Coal stocks have lost plenty of ground this year, and most analysts and market watchers say a material recovery is a few years out. Still it’s worth keeping an eye on junior coal stocks and what they’ve been up to in 2015.
Certainly, coal stocks have lost plenty of ground this year. Since January, the Dow Jones US Coal index (INDEXDJX:DJUSCL) is down 81 percent.
Larger coal mining companies such as Alpha Natural Resources (OTCMKTS:ANRZQ), Walter Energy (OTCMKTS:WLTGQ) and Patriot Coal have also filed for bankruptcy protection this year. Meanwhile, Peabody Energy (NYSE:BTU) and Arch Coal (NYSE:ACI) have respectively seen their share prices fall by 138 and 182 percent over the past year.
Still, the coal market got some attention in August when billionaire investor George Soros spent over $2 million buying coal stocks, and at least one trader made a contrarian case for coal when speaking to CNBC over the summer.
Larry McDonald of Societe Generale (EPA:GLE) told the news outlet that he believes a strong dollar and poor commodities prices could allow the US Federal Reserve to move ahead with measures that could lead to a rally. Of course, CNBC also notes that McDonald made a similar bullish call on coal stocks in 2013, and that coal stocks have fallen since. What’s more, other analysts in the coal space still say that a recovery is a few years out.
That might not seem too encouraging. Still, Joe Aldina of Wood Mackenzie said at the start of the year that while investors will likely need to wait for a material recovery in coal prices, in the long term, well-capitalized investors who are comfortable taking some risks could find opportunities in the coal space.
Here’s a few junior coal stocks and what they’ve been up to in 2015.
Colonial Coal (TSXV:CAD)
Colonial Coal is headed by coal industry veteran David Austin, also a founder of Western Coal and Northern Energy & Mining; Western sold to Walter Energy in 2010 for $3.3 billion.
Colonial Coal is a pure-play coking coal development company that is currently focused on advancing its resource-stage Huguenot and Flatbed properties. Both properties are located in British Columbia’s prolific Peace River coalfield.
Colonial has not been immune to declines in the broader coal sector this year, losing 33 percent to trade at $0.07. Most recently, the company entered an agreement to option 10 percent of its Flatbed property to an investor group. Austin stated, “I am very pleased that we have been able to identify a potential long-term partner for the development of the company’s various property and business interests.”
Corsa Coal (TSXV:CSO)
Corsa Coal got plenty of attention when it announced it would acquire PBS Coals from Russia’s Severstal (MCX:CHMF) for US$60 million in 2014. However, coal prices continued to fall, and Corsa was forced to cut 130 jobs from its Northern Appalachian Division in January 2015.
“We regret the need to take today’s actions, however, we anticipate these moves will improve the overall cost structure of the NAPP Division while still maintaining premium quality metallurgical coal specifications,” said Corsa CEO George Dethlefsen at the time.
Corsa recently completed a US$7.25-million private placement, with proceeds slated to go towards working capital and general corporate purposes. Corsa Coal’s share price is down 75 percent, at $0.045, so far this year.
Morien Resources (TSXV:MOX)
Morien’s stock is down 12 percent since June 15, when it completed a share capital reorganization to substantially reduce small and odd lot shareholders. Morien holds a portfolio of royalty assets that includes, among other things, a 2- to 4-percent royalty with the Cline Group for the Donkin coal project in Nova Scotia.
In June, Kameron Collieries, a subsidiary of the Cline Group and the operator of the Donkin project, provided an update on progress at Donkin, advising that next steps will include additional drilling and exploration of the target coal seam, along with coal sampling and testing.
SouthGobi Resources (TSX:SGQ)
Mongolia-focused SouthGobi Resources hasn’t been doing well as of late. As Peter Koven of the Financial Post explained in a May 2015 article covering the company, “[t]he Vancouver-based company, which operates in Mongolia, is almost entirely out of cash. Its operations are deep in the red. Its CEO recently resigned. And a Mongolian court this year fined the company US$18.2 million in a very dubious tax-fraud case.”
Currently, SouthGobi’s share price is down 14 percent for the year, sitting at $0.43. On October 5, the company once again announced that it has extended its TSX delisting review, this time until October 28. SouthGobi added that it is pursuing a number of financing initiatives, including a short-term bridge loan, sales and offtake agreements and a potential deferral of its payments to Turquoise Hill Resources.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.