Changes in Financial Structure of Coal Companies Prepared for: 30th Professional Engineers in Mining Seminar Marriott Griffin Gate Resort, Lexington, Kentucky September 15, 2017 By: John E. Feddock, P.E.
2011 was a Good Year in the Coal Industry > The economy and coal markets were booming. > There are 45 public coal companies and numerous private coal producers. > Delivered prices of steam coal exceed $68.00 per ton > Severe weather in Australia curtails metallurgical coal production. > Delivered prices of metallurgical coal rise above an average $185 per ton. > To meet demand, total coal production will top 1.096 billion tons and metallurgical coal production will reach 92 million tons. > Encouraged by the up market: > Peabody Energy buys Macarthur Coal, Ltd in the Bowen Basin of Australia. > Alpha Natural Resources absorbs Massey Energy. > Arch Coal buys International Coal Group, Inc. > Other producers buy or acquire assets.
Total Coal Production was 1.1 Billion tons 1200 1000 Coal Produced and Sold (Million Tons) 800 600 400 200 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Steam Tons Produced Total Metallurgical Tons
Metallurgical Coal Demand is on the Upswing $200 120 Metallurgical Coal Prices (Delivered $/Ton) $180 $160 $140 $120 $100 $80 $60 $40 $20 100 80 60 40 20 Delivered Million Tons $0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0 Total Metallurgical Prices ($/Ton) Total Metallurgical Tons Metallurgical Export Prices ($/Ton) Metallurgical Export Tons
The Hurricane Starts in 2012 > Shale Gas use expands in the electric generation market, resulting fuel switching (from coal to gas) by utilities. > Adoption of stringent air emission regulations continue with the closure of older less efficient coal fired power plants. > Prices of coal used for electric generation decline due to oversupply. > Decline in economic growth in foreign markets and the U. S. result in a drop in metallurgical coal demand and metallurgical coal prices. > These factors placed unplanned pressure upon coal companies after 2011 to mine only economically advantaged reserves and to curb output to meet the reduced demand. > These factors had economic impacts upon all companies that planned expansions in 2011, including ANR, Arch, and Peabody.
Total US Coal Production is up in 2011, But! 1200 Coal Produced and Sold (Million Tons) 1000 800 600 400 200 0 Total Steam Tons Produced Total Metallurgical Tons
After 2011 Metallurgical Coal Prices and Demand Drop $200 120 Metallurgical Coal Prices (Delivered $/Ton) $180 $160 $140 $120 $100 $80 $60 $40 $20 100 80 60 40 20 $0 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Delivered Million Tons Total Metallurgical Prices ($/Ton) Total Metallurgical Tons Metallurgical Export Prices ($/Ton) Metallurgical Export Tons
Total Exports reach new Levels in 2012, then decline $200 140 Metallurgical Coal Prices (FAS$/Ton) $180 $160 $140 $120 $100 $80 $60 $40 $20 120 100 80 60 40 20 Exported Million Tons $0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Metallurgical Coal Prices ($/Ton) Metallurgical Tons Total Tons Exported 0
The Hurricane Hits In 2011, there were 45 public Coal Companies operating in the United States > 18 Companies were either land holding companies, brokers or coal traders. > The remaining 27 companies were producing companies. Between 2012 and 2016, > 8 of the producing companies would file Bankruptcy under Chapter 11 (protection from Creditors until a reorganization plan could be approved). > 4 of the 8 companies would cease to exist as the reorganization involved selling assets to various buyers. > 3 of the producing companies that successfully reorganized had to change their corporate financial structure.
Bankruptcy extended to Private Companies > Between 2012 and 2016, 42 privately held coal companies filed bankruptcy. > 21 of these companies filed under Chapter 7, (where its assets are sold off to pay its lenders (creditors). > 4 private companies filed under Chapter 15 where a company with foreign assets or entanglements or a foreign company is allowed to reorganize or liquidate assets. > The remaining 17 filed under Chapter 11 for reorganization; however, four of these converted to Chapter 7 as reorganization failed.
Balance Sheet Comparison > A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. Assets Liabilities Cash and Cash Equivalents Current Liabilities Current Assets Deferred Income Taxes Net Property, Plant & Equipment Asset Retirement Obligations Mineral Owned and Leased Other Long Term Liabilities Goodwill Long Term Debt Other Noncurrent Assets Total Liabilities Total Shareholders' Equity Total Assets = Total Liabilities + Equity
Alpha Natural Resources, Inc. - Assets $18,000 $16,000 $14,000 Assets ($ Million) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Contura Energy, LLC only $0 2010 2011 2012 2013 2014 2015 Cash Other Current Net P, P & E Mineral Goodwill Other Acquired Massey Energy in June 11 Filed Bankruptcy August 2015-Emerged July 2016
Alpha Natural Resources, Inc. - Liabilities $18,000 $16,000 Liabilities ($ Million) $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Contura Energy, LLC only $0 2010 2011 2012 2013 2014 2015 Current Deferred Taxes ARO Other Debt Equity Acquired Massey Energy in June 2011 Filed Bankruptcy August 2015-Emerged July 2016
ARCH Coal, Inc. - Assets $12,000 $10,000 Assets ($ Million) $8,000 $6,000 $4,000 Contura Energy, LLC $2,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 Cash Other Current Net P, P & E Mineral Goodwill Other Acquired ICG, Inc. in June 2011 Filed Bankruptcy January 2016-Emerged October 2016
ARCH Coal, Inc. - Liabilities $12,000 $10,000 Liabilities ($ Million) $8,000 $6,000 $4,000 $2,000 $0 ($2,000) 2010 2011 2012 2013 2014 2015 2016 2017 Current Deferred Taxes ARO Other Debt Equity Acquired ICG, Inc. in June 2011 Filed Bankruptcy January 2016-Emerged October 2016
Peabody Energy, Inc. - Assets $18,000 $16,000 $14,000 Assets ($ Million) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 Cash Other Current Net P, P & E Mineral Goodwill Other Purchased Macarthur Coal, Ltd in 2011 Filed Bankruptcy April 2016-Emerged April 2017
Peabody Energy, Inc. - Liabilities $18,000 $16,000 $14,000 Liabilities ($ Million) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 Current Deferred Taxes ARO Other Debt Equity Purchased Macarthur Coal, Ltd in 2011 Filed Bankruptcy April 2016-Emerged April 2017
Financial Changes ASSETS that changed when emerging from Bankruptcy > Accounting procedures were updated as fresh start accounting or assets were valued based upon Fair Market Value. > Sold certain assets to reduce the liability and debt responsible for those assets. > Goodwill was eliminated if not already expunged. LIABILITIES that changed when emerging from Bankruptcy > Significantly changed the debt either by replacement or eliminating certain debt classes. > Reduced or eliminated other long term liabilities. > Asset Retirement Obligations (reclamation upon mine closure) remained. > Equity was either restated under different ownership or changes in ownership classes.
END Changes in Financial Structure of Coal Companies Prepared for: 30th Professional Engineers in Mining Seminar Marriott Griffin Gate Resort, Lexington, Kentucky By: John E. Feddock, P.E. September 15, 2017