Arch Coal Stock Update: Up Nearly 40 Percent on High Volume

On Thursday, Arch Coal’s (NYSE:ACI) share price was up roughly 39 percent, at $7. That day 11.35 million shares traded hands compared to a daily average of about 2.55 million.
The company’s share price is still down about 96 percent, or $170, since the start of the year, as low coal prices continue to plague the industry. The situation has gotten so bad that fellow coal miners Alpha Natural Resources (OTCMKTS:ANRZQ), Walter Energy (OTCMKTS:WLTGQ) and Patriot Coal have filed for bankruptcy protection this year.
However, Arch Coal stock has gained back a few dollars over the last 10 days following reports that billionaire George Soros has been investing in the company. Soros has spent millions fighting climate change and the coal industry in particular, so the news came as a surprise to some.
H. Sterling Burnett, research fellow and managing editor at the Heartland Institute, told Fox News that while it’s possible the coal buy could be part of a climate action plan, he believes that Soros “helped to drive stocks down, bought as many shares as he can, and, when stocks rebound, he can sell his shares and make a huge profit.”
Peabody Energy (NYSE:BTU), which Soros has also invested in, was up 49 percent on heavy volume on Thursday, at $2.29, although its share price sank 10 percent in after-hours trading. Peabody is down 70 percent year-to-date.

Bankruptcy in the cards?

On August 18, Bloomberg reported that Arch Coal is seeking a compromise with lenders in order to avoid filing for bankruptcy. Some of the company’s senior lenders are opposing a debt-swap deal that would switch up to $2.38 billion worth of junior borrowings for senior debt, claiming that the move violates terms of their loan agreement.
The group sent a letter to Arch Coal’s term loan administrative exchange agent on July 28, directing the agent not to cooperate with Arch’s exchange offer and the establishment of a new term loan. Arch Coal argued that the assertions that it has violated its credit agreement are without merit, and stated that it “intends to contest them vigorously.”
The company extended a deadline for private debt exchange offers to August 28. Bloomberg also states that junior creditors are discussing their options with the company in case the deal fails, including whether to sue senior lenders for making a bad situation worse.

That might not sound like great news for Arch Coal stock, and indeed, some market watchers were wary about the rally in coal stocks on Thursday:

One of the most surprising moves today is Arch Coal. It’s up over 20%. And no one really knows why: https://t.co/EswHtJTdnh $ACI

— StockTwits (@StockTwits) August 27, 2015

Arch Coal and Peabody are up huge!! Coal stocks not worried about China slowdown at all but be very careful here!! $ACI $BTU — Leo Kolivakis (@PensionPulse) August 27, 2015

While others quipped that following George Soros in down markets might be a good idea:

Just Simply Following Billionaire George Soros Into $ACI Arch Coal, and your up almost 200% this week https://t.co/bHn9ANvBrH
— hedgefundclone (@hedgefundclone) August 21, 2015

At least one market watcher drew attention to Friday’s debt-swap deadline:

Arch Coal stock surging another 25% today, above $6 a share as deadline for debt swap looms tomorrow $ACI — Dan Lowrey (@dlowreysnl) August 27, 2015

While still others warned that the rise was merely a short-covering rally:

Proof this is nothing but short-covering rally: Arch Coal top NYSE gainer(+33%),Google(virtually no shorts)is down. Cover rallies don’t last
— fred hickey (@htsfhickey) August 27, 2015

Certainly, the change is an interesting one to follow, and investors will no doubt be watching Arch Coal stock closely as Friday’s deadline looms.
 
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.