Shares of Alpha Natural Resources plummeted on the news, dropping 86 percent, to $0.0344, on the OTC on Tuesday on heavy trading volumes.
Alpha Natural Resources (OTCMKTS:ANRZQ) filed for Chapter 11 bankruptcy protection on Monday, in line with market expectations. The company has not made a profit since 2010, according to Bloomberg data, although it reported $1.8 billion in cash and available credit at the end of Q1.
Shares of Alpha Natural Resources plummeted on the news, dropping 86 percent, to $0.0344, on the OTC on Tuesday on heavy trading volumes. Trading of Alpha Natural shares on the New York Stock Exchange was suspended on July 16, with the exchange initiating delisting proceedings “based on ‘abnormally low’ price indications.”
“While a difficult decision, this voluntary Chapter 11 filing is the right strategy at the right time for the future of our business,” said Alpha Natural’s chairman, Kevin Crutchfield. “It will enable us to build on the significant steps we have taken over the past several years to restructure our debt and protect our operations. I am confident Alpha will emerge from this process as a stronger company, with a diversified resource base and better positioned for the future.”
The decision comes in light of historically weak metallurgical and thermal coal prices, with met coal falling to near 11-year lows this year. Prior to its Chapter 11 filing, Alpha had already idled a number of its coal operations.
Among other factors driving the company’s decision were tougher regulations for power producers released by the US Environmental Protection Agency on Monday. The rules will be aimed at cutting greenhouse gas emissions in the sector.
Alpha Natural Resources fourth to file for bankruptcy protection
Certainly, times are tough for North American coal producers, and this isn’t the first Chapter 11 filing in the coal space this year. Walter Energy (OTCMKTS:WLTGQ) filed for bankruptcy protection in July, while Patriot Coal filed in May, marking its second Chapter 11 filing in two years, according to The Wall Street Journal. James River Coal filed for bankruptcy protection last April.
As Joe Aldina of Wood Mackenzie stated in a telephone interview, that means that four significant players at the heart of the US coal industry have now filed for bankruptcy protection. Furthermore, Aldina pointed out that Arch Coal (NYSE:ACI) has said it is trying to restructure its debt outside of bankruptcy courts.
Alpha plans to seek relief from the bankruptcy court in order to allow operations to continue at its 50-plus underground and surface mines and 20-plus coal preparation facilities in the US. It has secured an 18-month, $692-million debtor-in-possession financing package.
Of course, bankruptcy is a last resort, but Aldina stated that the move could be somewhat positive in that it will give Alpha Natural Resources a chance to shed some of its debt and could allow it to emerge in a healthier position. However, he admitted that Alpha’s move to stay in the game could prolong oversupply and weak coal prices.
“In that bankruptcy helps them to continue producing it actually may delay any recovery in prices that we get,” he explained. “It may delay the working down of oversupply.” Aldina also noted that there’s still “a lot to be worked out” in terms of which assets Alpha will keep and which it will sell. The company still has to petition the courts to ask if certain assets can continue to run.
Certainly, larger coal mining companies in the US are seeing trouble. While Aldina was hesitant to call it a positive for junior coal miners (the market is still depressed, after all) he did say that there could be opportunity for smaller players or private capital. “The business model of the majors, which was fueled by aggressive expansion and debt, is under pressure,” he said.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.