Cloud Peak Energy: Will It Be Able to Make a Comeback?CLD), like many other companies in the coal industry, has faced difficult times in 2015. Its stock is down 65% this year, which is not surprising if we consider the weakness in the company’s financial performance. For example, last quarter, its total revenue was down 24% year-over-year. The company’s net loss also widened to $52.9 million from $2.1 million in the year-ago period.
The coal mining company reported a year-over-year decline in both its top and bottom lines mainly due to lower shipments executed in the quarter.
A look at the operational performance
Cloud Peak’s Cordero Rojo mine in WY had net tons sold and proven and probable reserves in 2014 of 34.8 million tons and 267 million tons respectively. Further, the Antelope mine in WY had net tons sold and proven and probable reserves in 2014 of 33.6 million tons and 581 million tons respectively.
The 2014 non-reserve coal deposits added to 0.4 billion tons with Antelope mine, Cordero Rojo mine, Spring Creek mine and Youngs Creek project contributing 8 million, 148 million, 3 million and 287 million tons each respectively. Additional coal delivered for 2014 was nearly 1.4 billion tons.
But, these volumes could go down going forward due to weakness in the coal market.
Is a turnaround possible?
Cloud Peak’s strong natural gas storage and pricing position with rising storage levels will be a tailwind. Inventories are growing continuously and downward pressure on price is estimated to persist until oversupply is corrected. Overall pricing and rig count for the fiscal year 2015 has been constantly below $3.00/MMBtu. Natural gas production has also set record for 26 months even with disappointing prices.
The response of Cloud Peak Energy towards the continuing tough market conditions with the company actively managing export take-or-pay exposure in present weaker market conditions. The energy major is strategically lowering capacity and production at Cordero Rojo mine from 38 Mtpa to nearly 24 Mtpa during 2015. The company successfully hedged its diesel costs for 2015 and 2016. Further, Cloud is shifting dragline from Cordero Rojo mine to Antelope mine.
Cloud Energy is seen to be actively managing its mine assets in response to the currently depressed global commodity pricing environment by optimizing its cost structure through controlled mining activities and strategic cost hedging.
But, despite all these positives, investors should be wary of investing in Cloud Peak as the company will face weakness due to weak volumes in the coal market. On top of that, Cloud Peak has significant debt of almost $500 million, while it carries cash of just $95 million. As such, there is a chance that Cloud Peak’s stock could fall further if the end-market weakness continues.
Published on Oct 11, 2015By Yaggyaseni Mittra