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JRCC, Thoughts After Earnings Release

|Includes: IQVIA Holdings, Inc. (IQV)

1. Thesis of guaranteed BK this year busted. The drastic step of pulling the plug on 3MM tons capp capacity (close to half capp thermal capacity, close to a third of overall capp operations), buys them several more quarters of "runway". Although this bird may never fly this is still a significant achievement. However, per conf call, reading between the lines a bit, it seems the full range of restructuring options is now on the table, and professional advisors have been brought in.

2. change in strategy: admission that the old strategy of continuing operations in expectation of market turnaround is no longer viable. New strategy appears to be cash conservation as the #1 priority.

3. additional costs for ops slowdown probably incurred in 2013Q1. Hard to believe you can pull the plug withput paying some kind of penalty. As mentioned in conf call, mix will be half met, which increases both revenue per ton and cost per ton.

4. will they even participate in the capp thermal market for 2014? since their new strategy is cash conservation, and their capp thermal operations have needed around $80 / ton to make a profit, it may be logical to produce little or no 2014 thermal at all (except as a side effect in capp mines whose production is a mix of predominantly met and some thermal). In other words, more "shrinking your way to profitability" as the year goes on. Surely this would be equivalent to a restructuring. Also worsens leverage ratios, although credit really can't get any worse at this point.

5. asset impairment triggered by drastic change in revenue coming from the assets? Maybe. I wish I knew the timing to this one. Guess is that it is probably avoidable or at least can be delayed until the end of the year. Since so much of the US thermal coal industry is "underwater" at the moment, the standard for when you have to do an asset impairment is probably pretty low. However, if the a recalculation of long term asset value is triggered, it is quite bad because:
5a. some capp thermal assets may be out of the money for good, and may never see the light of day, requiring total writeoff.
5b. higher interest rate due to bad credit means NPV calculation results in severely discounted present value

6. other effects of bad credit continue to kick in: surety bonds used to move environmental and worker obligations off balance sheet may go up in cost or become unavailible. trade terms with suppliers may tighten and require tying up more cash rather than using accounts payable.

7. who is driving the boat? pretty safe to say they're in the zone of
insolvency, and escaped BK for the year only by drastic measures. 136MM left, burn rate 60-80 per year? According to Raymond James, they face cash issues in 5 quarters. Is it at all reasonable to expect them to be profitable by then? would have to improve credit rating enough to refinance 2015 convertibles, this is even less likely. The company might no longer be managed in the interest of the equity holders.

8. Met coal price recovery has been coming into question and/or stalling for last 3 weeks, per China PBOC tightening action, steel prices, and global met coal prices.

Disclosure: I am short JRCC.