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

Lower demand expectations and a weak market have shares of Exxon Mobil Corporation (NYSE: XOM) down by -2.2% at $82.03 against a 52-week trading range of $67.03 to $88.13.  Baker Hughes Incorporated (NYSE: BHI) has been among the weakest of all large oilfield services players and shares hit a new 52-week low of $39.40 today against a 52-week range of $40.20 to $81.00.  The Market Vectors Oil Services ETF (NYSE: OIH) is down 2% at $38.61 against a 52-week range of $35.80 to $45.14.

The EIA now expects the price of West Texas Intermediate crude oil to average about $106 per barrel in 2012, which is the same as last month’s projection but it is $11 per barrel higher than the average price last year. Transportation constraints from the U.S. midcontinent region remain a reason for the discounting. The EIA further went on to say that it expects WTI prices to remain relatively flat in 2013 around $106 per barrel with an average refiner acquisition cost of crude oil averages $110 per barrel in the United States.  With refining at risk for price spread gaps, Valero Energy Corporation (NYSE: VLO) is down 4.3% at $23.64 against a 52-week trading range of $16.40 to $29.55.

The EIA expects gasoline retail prices at $3.81 per gallon on average in 2012 and $3.73 per gallon in 2013.  The average listed by the EIA was $3.53 per gallon in 2011.

There is a mixed bag for coal producers who have seen their shares battered: “EIA expects electricity generation from coal to decline by about 10 percent in 2012 as generation from natural gas increases by about 17 percent. EIA forecasts that electricity generation from coal will increase by about 7 percent and generation from natural gas fall by 3 percent in 2013 as projected coal prices to the power sector fall slightly while natural gas prices increase, allowing coal to regain some of its power sector generation share.”

Chesapeake Energy Corporation (NYSE: CHK) has not been able to avoid the hangman today with shares down 3.5% at $20.70 against a 52-week range of $20.41 to $35.75 despite announcing some fresh asset sales.

Shares of Peabody Energy Corporation (NYSE: BTU) are down 0.7% at $27.52 and the prior 52-week trading range before today was $27.61 to $68.30.  The Market Vectors Coal ETF (NYSE: KOL) is down 1.4% at $30.89 against a 52-week range of $27.42 to $51.69.

JON C. OGG

Coal miners Peabody Energy Corp. (NYSE: BTU), Alpha Natural Resources Inc. (NYSE: ANR), Patriot Coal Corp. (NYSE: PCX), Arch Coal Inc. (NYSE: ACI), and James River Coal Co. (NASDAQ: JRCC) are getting punished by investors as a result.

Analysts at Sterne Agee have taken a contrarian view, noting that the new EPA rules do not apply to existing plants nor to plants that will commence construction in the next 12 months. The analysts say that the proposed rules will have a “minimal” effect on coal production for the foreseeable future.

If the proposed rules are adopted, though, as coal plants age and need to be renovated or replaced, the costs of renovating/building a new coal-fired plant make such a choice nearly inconceivable unless expensive — and as yet untested — technologies like carbon capture and storage are implemented. Coal’s days are probably numbered, but that number is still pretty big.

Peabody’s shares are down about -4.8% at $28.42 after posting a new 52-week low earlier today of $28.18. Alpha’s shares also hit a new 52-week low this morning of $14.71, while Patriot fell to within a nickel of its 52-week low. Arch Coal posted a new 52-week low, and James River came within three cents of its yearly low. The Market Vectors Coal ETF (NYSE: KOL) is down about -2.9% at $31.51 in a 52-week range of $27.42-$51.87.

Paul Ausick

That’s quite a lineup of deep-pocketed shoppers and its putting some fire in other coal stocks today. Alpha Natural Resources Inc. (NYSE: ANR) is up nearly 5.3%, Peabody Energy Corp. (NYSE: BTU) is up nearly 5%, and Patriot Coal Co. (NYSE: PCX) is up more than 10%. Even the Market Vectors Coal ETF (NYSE: KOL) is up nearly 1.3%.

