When Peabody Energy Corp. announced it was suspending quarterly payments to shareholders to save cash, it marked the end of an era for traditional U.S. coal miners.
Coal, for decades viewed as a stable investment, is now fighting for its life. Earlier this year, Arch Coal Inc. halted its dividend and has been warned by the New York Stock Exchange it could be delisted if shares stay below $1. Walter Energy Inc., which also suspended its payout, and Alpha Natural Resources Inc. have been dropped by the exchange. Walter filed for bankruptcy earlier this month.
Tuesday’s announcement from Peabody, the largest U.S. coal producer, came minutes after Consol Energy Inc., a company increasingly focused on producing natural gas, cut its dividend to 1 cent from 6.25 cents.
“There is no question that these are difficult and indeed unprecedented times for both coal markets and related capital markets,” Peabody Chief Executive Officer Glenn Kellow said on an earnings call. “We are pursuing a leaner organization.”
Coal’s tailspin underscores the profound straits miners find themselves in. On top of the typical boom and bust cycles associated with commodities, coal is fighting challenges from cheap natural gas and tougher pollution standards. Metallurgical coal, used in steelmaking, is at its cheapest in a decade amid slowing Chinese demand.
Cutting payouts to shareholders has become a necessity in the fight for survival.
“We’re in a prolonged period of weakness,” Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc., said in a phone interview. “We’re unlikely to see the average coal company pay a meaningful dividend until we see demand return to the market and supply discipline.”
For now, some coal producers organized under a corporate structure known as a master-limited-partnership are still paying out to unitholders. Foresight Energy LP, which announces earnings on Thursday, returns 37 cents a quarter to holders of each unit. Alliance Resource Partners LP reported profit of 76 cents per unit on Tuesday and raised its distribution to 67.5 cents from 66.25 cents.
Yet MLPs have also come under pressure. Alliance may be forced to reduce its distribution by early 2016 if coal prices don’t recover, Mark Levin, an analyst with BB&T Capital Markets in Richmond, Virginia, wrote Wednesday in a note to investors.
Rhino Resource Partners LP said on July 20 it wouldn’t pay a distribution to holders of its common or subordinated units for the second quarter. Natural Resource Partners LP reduced its payout by 75 percent in April.
(An earlier version of this story corrected Alliance Resource’s distribution.)