Our team of researchers have been intensely covering the coal market in the greater 48 for several years now. And after much coverage we have concluded that, especially subsequent to all the recent consternation of the “Peabody “set-up” to fail, junior Patriot Coal, and slumping coal prices since late 2008, Patriot is a “strong Buy”, now. Yes, now, and why,…..well, we are not going to bore the public with graphs, charts, and ongoing ramblings about ratios and shareholder value.
First and foremost, back in july of 2012 when Patriot filed for bankruptcy protection, at the time, The company had roughly 3.2 bil. in valued market prices for proved and probable reserves. Total debt of 2.6 bil. including ; secured, unsecured credit facilities and legacy obligations thru the fourth qtr. 2012. So, ask yourself, what actually is the definition of “bankruptcy” meaning, does a company have the right to form, re-organize, and or, utilize the brand of bankruptcy in order to exonerate fix financial obligations? This was a interesting topic broached during the process, and the courts have granted Patriot a lot of latitude with regard to streamlining certain obligations and re-structuring present facilities. Flashback, federal circuit judge rules in favor of Patriot on legacy benefits for UMWA, allows Patriot and union to re-negotiate contracts.
Moving forward, mid-august 2013, the stock had been trading july 2012 thru july 2013 in the .08 to .20 cents range. A day after the courts ruling, Patriot stock soared, (the savvy investors jumped in game), the stock ran up to .56 cents a share in 2 trading sessions. A article was posted by some uninformed “analysts” at a market blog, relative to equity ownership in shareholder retention.(Wiped out!)…WRONG, understand the metrics, do you really think a court would allow a company that claimed bankruptcy, with 600 mil. in liquid assets at the time of filing to evade and exit stage door-right with no recourse and liabilities to the equity investors at all??. Never!….Furthermore, Peabody endeavored in the wrong direction, meaning west. In 2007, they figured the Asian persuasion was a corridor through the northwest and west coast. WRONG….So, Peabody had sights on its Asian business and Australian unit, and believed a new geopolitical scenario was evolving in the united States. Take a look at Kinder-Morgan’s website, amazing how it has re-aligned its guidance, in regards to infrastructure, coal is a large part of there future plans. Now, are things starting to shore up and make sense?…Moving forward, Kinder-Morgan has abandoned most of its activities in regard to shipping lanes, permits , import/export terminals on the west coast and pacific northwest.
Currently, Kinder-Morgan is involved in a plethora of acquisitions and have procured a number of import and export facilities inTexas, Louisiana, Alabama and thru the panhandle into Florida. In short, the Chinese have fully financed the panama canal. The new canal, might I add will be able to handle the new panamax ships, which are containerized and bulk carriers. These vessels can carrier twice the tonnage that ships carry, going “around the horn”, thus, a large tonnage savings in freight to asia. We currently have a value on the Appalachia coal trail in the trillions, once the new canal is open, first 4 gates delivered august 18, 2013 remaining 12 gates due before end of year. New canal scheduled to open and flood first locks april 2014. Doom for Peabody, additionally with present currency issues in Australia, Cloud Peak, and the entire Powder river coal basin, excluding domestic thermal coal. Are we getting a greater vision of the picture???…Now, Patriot Coal has had a sizeable move upward in its gross valuation of probable reserves, which is large, 11 mines in total, Kentucky up thru West Virginia.
As the canal positions itself, James River Coal, Alpha and Walter Energy will explode. Getting back to Patriot Coal, as we see it shaping up to be similar to the Mirant/Gen-on bankruptcy, identical in “animal’. We feel current shareholders, common and preferred, as NRG initiated in the Gen-On rights offering, will be granted a per share exchange, with that being said, equity shareholders who purchased positions in 2007 once IPO was initiated, will be compromised, but, give it a few years. Patriot Coal is here to stay, at least what they have in the ground is.
Furthermore, we see some rough road ahead for Peabody energy, especially with this looming lawsuit that has been filed against Peabody Energy by Patriot Coal, we presume that part of the suit is additionally to secure and restore significant equity ownership to existing shareholders of Patriot Coal. This became quite apparent when the Patriot Board of Directors brought in Ben Hatfield, and put him in place of the exiting C.E.O. Ben is very well respected in the coal industry, prior to Patriot he was with Arch Coal and the head of International Coal inc. Richmond, Va. It is our contention, based on prior industry setting cases, the courts will appoint a independent counsel, or a Board of Governors to initiate proceedings to determine the valuations and accountability of the respective firms involved in the supposed “set-up to fail” issue.
We have rated the company a strong buy, yes even at current trading range of .11 cents-.129 cents per share. It is our feeling the price to book, right now is about a $1.75 to $2.40 per share, based on 92 mil. outstanding shares.