The same rumors hit the some of the same companies in October when both BHP and Anglo American were said to be interested in acquiring Walter Energy. Nothing happened then, and the same result is likely again. And the same stocks got a nice price bump to go with the rumors then too. This may be the only way coal stocks can post a gain these days.

Paul Ausick

Demand for coal, both the thermal variety used for generating electricity and the metallurgical coal used in steel making, declined in 2011 as coal-fired plants have been shut down in favor of gas-fired plants and demand for steel has dropped.

In the US, gas-fired plants account for about 39% of total generation capacity, but these plants have traditionally been used to meet demand spikes because natural gas was more expensive than coal. With gas prices so low (about $2.49/thousand cubic feet today), coal miners have to lower prices or reduce production or both.

A quick look at coal mining companies’ valuations is enlightening.

Alpha’s share price at around noon today is $23.19 in a 52-week range of $15.49-$61.66. The consensus target price on the stock is $29.50, for a potential upside of 27%.

Patriot’s share price is $9.19 in a 52-week range of $6.92-$27.56. The consensus price target on the stock is $11.50, for a potential upside of 25%.

Peabody’s share price is $38.38 in a 52-week range of $30.60-$73.95. The consensus price target for the stock is $49, for a potential gain of about 28%.

Consol’s share price today is $37.34 in a 52-week range of $30.56-$56.32. The consensus price target is $50, for a potential upside of 34%.

Arch Coal’s share price is $15.39 in a 52-week range of $13.09-$36.99. The consensus price target is $22, for a potential upside of about 43%.

Market Vectors Coal ETF (NYSE: KOL) is down 0.4% at $37.17 and is 52-week trading range is $27.42 to $51.87.

Share price highs for all the coal miners is down by -24% to -64%, with Consol down the least and Patriot down the most. Our pick from among these would have to be Peabody, primarily for its strength overseas. The others are either closing shafts or soon will be.

The boom in shale gas production not only weighs down natural gas prices, but will continue to weigh on coal prices. About the only thing that can help here, is lower natural gas production, and that may be starting to happen.

Paul Ausick

Met coal currently commands a contract price of about $285/metric ton. The spot price for Australian met coal is around $250/metric ton, a -20% drop in just three months. That indicates that the contract price will fall as well, and probably below the spot price. Platt’s has quoted a broker who has projected prices of $235/metric ton in the first quarter of 2012, falling to $205/metric ton by the end of the year.

The lower pricing is the result of an anticipated slowdown in the global economy, particularly in China which has experienced a construction boom in the past few years. But tighter government restrictions on lending and an over-supply of vacant buildings have resulted in fewer construction projects.

Still, there remains speculation that other coal companies may be takeover targets. We noted a rumor in early September that British miner Anglo American PLC (OTC: AAUKY) may be preparing a bid for Walter Energy. Last week, BHP Billiton plc (NYSE: BHP) was said to be considering a $6 billion offer for Walter Energy, with Brazilian giant Vale SA (NYSE: VALE) also included in the mix.

Like many commodities stocks, Walter Energy’s share price plunge in early August, and posted a 52-week low of $57.62. Shares have recovered to over $75, but that’s still about 50% off the stock’s 52-week high. If a takeover offer is coming, now is probably a good time.

US miner Patriot Coal Corp. (NYSE: PCX) has been boosting its production of met coal, and the company has said it sees strong demand for the steel-making coal continuing from Brazil and India. Patriot’s share price is about 67% below its 52-week high, making it another possible takeover target now that it’s market cap has fallen below $1 billion.

Peabody’s shares were up more than 3% at this morning’s opening, at $39.39, in a 52-week range of $30.60-$73.95. ArcelorMittal’s shares were also up more than 3%, at $18.72, in a 52-week range of $14.77-$38.88. The Market Vectors Coal ETF (NYSE: KOL) is unchanged, at $35.14, in a 52-week range of $27.42-$51.87.

