Coal Shares Tumble Amid Concerns Over Mine-Liability Funding

Updated on

Two U.S. coal companies, Peabody Energy Corp. and Arch Coal Inc., sank to all-time lows amid concerns that they will have to pay more for insurance that covers environmental damage.

Peabody fell 9 percent to a record low closing price of $2.53 in New York on Friday. The stock has declined 21 percent this week. Arch dropped 12 percent to an all-time low of 39 cents.

The Wyoming Department of Environmental Quality’s Land Quality Division is reviewing 2014 financial data from Peabody and Arch to see if they still qualify for a “self-bonding” program that allows coal producers to cheaply insure their clean-up costs in case of bankruptcy, Kimber Wichmann, an economist at the department, said in a phone interview.

Miners that fail to meet certain financial benchmarks must buy instruments that include corporate surety bonds and Treasury bills, or hold enough cash, to cover potential reclamation liabilities.

“Investors don’t know how to handicap this self-bonding issue,” Ted O’Brien, chief executive officer of Doyle Trading Consultants LLC, said in a phone interview. “Until the companies come out and give Wall Street certainty that they know how to deal with it, I think we’re going to be stuck in this vortex.”

Full Compliance

Peabody and its operating subsidiaries remain in full compliance with state and federal requirements, Vic Svec, a spokesman, said in an e-mail Friday.

Logan Bonacorsi, an Arch spokeswoman, said in an e-mail that the company has been and continues to believe it’s in compliance with the requirements.

The slump comes as the industry confronts its worst depression in decades amid competition from cheap natural gas, tougher emissions standards and slowing demand from China, the world’s largest consumer of coal used in steelmaking.

Separately, the department told Alpha Natural Resources Inc. in May it no longer qualifies under the self-bonding program. The company has until Aug. 24 to post collateral or cash against $411 million of reclamation liabilities, Wichmann said.

Alpha fell 14 percent to a record low of 39 cents on Friday.

Two other miners, Cloud Peak Energy Inc. and Walter Energy Inc., also sank to record lows. Cloud Peak fell 8.6 percent to $4.66 while Walter dropped 12 percent to 27 cents. Cloud Peak passed its financial review in April, Wichmann said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE