Earlier this month,Patriot Coal Corporation (PCX) announced that it entered into a commitment letter for a new revolving credit facility and new term loan facility for a total of $625 million from Citigroup Global Markets, Inc., Barclays Bank PLC and Natixis, New York Branch. Patriot Coal Corporation is continuing to work with these lenders to strengthen its finances, including the replacement of its current credit facilities well before certain of its debt obligations become due in March 2013. Patriot Coal Corporation has engaged The Blackstone Group and continues to work with Davis Polk & Wardwell LLP, its long-standing counsel, to achieve an optimal financing package.

We wrote earlier about a report that the company was seeking restructuring help. This release from Patriot Coal doesn’t deny that, rather choosing to answer a question that wasn’t asked. As for the $625 million in financing, the statement says nothing new about that either. The company announced that on May 8th when it released earnings. But is the commitment letter signed, sealed, and delivered? Doesn’t sound like it.

Patriot Coal shares hit a new 52-week low of $1.36, down -58% for recovering to -30% at $2.36 as this is written.

Paul Ausick

Patriot Coal on Friday fielded informal pitches from restructuring advisors, said three sources familiar with the matter. The distressed coal miner aims to retain the professionals in the even[t] the company can’t satisfy its near-term financing needs.

The company failed to syndicate a $625 million bond offering last week after announcing that it lost a key customer. The situation is getting desperate and a bankruptcy filing is a real possibility at this point.

Other coal miners shares are also getting hit hard: Peabody Energy Corp. (NYSE: BTU), which spun-off Patriot in 2007, is down -5%, Arch Coal Inc. (NYSE: ACI) is down -10%, Consol Energy Inc. (NYSE: CNX) is down -3.8%, Alpha Natural Resources Inc. (NYSE: ANR) is down -5.5%, James River Coal Co. (NASDAQ: JRCC) is down -8.4%, Walter Energy Inc. (NYSE: WLT) is down -5.6%, Cloud Peak Energy Inc. (NYSE: CLD) is down -2.8%, and the Market Vectors Coal ETF (AMEX: KOL) is down -2.2%.

The weakness in domestic coal demand has absolutely clubbed the coal miners in the last year or so. Rising natural gas prices have led to some happy talk about coal, but there is nothing but bad news on the horizon for the industry.

Shares of Patriot Coal are down about -45% at $1.84 after posting a new 52-week low of $1.67 earlier today. Peabody also posted a new low of $23.30, as did Arch Coal at $6.84, James River at $3.12, Walter Energy at $48.35, and the Market Vectors ETF at $26.05. And except for Cloud Peak, the others came within pennies of posting new lows.

Paul Ausick

Here is the huge option spike.  The January 2013 $15 Call Options last traded ad $1.85 per contract, but the volume is 17,401 contracts.  The prior open interest is a mere 338 contracts.  Keep in mind that this translates to a speculative bet on 1.74 million shares on a fully leveraged basis if you count one contract as being the equivalent to 100 shares.

As far as the volume spike in the shares, we have seen over 730,000 shares traded as of 11:07 AM EST and the gain is 8.4% to $13.43.  The stock hit a low of $12.25 today and the prior 52-week range is $12.20 to $31.34.  An average day’s volume in Seabridge is only 322,000 shares.

The Yahoo! Finance description of the company is that Seabridge is a development stage company which engages in the acquisition, exploration, and development of mineral properties, primarily gold properties located in North America.

Seabridge is based in Toronto, Canada and here is its own description: “Seabridge Gold’s resource base of gold, copper and silver is one of the world’s largest. Our principal projects are located in Canada. Our objective is to grow resource and reserve ownership per share. Our risk-reducing strategy: acquire North American deposits; expand them through exploration; move them to reserves through engineering; and sell or joint venture them to established producers for mine construction and operation.”

JON C. OGG

At issue may be a stock market stabilization, or perhaps it is a stabilization aimed solely at the commodities and those companies which profit from either the rise of commodity prices or the rise of the demand for those commodities. It was just yesterday evening that Dennis Gartman of the Gartman Letter was talking up gold miners as his method of choice to play the current bounce in gold.

To show just how much implied upside there is we found some large cap gold stocks that have upside of about 100% and many of the big players have implied upside of well over 50%.  The key ETFs for these miners show just how widespread the damage was during the last sell-off.  The Market Vectors Gold Miners ETF (AMEX: GDX) trades at $43.35 against a 52-week trading range of $39.08 to $66.98 and that is down about 35% as a group from the highs.  The Global X Silver Miners ETF (AMEX: SIL) trades at $18.00 against a 52-week range of $16.54 to $29.05 and that is down almost 38% from its high in the last year.

We included the implied dividend yields but due to foreign issues and ADRs causing currency translations and due to some payouts not being quarter like U.S. companies do, we would urge you to only consider the dividend as a footnote and something you should be verifying on your own.  Besides that, who buys gold (and silver) miners because of their dividend yields only?

