S&P Cuts Outlook on Coal Miner (CNX, ACI, ANR, WLT)

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Ratings agency S&P has lowered its outlook on coal miner Consol Energy Corp. (NYSE: CNX) from ‘positive’ to ‘stable’, while maintaining a ‘BB’ junk rating on the company’s debt. Earlier this week Fitch Ratings dropped its credit rating on Arch Coal Inc. (NYSE: ACI) four notches to ‘B+’ and S&P had already lowered its outlook on Walter Energy Inc. (NYSE: WLT) from ‘positive’ to ‘stable’. Alpha Natural Resources Inc. (NYSE: ANR) took a shot this morning, too, when analysts at Brean Murphy lowered its rating on the company’s stock from ‘buy’ to ‘hold’.

In its report S&P said:

We expect operating results and credit metrics at U.S.-based Consol Energy Inc. to weaken in 2012 as result of low prices caused by the combination of weather-induced weak utility demand and switching to natural gas from coal, lower met coal prices, and low natural gas prices.

The ratings agency also said it expects the weak performance to last “into 2013.” Lower prices for the company’s metallurgical coal, higher safety-related and labor costs, and low natural gas prices get most of the blame for the lowered outlook. And S&P is also thinking long-term prospects are not so hot either:

[O]ver the next several years, more-stringent environmental regulations for power plants make it less likely that new coal-fired generation plants will be built in the U.S. and could reduce the demand for coal and pressure prices.

No coal company can at this moment claim an investment grade rating on its stock. Cash flow and credit availability (at whatever price) are the keys to survival for at least the next couple of years.

Shares of Consol are down -0.7% at $33.30 in a 52-week range of $29.85-$55.02. Shares of Alpha Natural Resources are down almost -3% at $14.41 in a 52-week range of $13.80-$55.20.

Paul Ausick