By Heather Richards
May 16, 2017 - Contura Energy, which operates the former Alpha Natural Resources mines, Belle Ayr and Eagle Butte in northern Wyoming, announced recently that it had filed for a $100 million initial public offering of its common stock, with plans to trade under the symbol CTRA.
Ramaco Resources, which has proposed the first new coal operations in Wyoming in decades, also recently made its stock market debut.
Analysts say the long-term expectation of contractions in the coal market hasn’t changed. But until recently the industry faced closed doors and turned backs. Politics have renewed some interest in coal. Capital has opened up since the three largest bankrupt companies emerged, and production and investment forecasts for 2017 are favorable. The industry has climbed out of its unprecedented fall and companies are positioning themselves, as seen in Contura’s offering, in the new market.
The Bristol, Tennessee-based firm is a slice off the once-giant Alpha, which filed for bankruptcy in 2015. Contura emerged from the Alpha Chapter 11 proceedings the following year formed by Alpha’s chief lenders and acquired Alpha’s crown jewel assets in Wyoming. It was the fourth-largest producer of Wyoming coal in the final months of 2016.
One product of the downturn is that companies like Alpha had to trim down. Though the long-term metrics show decline in the coal market, there are still possibilities for companies whose balance sheets are clean, said Chiza Vitta, director of metal and mining at Standard and Poor’s Ratings.
Contura, formerly Alpha, was the weakest company entering the downturn in terms of its balance sheet, he said.
Alpha was suspended from the NYSE in July of 2015, when its shares were trading below 25 cents.
“Even with the larger companies, they’ve shed the least profitable businesses,” Vitta said. “The ones that they hang on to are the ones that do well and still make money.”
Contura is an example of that: a much smaller company with finer numbers. The trend will continue as the market, too, becomes smaller, he said.
“Your ability to find a company that’s profitable is going to become more associated with the company’s costs and positions,” he said. “Even if the industry is shrinking, you can still find profitable companies because they are in a better position.”
Contura is showing its slimmed figure in its market offering. Its $100 million IPO is a contrast to better times, said Clark Williams-Derry, an analyst at the Sightline Institute, a Seattle think tank that supports a transition to renewable fuels.
“Just a few years back Alpha was valued in the billions,” he said in an email. “Now, even though the company has gotten rid of some of its money-losing mines and shed lots of liabilities, the IPO is still being floated at a fraction of what the firm was once worth.”
The company ended the year at a loss but had a stronger fourth quarter, like most of the Powder River Basin coal companies. With a net loss of close to $11 million from formation to the end of the year, the company’s final three months were in the black: $34.9 million.
The strong rise was largely due to the jump in the metallurgical coal market, said Williams-Derry. Wyoming produces thermal coal, used largely for electricity. The met coal produced in Appalachia mostly serves steel production.
“Global met coal markets went absolutely bonkers last fall,” Williams-Derry said. “China cut back production, there was bad weather in Australia – and met prices went through the roof … Even though Contura’s mines mostly ship to Europe, they still got a major price boost from what was happening in the Pacific Rim.”
But for companies like Contura, with assets in both met and thermal coal, the blessing of a rise in met prices means the possibility for large losses when prices fall, he said.
The unstable met market was one of the factors that plunged coal into the downturn. But though volatility may not seem like an asset for a Wyoming industry that teetered on the brink of collapse less than a year ago, there’s a different story on the stock exchange.
“I don’t think anyone believes that prices will go back up again any time soon – particularly after China decided to reverse its cutbacks,” Williams-Derry said. “But the price spike demonstrated, yet again, that coal markets are quite volatile. And the truth is that volatility can add value to having the option to sell a traded commodity.”