Industries to Watch Flashback: Coal Company Sites Shale, Regulation in New Chapter 11 Filing

In September NACM’s Industries to Watch series spotlighted deep headwinds, such as increased government regulation and the newly booming natural gas/shale industry, facing domestic coal producers. This week, the first significant Chapter 11 in the industry since the article’s release, one expected to be part of a recurring occurrence within what is becoming an entirely “new industry,” was filed.

James River Coal Company filed on April 7 in US Bankruptcy Court for the Eastern District of Virginia (Richmond Division). James River plans to reorganize and begin operating in a vastly different manner as is needed in a new industry landscape, said Peter Socha, the company’s chairman and chief executive officer.

"Some of these changes are cyclical due to continued weakness in the real economy.  Other changes are more permanent like changes in government environmental regulations, improved methods to produce natural gas, and switching between coal basins by domestic power utilities,” he said. “We need to adjust our balance sheet and debt structure to align ourselves to the new industry.” Socha hinted it is not the only company feeling the pinch. In March, the latest Federal Reserve Beige Book roundup noted coal production among the industries posting the most significant and notable activity declines, especially in the Fed’s Eighth District based in St. Louis.  

Apparently, the decrease in demand both domestic and out of China because of the latter’s slowdown in growth is having an effect throughout the world. Chinese coal prices have dropped to a six-year low, with some industry experts and even one of the nation’s top producers telling media there that some small companies are already on the brink of insolvency. Meanwhile, Czech Republic coal outfit New World Resources has made it known that it will slip into bankruptcy soon unless it can secure of loan of nearly $150 million (USD), as a huge drop in demand led to its worst quarterly losses ever to close to 2013.

Speaking mostly about domestic issues, a lengthy list of experts warned in interviews with NACM late last summer of the potential for deep financial problems in the coal industry in the short term. This included Adam Rosen, director of PricewaterhouseCoopers LLP's financial restructuring group. Rosen called natural gas a permanent threat to coal producers and predicted it could be until mid-2015 when demand from buyers in China and Australia, among others, could inspire some pricing improvements for coal companies. Many simply don't have the capital to wait until then for better days.

- Brian Shappell, CBA, CICP, NACM staff writer

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