We have evaluated the following large-cap gold stocks: Barrick Gold Corporation (NYSE: ABX); Goldcorp Inc. (NYSE: GG); Newmont Mining Corp. (NYSE: NEM); AngloGold Ashanti Ltd. (NYSE: AU); Kinross Gold Corporation (NYSE: KGC); Agnico-Eagle Mines Ltd. (NYSE: AEM); Gold Fields Ltd. (NYSE: GFI); Yamana Gold, Inc. (NYSE: AUY); IAMGOLD Corp. (NYSE: IAG); Harmony Gold Mining Co. Ltd. (NYSE: HMY); Eldorado Gold Corp. (NYSE: EGO); and Royal Gold, Inc. (NASDAQ: RGLD). We have covered also two of the larger silver players of Silver Wheaton Corp. (NYSE: SLW) and Pan American Silver Corp. (NASDAQ: PAAS).

Barrick Gold Corporation (NYSE: ABX) traded at $37.60 and has a market value of $37.6 billion.  The consensus target price from Thomson Reuters is $59.10 and the 52-week range is $34.82 to $55.95.  Barrick has a dividend yield of 2.2%. The implied upside to the consensus target: 57% but we would note that the target is above the 52-week high.

Goldcorp Inc. (NYSE: GG) traded at $34.90 with a market value of $28.2 billion.  The consensus target price from Thomson Reuters is $60.42 and the 52-week trading range is $32.16 to $56.31.  Goldcorp’s most recent yield was listed as 1.6%. The implied upside to the consensus target is 73% but we would note that the consensus target is still above the 52-week high.

As you may have expected, gold demand actually shrank in the first quarter of 2012 according to this gold data and the drop was down 5% from the high demands of the first quarter in 2011.

The decrease in gold demand was expected due to import taxes in India and high gold prices, but what is interesting is that gold’s demand value was up 16% year over year. The figure was put at $59.7 billion globally and the Council noted an average gold price up 22% year over year to $1,690.57 for the quarter.

The issue that helped support gold were increased demand in China, as well as continued central bank purchases, and inflows into exchange-traded funds.

China’s investment and jewellery demand reached 255.2 tonnes, up 10% on the previous year’s levels, and China accounted for 30% of the global jewelry demand.  Conversely, jewelry demand was down 19% in India, with Indian investment demand down a whopping 46%.  The World Gold Council predicts that China will become the largest source of demand for gold in 2012.

Central bank buying was 80.8 tonnes with purchasing gains in Russia and Kazakhstan.  Mexico was the largest addition with a single purchase of 16.8 tonnes.

Demand from ETFs and other investment products was 51.4 tonnes worth about $2.8 billion.  The SPDR Gold Shares (AMEX: GLD) site lists that it holds 1,276.6 tonnes with a total value of just over $63.5 billion as of May 17.

Market Vectors Gold Miners ETF (AMEX: GDX) measures the companies which explore and mine the world’s new gold.  Shares are up almost 4% at $41.11 after bottoming out just above $39.00 over the last two days but this mining ETF was actually up at $50.00 as recently as April 2.

JON C. OGG

Patriot dropped its price estimate by $25-$20/ton and estimated shipments of 3.9 million of currently priced tons in the remainder of 2012 and just 200,000 currently priced tons in 2013. Pricing on the 2013 shipments is just $122/ton, compared with $145/ton for the rest of 2012.

Shipments of thermal coal used to generate electricity have been hurting coal share prices for nearly a year now as natural gas prices remain very low. But met coal, which is used in steel-making, has fared a little better and met coal producers have had some backstop for the downturn in thermal coal sales. But not after today.

Patriot is dragging the entire coal mining sector down with it. Peabody Energy Corp. (NYSE: BTU) is off -4.4%, Consol Energy Corp. (NYSE: CNX) is off -4.1%, Arch Coal Inc. (NYSE: ACI) is off -4.6%; Alpha Natural Resources Inc. (NYSE: ANR) is off -8.8%, Walter Energy Corp. (NYSE: WLT) is off -6%, James River Coal Corp. (NASDAQ: JRCC) is off -4.3%, and Cloud Peak Energy Corp. (NYSE: CLD) is off -3.2%. And the more met coal a company mines, the worse the story. That’s why Alpha and Walter are down so much further than the others.

Peabody has posted a new 52-week low this morning of $26.72. James River also struck a new annual low of $3.58, and Alpha posted a new low of $11.95.

Patriot, of course, has done even worse. Shares are down -15.4% at $4.09, and the stock’s new 52-week low is $4.08. The prior range was $4.82-$24.99.

Paul Ausick

The move is also weighing on the more speculative silver market.  What is happening is a bit of an identity crisis as the metals markets are currently fighting for relevance. What happens when the shiny yellow metal’s natural purpose as a currency and inflation hedge and even when a risk-on trade is dwarfed by dollar gains and other macro-issues like trading margin requirements and more?  This is called a fight for relevance.

