What Does the Future Hold for US Metallurgical Coal Producers?
Walter Energy (WLT) is clearly the weakest link among US metallurgical coal producers in terms of operations as well as finances.
Thermal or metallurgical US coal stocks have been on a massive decline, especially since the last few quarters.
In essence, tightening monetary policy in the US will result in a stronger dollar, while rate cuts in Australia will result in AUD depreciation.
American coal producers (KOL) spent billions buying other coal companies, mainly with exposure to met coal or metallurgical coal.
Metallurgical coal (or met coal) is used to make coke for iron and steel as well as foundries. Most metallurgical coal produced in the US is exported.
While oil inventory had reached extraordinarily high levels earlier this year, lower oil prices meant that producers were less motivated.
Wall Street’s projections for Denbury Resources (DNR) point to a bleak few years ahead, likely driven by bearish expectations for crude oil prices.
Denbury seems to be undervalued compared to its peers, perhaps due to its weaker showing in line items and expected weak performance going forward.
Denbury’s debt has grown far faster than its earnings, measured by EBITDA. This means that EBITDA’s ability to cover interest payments has also weakened.
Looking at Denbury’s price ratios, it currently trades at a trailing 12-month PE of 4x. Similar peers trade at TTM PE multiples of ~5x, ~4.3, and ~4.9x.
Denbury’s enterprise value almost doubled over the last six years. Its market capitalization remained almost unchanged near ~$2.8 billion.
Putting Denbury’s cash flows together, we see that operating cash flows and well managed financing cash flows have kept pace with investing cash flows.
Denbury’s (DNR) cash flow from investing rose from just less than $1 billion in 2008 to $1.6 billion in 2011. Then it eased to almost $1.1 billion in 2014.
Denbury’s operating cash flows have been on an upward trend for the last few years. OCFs have grown from $775 million in 2008 to $1,223 million in 2014.
Denbury’s (DNR) balance sheet shows that assets have grown 3.5x, from $3.6 billion in 2008 to $12.7 billion at the end of 2014.
Denbury’s profit margins show a declining trend over the last six years. This is significant since revenues have been rising.
Over the last 12 quarters, Denbury’s operating costs have been drifting upward. They rose from $21.19 per BOE in 1Q12 to $22.64 per BOE in 4Q14.
Revenues for Denbury Resources Inc. (DNR) have almost doubled in the six years to 2014. They rose from ~$1.3 billion in 2008 to ~$2.4 billion in 2014.
In spite of the lower-than-expected inventory, natural gas prices fell marginally during the week ending March 13.
US propane inventories increased 0.5 million barrels to 54.3 million barrels in the week ended March 13. Inventories are now 106.9% higher than last year.
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