Gold loses some luster after Trump’s decisive win
Gold’s slide is a marked turnaround for a commodity that had surged by more than 30% in the year leading up to the US vote.
U.S. coal miners are searching for an exit from the power business, or getting pushed there.
Activist investors are urging Contura Energy Inc. to accelerate its plan to get out of mining thermal coal for power plants, to focus instead on the more lucrative type that’s used to make steel. And Arch Resources Inc. is seeking to shed its thermal assets to also concentrate on metallurgical coal, after an effort to shift them to a joint venture was blocked last week.
The moves reflect the diverging paths of the coal industry. With cheaper energy sources more widely available, utilities are moving away from burning thermal coal, the dirtiest fossil fuel. But the market for met coal, used in steelmaking, is up as the world economy recovers from the coronavirus slowdown. That has miners adjusting their priorities.
“It’s pretty simple: get rid of thermal,” said Andrew Cosgrove, mining analyst for Bloomberg Intelligence. “There’s nothing wrong with that strategy. It’s encouraged. The market is telling you that’s what they want.”
Power plants are expected to burn about 433 million tons this year, less than half of what they needed a decade ago
Contura is already the biggest U.S. producer of met coal and expects to be “a pure-play met coal company by the end of 2022,” according to its 2Q earnings call. In May, the Bristol, Tennessee-based company pulled out of the Powder River Basin region, the biggest U.S. source of thermal coal, and put its Pennsylvania mining complex up for sale in June.
But that’s not good enough for some investors.
“It has become abundantly clear to us in recent months that Contura cannot begin to fully reverse its years-long tailspin until it accelerates its intended exit from the thermal coal business,” Michael Gorzynski, a managing member of MG Capital Management Ltd., wrote in a letter Wednesday to Contura’s board. Met coal accounted for 63% of Contura’s shipments in the second quarter and 77% of its revenue.
The New York-based investment firm said it owns a 5.8% stake in Contura and is also pressing the company to replace half its board with executives that can steer the transition away from the “environmentally-destructive thermal coal business.” A Contura spokeswoman didn’t respond to inquiries.
Thermal coal demand in the U.S. has been sliding steadily for years. Power plants are expected to burn about 433 million tons this year, less than half of what they needed a decade ago, and down 20% from 2019, according to the U.S. Energy Information Administration. Meanwhile, global steel production, the driver for met coal demand, has been climbing steadily since April.
Arch is also shifting its business to met coal, and is evaluating strategic options for its thermal assets, including the Black Thunder mine in Wyoming that’s the second-biggest in the U.S. The No. 2 U.S. coal producer is so focused on the transition that it even changed its name in May, dropping the word “coal” from Arch Coal Inc.
The company hit a roadblock last week when a judge nixed a proposed joint venture with Peabody Energy Corp. the biggest U.S. coal company. Arch was planning to put most of its thermal assets into a new company along with some of Peabody’s assets including North Antelope Rochelle, the world’s biggest coal mine that borders the Black Thunder site.
Peabody was to manage the venture, allowing Arch to step back from handling thermal coal, but the judge determined that creating a Powder River Basin behemoth would be unfair to competitors.
Despite the setback, Arch isn’t changing its strategy. “We intend to move full speed ahead with our strategic pivot towards steel and metallurgical markets,” Chief Executive Officer Paul Lang said in a statement.
One hurdle for both companies will be finding someone to take the thermal mines off their hands. “There are no buyers,” said Cosgrove.
(By Will Wade)
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