SPDR Gold Shares (AMEX: GLD) is down 0.3% at $150.86 and the Market Vectors Gold Miners ETF (AMEX: GDX) is down 1.1% at $40.51 as almost every single miner and exploration outfit is lower today.  One of the only exceptions of any size is Royal Gold, Inc. (NASDAQ: RGLD) as one of the few gold mining (well, royalties on mining) outfits that is up on the day with its shares up 0.7% at $62.14 but the volume is rather light.

Silver is down as well with the iShares Silver Trust (AMEX: SLV) down 0.7% at $27.22; shares of Silver Wheaton Corporation (NYSE: SLW) down 0.9% at $24.17.

What really has to happen for the gold and silver market to stabilize is perhaps multiple issues.  The dollar has to stop rising so much, the ‘risk-on’ attitude has to return or at least not be so dead, the European meltdown has to stabilize, and/or the PIIGS resolution needs to go at least one or two days without dire news from Greece, Italy or one of the other PIIGS.

Looking at a brief chart and saying that both gold and silver are oversold technically is getting easier and easier to do.  Unfortunately, oversold and overbought readings can go on and on even if trading bounces come based solely on short covering and speculative buying.

JON C. OGG

Gabelli is out with a note that defends the company despite a slight slide after earnings and despite a weak equity market weighing on this position.  What is ironic is that the official rating at Gabelli is a mere “Hold.”  Where the “Hold” rating gets very interesting is that Gabelli maintains something called a private market value.  This is not an official target, but under the right circumstances and in a go-private scenario Gabelli’s private market value is $45.00 per share if you go out to 2013.

Gabelli noted, “During the first quarter, Molycorp achieved several milestones, including the start-up of its new Mill, Flotation Separator, and Paste Tailings Facility at Mountain Pass. In addition, the company announced a 36% increase in its proven and probable rare earth reserves at Mountain Pass. Results were seasonally low due to the impact of the Chinese New Year. Although MCP remains speculative, we believe that the long-term prospects for the company remain attractive and that Molycorp is the best vehicle to gain exposure to the rare earth industry.”

This is where a “hold” rating sounds a lot more like a “buy” rating from a research report.  Just looking at the consensus targets from Thomson Reuters generates forward earnings multiples of about 19-times for 2012 and less than 8-times expected earnings in 2013. The consensus annual revenue targets from analysts are $548.22 million in 2012 and $938.38 million in 2013.  Keep in mind that this is a very thinly followed stock when it comes to analysts but it is very active and is technically a cult stock as far as the investment community is concerned with a $2.4 billion market cap.

Market Vectors Rare Earth/Strategic Metals ETF (AMEX: REMX) has Molycorp ranked as the fourth highest weighing in the ETF that tracks this ‘rare earths’ sector, although it is perhaps the most direct and most visible component of the ETF.

Molycorp is indicated down marginally from its $24.93 close and the 52-week trading range is $23.05 to $66.62. The consensus price target from Thomson Reuters as a price target is $40.40.

JON C. OGG

The euro sank today against the dollar, falling below $1.30 late last night and staying there all day. The political situation in Greece, with no one able yet to form a government, weighed on the euro. So did fears that Greece would just kiss the monetary union good-bye and default on its euro-denominated debt. Spain’s sale of 10-year bonds at more than 6% interest and its likely bailout of some of its largest banks added to the uncertainty.

As the dollar rises, the cost of a dollar-denominated gold futures contract gets more expensive. This tends to lead to a sell-off of gold and more buying interest in dollars. Gold’s value as a hedge against a falling dollar also declines in this market situation. Traders have also been betting on lower gold prices, which added to the drop.

Paul Ausick

Avalon Rare Metals Inc. (AMEX: AVL) is seeing its shares really hit hard after providing an update on the Nechalacho Project with an indication that the feasibility study is now targeted for completion in the second quarter of calendar 2013.  That is a significant push out and time for Avalon to burn cash.  As you would expect, the drop is rather large and it is down 26.7% at $1.62 on almost 3-times normal volume.

Rare Element Resources Ltd. (AMEX: REE) is lower by 6% after news on Monday that it saw a 10% increase of M & I rare-earth mineral resources as well as a 61% increase of oxide and oxide-carbonate inferred mineral resources.  At $4.46, the 52-week range is $3.08 to $13.48.

Molycorp, Inc. (NYSE: MCP) is down with the weaker metals and a weaker growth story, but the rest of the sector woes may be the real culprit here.  Shares are down 4.1% at $25.07 agsinst a 52-week range of $23.05 to $71.43.

The last of the real rare-earth trades in the U.S. is the Market Vectors Rare Earth/Strategic Metals ETF (AMEX: REMX) and it is down 4.5% at $14.65 in active trading for this ETF.

Nothing new really out of China on this front, just relative weakness and problems impacting valuations.

JON C. OGG