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Arch Coal’s Future Gets Darker

It has been a long time since Arch Coal Inc. saw a sharp rise in its price. Yet the one due this week isn’t quite what suffering shareholders were hoping for.

One of the world’s largest coal companies in terms of reserves, Arch has seen its stock slump some 99.7% in the past five years to 20 cents recently. That should be a more respectable $2 or so after Monday—but only because the number of shares will fall due to a reverse stock split.

The combined value of Arch and rivals Peabody Energy Corp. and Alpha Natural Resources Inc. is barely $400 million. Other miners have filed for bankruptcy protection, a fate likely to befall some more.

Big Coal is at once a faint shadow of itself yet still vital economically. Mainly used for power generation and metallurgy, the percentage of U.S. electricity from coal-fired plants recently fell to 30%, just below the share from natural gas, according to SNL Energy. Five years ago, coal had twice the share of gas at 44%. But years of cheap, abundant shale output and tightening environmental standards have led many utilities to shut coal plants.

That shift hasn’t been enough to absorb the glut of North American gas, something that would be a relief to struggling producers. But it is creating a drag on another industry: railroads. Even after years of decline, coal makes up about one-fifth of collective revenue for large operators such as Union Pacific Corp., CSX Corp.and Norfolk Southern Corp. and is particularly profitable.

Arch recently launched a debt exchange that could take off some near-term balance-sheet pressure, but its income statement remains a sea of red. Analysts see it reporting on Thursday a second-quarter loss of 57 cents a share versus a loss of 46 cents a year earlier. The company was last in the black in 2011; not a single analyst sees a profitable year anytime in the future.
Coal prices remain high enough to cover the cost of excavation and delivery and coal demand is growing in Asia so the actual business of mining won’t disappear. As for people owning shares in coal miners, though, the odds of climbing out of this dark hole are shrinking.
Source: Wall Street Journal

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