The elephant in the room that no one wants to acknowledge is that if the stronger coal players are using the recent weakness to acquire the weaker players, perhaps these companies are positioning themselves better for the next decade and beyond.  Coal demand is a often considered as a leading indicator because it is still used as a key measurement for power consumption and for building infrastructure equipment and structures.  As with many businesses in and around commodities, getting better scale and better geography can incrementally lower costs and that drives higher margins.   Coal players seem to be positioning themselves for far beyond the next few years.

Paul Ausick

In addition to its struggles with a weak economy, the coal industry is almost continuously fighting rear-guard battles against environmentalists and regulators. The industry, or at least some of its players, have earned the scrutiny following deadly mine explosions and for continuing the widely denounced mining practice known as mountaintop removal. The US Environmental Protection Agency tried to rein in mountaintop removal mining by invoking provisions in the Clean Water Act. In a court ruling yesterday, the industry won a victory over the EPA when the judge ruled that the agency had exceeded its enforcement authority by failing to go through the formal rulemaking process before promulgating the restrictions on mountaintop removal.

The suit was filed by the National Mining Association, an mining industry group that includes large coal miners like Arch Coal Inc. (NYSE: ACI), Alpha Natural Resources Inc. (NYSE: ANR), Peabody Energy Corp. (NYSE: BTU), Cliffs Natural Resources Inc. (NYSE: CLF), Consol Energy Inc. (NYSE: CNX), and Patriot Coal Corp. (NYSE: PCX). The court ruling is expected to remove restrictions on more than 70 mining permits that were holding up projects in Appalachia.

The EPA pointed out that the ruling is a procedural issue and that it does not affect the agency’s authority under the Clean Water Act. In fact, the EPA released in July its final guidance which replaced the interim guidance that the court ruled on yesterday.

This issue still has some time to go before it is finally played out, and coal miners will continue to struggle, but not because they can’t keep knocking the tops off Appalachian mountains. On Monday, Arch Coal revised its outlook for the 2011 fiscal year from EPS of $1.75-$2.15 to $1.00-$1.40. The company has lost production of metallurgical coal at one of its mines following a roof collapse. Several other miners have had similar problems producing the high-priced coal and that is sending mining companies back to Appalachian mines.

Typically, when production of coal is disrupted, the price of coal rises. That’s not happening this time as Australian shipments of coal are fast making up for the disruption to production following last year’s floods. And then there’s the overall weak economy, which cuts demand for energy even more.

Over the past year, all seven of the companies mentioned here have seen share prices drop from around -5% (Consol) to nearly -60% (Alpha). Whether the coal mining stocks are currently a great value or a looming value trap depends more the pace of recovery in the world’s economy than on winning a pyrrhic victory over the EPA. And today’s share price declines bear that out.

Shares of Arch Coal are down more than -2% at around noon today, at $15.44, in a 52-week range of $13.09-$36.99. Alpha’s shares are off -3.5%, at $18.49, in a 52-week range of $15.49-$68.05. Patriot shares are off more than -7.5%, at $9.28, in a 52-week range of $6.92-$29.20. The Market Vectors Coal ETF (NYSE: KOL) is up 0.3%, at $32.03, in a 52-week range of $27.42-$51.87.

Paul Ausick

Alpha Natural Resources has cut its 2011 coal shipment targets down to 102.5 to 109.5 million tons from a prior range of 104 to 112 million tons. Lower metallurgical coal exports to Asia are forcing it to cut production at some of its domestic coal mines.  The company is also reviewing its 2012 estimates as well with global market conditions and it will adjust the 2012 at its next earnings report.

Walter Energy’s lower guidance is due to adverse weather conditions at its Alabama mining site and in its northeast British Columbia site.  Walter now sees earnings of $1.00 to $1.16 EPS for the current quarter and sees $2.63 to $2.95 EPS next quarter.  Thomson Reuters had estimates of $3.23 EPS this quarter and $3.16 EPS next quarter.  Metallurgical coal sales guidance was cut for the second half of 2011 to 5.2 million metric tonnes from a prior target of 5.9 million metric tonnes.

