Billionaire Wilbur Ross, who founded International Coal Group in 2005 and sold the company to Arch Coal Inc. (NYSE: ACI) last year for $3.4 billion, told Bloomberg News that current problems in the coal industry may present headwinds for years as a result of the boom in U.S. shale gas production. In an email, Ross said:
Last time the cycle was this bad, the problems were essentially just cyclical. This time the major secular trends are far more likely to be unfavorable for years to come.
Coal miner Patriot Coal Corp. (OTC: PCXCQ) has filed for bankruptcy protection and James River Coal Co. (NASDAQ: JRCC), which is trading about 95% below its 52-week high, could be next. Consol Energy Inc. (NYSE: CNX), Arch and others have combined to shut down 5.8 million tons of annual production so far this year.
Ross also noted the lack of acquisitions and mergers in the coal industry:
The main impetus for a takeover would be the acquisition of reserves at a low price by an entity which believes that price and volume will increase in the future. Such buyers are few and far between and there is a lack of cash and trading value available for coal acquisitions.
The only large acquisition in coal country so far this year has been a $100 million dollar deal by Cloud Peak Energy Inc. (NYSE: CLD) for Youngs Creek Mining Co. That’s a far cry from the $12.2 billion in deals announced in 2011, including Alpha Natural Resources Inc.’s (NYSE: ANR) $7.1 billion acquisition of Massey Energy.
Shares of James River are down 5% in pre-market trading this morning at $1.90 in a 52-week range of $1.87 to $22.00. Arch Coal is down about 4% at $5.89 in a 52-week range of $5.41 to $28.76, and Alpha is down nearly 7% at $7.1o, a new 52-week low if it holds. Alpha’s 52-week range is $7.17 to $47.23.