Arch Coal Inc (ACI), CONSOL Energy Inc. (CNX): Conditions Remain Tough for the Coal Industry

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Thermal coal play

Cloud Peak Energy Inc. (NYSE:CLD) is one of the largest U.S. coal producers. The company mainly specializes in thermal coal operations and is fuel supplier for approximately 4% of the U.S. electricity. Cloud Peak Energy Inc. (NYSE:CLD) has shown disappointing financial results in the recent quarters as the thermal coal markets remain weak due to low natural gas prices.

The company registered an adjusted EBITDA miss in the first quarter by posting an adjusted EBITDA of $48 million, $16 million lower than the analysts’ consensus. Due to weak coal prices, Cloud Peak Energy Inc. (NYSE:CLD) lowered its midpoint of EBITDA guidance from $265 million to $245 million for 2013 full year. Volume guidance for 2013 was also narrowed to 88-92 million tons, from 87-93 million tons guided previously by the company.

As the electricity producers burn more coal in upcoming months, due to higher natural gas prices, demand and price for thermal coal will recover. That bodes well for the company. Additionally, the company has low costs and a solid balance sheet, which offers a potential for attractive returns for investors as thermal coal prices increase.

My final take
Coal markets are expected to rebound as natural gas prices increase and demand for coal from China and other important coal markets recover.
As the coal market strengthens in upcoming years, Arch Coal has potential to offer attractive capital gains to investors, as the company has experienced a significant share price drop and the worst is already priced in.
CONSOL Energy Inc. (NYSE:CNX), on the other hand, offers a less risky and diversified investment opportunity as the company has exposure to both coal and gas businesses. Cloud Peak Energy Inc. (NYSE:CLD) is an attractive investment opportunity in case of recovery in thermal coal demand and prices. However, risk remains in shape of potential capital loss for the companies depending on timing and extent of recovery in the coal market.

The article Conditions Remain Tough for the Coal Industry originally appeared on Fool.com and is written by Faizan Chudhry.

Faizan Chudhry has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Faizan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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