Weak Coal Prices Unearth Mining Troubles

NEW YORK (TheStreet) -- As if mining coal isn't already rough enough, companies like Arch Coal (ACI) and James River Coal (JRCC) are heading into more hard times. Metallurgical coal prices hit a six-year low while Central Appalachian, or CAPP, coal prices followed natural gas higher, but failed to appreciate enough to save coal producers.

Arch Coal traded recently at $4.63 a share, while James River Coal shares changed hands at 76 cents. Expect James River Coal stock to be delisted from the Nasdaq soon and the company may also file for bankruptcy.

Metallurgical coal and CAPP coal have different uses, qualities and market prices. Metallurgical coal can be used in steel production, for instance. CAPP coal, also referred to as thermal coal, has a lower energy output and is insufficient for use in steel production, but can be used in power production.

Arch Coal is actively engaged in divesting its non-core thermal coal assets, which improves the outlook for long-term viability, as metallurgical coal should not see the same reduction in overall demand as thermal coal.

In 2013, Arch Coal reported a net loss of $642 million. The good news for a company like Arch Coal is that it may still be cash flow positive in terms of operating cash flows, even if it doesn't earn a profit. For 2013, the company's net cash position improved. Two non-cash items, $426 million in depreciation and $265 million in goodwill, were the largest loss drivers.

In an adept financial move, the company chose to tender $438 million of its 8.75% senior notes for slightly above par value and restructure its credit agreements. This should help to reduce interest expenses.

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