Several US coal mining companies are now facing the prospect of bankruptcy, with Arch Coal facing Chapter 11 risks, it states.
“Peabody bought itself time with its recent asset sale of three western bituminous mines for $US358 million in cash but we continue to feel that with the outlook for both coal and gas uninspiring for next year, we feel, Peabody may still have to restructure,” the JP Morgan report states.
“The two upcoming triggers are the large $70 million coupon payment due in March and a state review of its qualifications to self-bond its Wyoming AROs in Q2 2016.”
After a failed debt exchange, Arch is in talks with creditors for a possible restructuring as it highlighted in its Q3 earnings release. It has $90 million in coupon payments due on December 15 which could trigger a chapter 11 filing, according to JP Morgan.
Alpha Natural Resources filed for chapter 11 protection in August and it’s likely that the debt holders will not allow any loss making operations to continue to run in order to preserve value, it said.
“Its initial restructuring plans suggest its coal production is expected to fall 11mt next year to 63mt which we feel is positive for the rest of the industry,” JP Morgan said.
“Much of the CAPP coal production is uneconomic at current spot prices. We see this as the market sending a message to the miners that they have to cut more capacity.
“We expect this message to be acted on in early 2016 with more mine closure announcements. It’s likely that the low priced CAPP coal exports were a way to harvest additional cashflows from developed reserves in mines that had to operate to service US domestic coking coal contracts and once the pressure to pay interest costs eases, we expect these exports should fall back quickly.”
