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Analyzing Major Coal Mining Companies’ Adjusted Net Income in 2Q16

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Adjusted net income

Most coal (KOL) mining companies witnessed losses during 2Q16. However, Cloud Peak Energy (CLD) and Alliance Resource Partners (ARLP) remained profitable. Cloud Peak Energy’s adjusted net income rose from -$18 million in 2Q15 to $30 million in 2Q16.

Peabody Energy’s (BTUUQ) losses widened from $158 million in 2Q15 to $177 million in 2Q16. Arch Coal (ACIIQ) and Westmoreland Coal’s (WLB) losses narrowed on a YoY (year-over-year) basis. Westmoreland Coal’s losses narrowed from $33 million in 2Q15 to $29 million in 2Q16. Arch Coal’s losses narrowed from $153 million in 2Q15 to $138 million in 2Q16.

Alliance Resource Partners’ (ARLP) adjusted net income came in at $63 million—compared to $57 million in 2Q15.

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What helped Cloud Peak Energy and Alliance Resource Partners?

According to Cloud Peak Energy’s company filings, the year-over-year increase in net income was mainly due to one-time non-cash accounting income of $37.3 million recognized due to the re-measurement of the company’s asset retirement obligations in 2Q16. The rise in Alliance Resource Partners’ adjusted income was mainly due to higher-than-anticipated operating income due to lower operating expenses across revenue-generating segments.

Off-balance-sheet risk

Off-balance-sheet risks include self-bonds and surety bonds. Recent bankruptcies in the coal (KOL) mining industry heightened regulatory pressure on reclamation bonding and self-bonding in particular. This could require major coal mining companies to maintain sufficient collateral to meet these obligations.

Surety bonds are backed by collateral and could have a negative impact on the liquidity position. As of June 30, 2016, Peabody Energy posted the highest amount of $463 million in the form of surety bonds. Peabody Energy is closely followed by Cloud Peak Energy at $439 million. Westmoreland Coal and Alliance Resource Partners posted $384 million and $234 million, respectively, in the form of surety bonds.

Among major coal mining companies, Arch Coal posted the lowest surety bond value of $188 million.

Next, we’ll look at major coal mining companies’ leverage and liquidity position at the end of 2Q16.

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