Coal Glut May Claim Yet Another Victim in Czech Miner NWR

  • NWR's OKD unit may run out of cash in next two weeks
  • European coal prices have slumped 65% since March 2011

The plunge in coal markets from Australia to the Netherlands that has put U.S. producers out of business will probably soon claim another victim: Czech miner New World Resources Plc.

NWR’s main unit OKD, which employs 13,000 people at mines in one of the country’s poorest regions, owes the parent company 65 million euros ($74 million) and may run out of cash within two weeks and will not be able to pay salaries, Chairman Gareth Penny told reporters on Thursday. He has pleaded with the government to help restructure the company’s total debt of about 300 million euros to avoid a bankruptcy filing anytime within the next two weeks.

The government has so far resisted a deal, so OKD will meet to discuss insolvency filing on May 3, it said Friday in a statement.

NWR’s possible demise is the latest in a string of corporate failures as overcapacity, a slowing Chinese economy, tighter environmental regulation and lower natural gas prices conspire to make mining of the mineral unprofitable in many places. Benchmark northwest European prices have declined 65 percent since a March 2011 peak as the market has been flooded with cheap coal from South America to Africa.

“Every single European coal company is facing the same situation,” Penny said on Thursday. “We are not unique in any way.”

While the likely demise of the biggest employer in the economically depressed Moravia-Silesia region creates a political quandary for the government, Czech leaders have rebuffed NWR’s requests for assistance, calling them “blackmail.” No deal will be reached at least before the cabinet discusses the company’s situation during its regular meeting on Monday, Industry and Trade Ministry spokeswoman Pham Bich Ngoc said when reached by phone.

Peabody Bankruptcy

This month, U.S. coal producer Peabody Energy Corp. filed the nation’s biggest corporate bankruptcy of the year, joining Alpha Natural Resources Inc., Walter Energy Inc. and at least six other U.S. miners that filed for protection from creditors in the past year.

A default for NWR is “highly likely” in the near future, according to Moody’s Investors Service, which on Thursday cut the company’s credit rating by two levels to C, its lowest rating.

Even though coal prices have recovered since they bottomed out in February, it may be “too little too late” for the likes of NWR, said Andrew Cosgrove, an energy analyst at Bloomberg Intelligence. “It’s only a matter of time” before more coal miners go out of business, he said.

The Czech miner restructured its debt less than two years ago and received a cash injection from its stakeholders including the founder Zdenek Bakala. He departed the company earlier this year and left it in the hands of the former bondholders including Ashmore Investment Management Ltd.

The management of the OKD unit is bound by law to declare bankruptcy once it runs out of money, said Roman Parik, the new NWR owners’ spokesman.

“If the company stops paying the state will have to step in and pay the miners’ salaries,” he said.

NWR is the last Czech producer of power station and coking coal. It raised $2.2 billion in an initial public offering in May 2008 on stock exchanges in Prague, London and Warsaw, making Bakala one of the country’s richest men at the time. The company has since lost more than 99 percent of its value.

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