Positive News from, of All Places, Central Appalachia?
Have rumors of central Appalachia's "CAPP" death been greatly exaggerated? The second piece of positive news is that an Indian company plans to import up to 9 million tons of thermal coal per year from mines in Kentucky and West Virgina. Two private companies, Booth Energy Group and River Trading Co., have signed a 25-year deal. Importantly, Booth and River Trading will not supply the entire 9 million tons; other producers in the area will be tapped as well.
Time will tell how important these news items turn out to be, but they are unambiguously positive. CAPP producers that stand to benefit include James River, (NASDAQ: JRCC), Alpha Natural Resources, (NYSE: ANR), Arch Coal, (NYSE: ACI) and Consol Energy(NYSE: CNX). James River has perhaps the most to gain. CEO Peter Socha has been to India and has talked about it on earnings conference calls. If Socha can contract some coal into this deal, that could really move the needle for a relatively small company.
Alpha could benefit in a number of ways -- they could sell to the Indian group directly or back-fill tons that are exported by peers. Alpha has been aggressively closing higher cost CAPP mines all year. At the margin, if a few extra million tons of thermal production remain in-the-money, that would help the segment's unit costs.
Arch is much bigger out west in the Powder River Basin, but like Alpha it may benefit from direct sales or back-filling. Stronger CAPP prices would help Arch build out its CAPP coking coal platform. Although Consol is mostly in northern Appalachia, increased exports off the East Coast could help them as well. Consol owns the port of Baltimore. Increased throughput would add to Consol's consistent revenue growth at the port.
Not to beat the dead horse again, but positive news in the coal sector has been hard to come by. Domestic coal prices may not jump tomorrow or next week, but every little bit of support helps. If other Indian buyers are at the table, a few more deals like this could make all the difference. ?