"Our 2000 [Arch Coal] EPS forecast [US63c in 2001 and US$3.00 in 2002 from US50c and US$2.10] is due to the continued strength in the spot coal pricing market," analyst Daniel Roling said.
"We believe if [Arch Coal] captures half the difference between current spot prices and the company's realised prices in 2000, this will add an incremental US$2.37 to 2002 EPS, thus bringing total 2002 EPS to US$3.00."
Roling also lifted his earnings forecasts for Consol for fiscal 2002 to US$2.20 from US$2.35.
He said the company has about 50% of its calendar 2002 production open for re-pricing into perhaps the strongest sellers' market in 20 years.
"We believe that Consol will capture half of the difference between current spot prices and realised prices [in the year ended June 2000], thus we estimate Consol will earn … at least US$3.25 per share in calendar year 2002," Roling said.
Standard & Poor's rating agency has also revisited Arch Coal, placing the company on credit watch with positive implications.
"The rating action reflects the efforts of the company to reduce its debt levels as well as the significant rebound in coal prices and favourable industry fundamentals," S&P said.
The spot price for Powder River coal (8000Btu a pound) has rebounded from a 52-week low of US$.10/lb to quotes of US$13.75/lb, while the Central Appalachian spot price (12,500Btu/lb) has rebounded to a high of US$51.74 per tonne from a 52-week low of US$23.35/t.
"Although Standard & Poor's does not expect the current high levels of coal prices to be sustained for the long term, spot coal prices over the medium term should be somewhat higher than the low levels that were reached early last year," the agency said.
On the other side of the power equation, major metals producers in western United States have been hit hard by sky-rocketing electricity prices.
S&P has placed Golden Northwest Aluminium on CreditWatch with negative implications and lowered its first mortgage notes to B+ from BB-.
"The downgrade of the mortgage notes reflects Standard and Poor's belief that given the current difficult operating environment in the Pacific North-West, GNA's two idled aluminium smelters that secure the notes have suffered an erosion of value and that lenders under the default scenario would not receive sufficient coverage.
"The CreditWatch reflect placements reflect the numerous risks and uncertainties resulting from the extraordinarily high power rates plaguing the Pacific North-West and GNA's strategy as it attempts to become energy self-sufficient in response."
As power prices in the Pacific North-West of the US have skyrocketed, aluminium smelters in the region have been rendered uneconomical and forced to lie idle. Of the 1.66 million tonne annual aluminium smelting capacity in the region, 1.5Mt has been idled.
* This article was first published on www.miningnews.net.
