For Immediate Release
Chicago, IL – October 21, 2010 – Today, Zacks Equity Research discusses the Coal Industry, including Peabody Energy Corporation (BTU), Arch Coal Inc. (ACI), CONSOL Energy Inc. (CNX), Alliance Holdings GP L.P. (AHGP) ) and Alliance Resources Partners L.P. (ARLP ).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/41831/Coal+Industry+Outlook+-+Oct.+2010.
Coal producing regions in the U.S. mainly include Central Appalachia (CAPP), Northern Appalachia (NAPP), Illinois Basin (ILB), Power River Basin (PRB), and Uinta Basin (UIB). The recent quarter reports suggests promising mining results in the prolific Power River Basin and the emerging Illinois Basin, where the companies have been able to contain costs as well. Operators in the PRB benefited from increased demand for coal from electricity producers along with the low-cost nature of mining in the region.
On the other hand, in Central Appalachia, the oldest coal producing region in the U.S., results were weak due to disruptions in production as well as increased costs.
Production in the mature Central Appalachia was hurt mainly due to the tragic Upper Big Branch mine disaster, which occurred at the Massey Energy mine in April 2010. This deadliest incident created the ground for increased regulatory scrutiny in the region. Though the root cause for the accident is still unknown, regulators have stepped up enforcements and inspections for mining in the region, especially for underground mining, which has hampered the productivity of mine operators. Apart from production declines, the companies operating in the region are faced with the problem of increasing costs, thus, affecting their overall profitability.
Though the clear loser from the incident is Massey, we expect the formulation of stricter safety legislations and rigid penalties for the underground mining will raise costs permanently for all producers industry-wide. Other losers on this front include – Walter Energy, Alpha Natural Resources and Patriot Coal.
Furthermore, Central Appalachia is the prime producer of metallurgical coal in the U.S. These production disruptions, along with rising costs and the already discussed moderation of Chinese demand have strained the outlook of metallurgical coal producers with more emphasis on the Central Appalachia coal producers.
As a result, we like companies with greater exposure to large-scale surface mining with strong presence in the Powder River Basin – Peabody Energy Corporation (BTU) and Arch Coal Inc. (ACI). Although we do not favor producers in the other U.S. coal producing basin, we expect companies with exposure to the Illinois Basin and Northern Appalachia to benefit from their larger-scale mines, constructive geology, and favorable access to markets. Stocks operating in these regions include – CONSOL Energy Inc. (CNX), Alliance Holdings GP L.P. (AHGP) ) and Alliance Resources Partners L.P. (ARLP ).
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ARCH COAL INC (ACI): Free Stock Analysis Report
ALLIANCE HLDGS (AHGP): Free Stock Analysis Report
ALLIANCE RES (ARLP): Free Stock Analysis Report
PEABODY ENERGY (BTU): Free Stock Analysis Report
CONSOL ENERGY (CNX): Free Stock Analysis Report
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