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Cloud Peak Energy Inc. (CLD), Peabody Energy Corporation (BTU): Are there ANY Signs of Hope for Coal Companies?

Coal giant Peabody Energy Corporation (NYSE:BTU) estimates that coal from this region is competitive with natural gas priced in the $2.50 to $2.75 per million Btu (mmBtu) range. According to the EIA, Henry Hub natural gas came in at nearly $4 per mmBtu in June. Cheap prices is why Powder River coal has been a favorite of utilities and foreign countries in recent years. That’s great for Cloud Peak Energy Inc. (NYSE:CLD), but it’s solely focused on this coal basin, which increases business-specific risk.

A little variety
Peabody Energy Corporation (NYSE:BTU) is a more diversified player. The company is focused on coal, but mines it from various areas within The United States and abroad. The company’s western U.S. operations, which includes the Powder River Basin, accounted for 37% of its 2012 revenues. So, the region is important to the company’s top and bottom line, but isn’t a make or break focus.

That said, in its second quarter earnings release, Peabody Energy Corporation (NYSE:BTU) noted that “Customer inventories of Powder River Basin coal are approximately 25 percent below prior-year levels…” And “Longer term, Peabody expects U.S. coal consumption of Powder River Basin and Illinois Basin coal to continue to increase, led by higher coal plant utilization and basin switching.” Illinois Basin coal is the second cheapest option and another area in which Peabody Energy Corporation (NYSE:BTU) has notable operations.

Peabody’s Australian operations, meanwhile, accounted for about half of the company’s sales, with Australian metallurgical coal coming in at 27% of total sale. Although met coal is suffering from slack demand and weak prices, too, Peabody Energy Corporation (NYSE:BTU)’s global focus, diversified resource base, and varied end markets helps to reduce the company’s overall risk profile.

Like the other coal miners, 2013 is going to be a bad year for Peabody. However, long-term trends appear to be turning, which should support 2014 results. With easy earnings comparisons versus 2013, next year should be filled with positives for this diversified coal miner.

On the mend
Although coal will always suffer from its dirty image, that doesn’t mean the coal mining industry won’t rebound, eventually. In fact, while the sector hasn’t turned yet, the fundamental trends that have held coal back of late are starting to turn. Miners with cheap coal, like Cloud Peak Energy Inc. (NYSE:CLD), should be among the first to benefit. However, a more diversified player like Peabody Energy Corporation (NYSE:BTU) will benefit from cheap U.S. coal and provides upside from it global footprint and met coal operations.

The article Are there ANY Signs of Hope for Coal Companies? originally appeared on and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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