Patriot Coal Corporation (NYSE: PCX), Arch Coal Inc. (NYSE: ACI), and James River Coal Co. (NASDAQ: JRCC) are all getting hit hard: Patriot is down 6.5% at $10.66 and the new 52-week range is $10.35 to $29.20; Arch Coal is down 6.4% at $16.85 and the new 52-week trading range is $16.70 to $36.99; James River is down 5.6% at $8,55 and the new 52-week range is $8.48 to $27.06.  Alpha is down over 7% at $25.07 and the new 52-week range is $23.90 to $68.05 with that low being seen today.  Walter is down over 10% at $66.93 and the new 52-week range is $63.88 to $143.76.

Oddly enough, Yanzhou Coal Mining Co. Ltd. (NYSE: YZC), a steam coal and metallurgical coal player in China, is only down 1.2% at $25.37 and the 52-week trading range is $21.70 to $41.89.

The Market Vectors Coal ETF (NYSE: KOL) is also down ‘only’ 2.4% at $35.88 and its 52-week trading range is $35.73 to $51.87.

Weather is one thing, but a slowing demand out of Asia is another issue.  The world is hoping that growth in Asia can remain high enough that the U.S. and Europe can still avoid a recession or that they can limit the impact of a new recession.  Too much time has passed for there to be a true double-dip recession, but a new poll suggests that 80% of America feels like the recession never even ended.

In copper, a leading indicator, Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), also suffering from a strike in Indonesia, is down 6.2% at $36.14 and its new 52-week range is $36.12 to $61.35.  It almost seems odd that the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC) is up 0.6% at $48.38 on the day.

JON C. OGG

If the rumor is true, the deal would be valued at $7.5 billion and it only highlights the value of coal for industry.  Walter Energy produces and exports metallurgical coal for the steel industry and its stock had been faltering considerably of late.  Disappointing earnings and management turmoil have been attributed to much of Walter’s woes so far this year.

What is interesting is that a Bloomberg report this morning quotes a fund manager saying that Anglo American is not a likely bidder.  Go figure.

Elsewhere in more general coal movers, Market Vectors Coal ETF (NYSE: KOL) is up almost 4% at $41.29.  CONSOL Energy Inc. (NYSE: CNX), valued at $10.3 billion, is up 4.6% at $45.62.  Peabody Energy Corp. (NYSE: BTU), valued at $13 billion, is up 4.8% at $47.85.  Alpha Natural Resources, Inc. (NYSE: ANR), valued at $7.3 billion, is up 7.2% at $32.42.

What is interesting is that Walter Energy’s earnings estimates are $10.47 EPS for 2011 and $12.45 EPS.  Coal companies usually trade with a sub-market P/E multiple.  Still, even if things flatten and the estimates in 2012 only match this year’s estimates then Walter trades at about 8.4-times expected earnings.  It pays only 0.6% in dividend yields.

Even after an 18% pop to $88.69 after closing at $74.99 yesterday.  The 52-week trading range is $69.33 to $143.76.  As with all reports and rumors, none are gospel until a deal is formally announced.

JON C. OGG

Goldman’s reading on the entire sector is that thermal coal, used to generate electricity and heat, would outperform metallurgical coal used in steel making. As if to underscore that point, Canada’s Teck Resources Inc. (NYSE: TCK) lowered its production guidance for the second quarter, citing higher costs and deferred shipments due to the Japanese earthquake and tsunami. Teck is among the world’s largest suppliers of the metallurgical (coking) coal used in steel making.

Teck expects unit mining costs  of $71-$76/metric ton in 2011. The company also lowered its estimated average selling price for metallurgical coal from $280-$290/metric ton to $270.

Goldman’s prediction for thermal coal is based on better demand from both China and the US as US exports rise and lower production in the US bring inventories down by the end of the year. US utilities signing contracts for 2012 are expected to be forced to pay more to guarantee supply.

The situation in China is more complicated. The country has been unable to produce enough electricity for months now, as continued drought has lowered river levels and reduced hydro-power generation.

Already high coal prices pose another problem because the government sets the rate at which utilities can sell electricity, and right now the government is more concerned about consumers than about utilities. Thus, it has forbidden utilities to raise rates and opted instead to ration power where it can.