

This article was written by

Gutone profile picture
343 Followers
Ph.D. in business administration by training, this blogger follows the principles of value investing. Often, I analyze a company's business instead of only its stock, as sometimes, value resides in stocks that do not appear so "cheap". I hope to share my ideas with you.

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