Thread by @taykuy

Despite hiccups, Navajo Transitional Energy Co. confident its coal strategy can work in Powder River Basin: spglobal.com/marketintellig…

I asked about strategy to succeed where Cloud Peak couldn't, but they did not want to share whatever that strategy is. Let's talk coal strategy. 1/

Most coal companies, and companies in general, have some sort of strategy to outshine their peers. But the companies are usually at least willing to talk generally about that strategy. I've heard about a lot of strategies in my years, but few have actually worked. 2/

First, let's talk coal companies' strategy to buy up met coal assets several years back. Long story short, it bankrupted a ton of firms when price dropped off. Even producers said they got "punch drunk." Think Peabody, Arch, Alpha, Patriot, etc. spglobal.com/marketintellig… 3/

On the extreme end, multiple investigations into the fatal Upper Big Branch explosion concluded Massey Energy had a strategy of driving production over safety. That kept costs low in the long run, but scrutiny eventually led to jail time for CEO and Massey no longer exists. 4/

Or, how about Bob Murray's plan to draw concentric ellipses around power plants and locate mines nearby? snl.com/InteractiveX/A…
Well, a few years later he had a four-point plan to stay out of bankruptcy: spglobal.com/marketintellig…
It didn't work: spglobal.com/marketintellig… 5/

Westmoreland Coal had a strategy too! Mines would be so close to the power plants that they could feed them by conveyor belt. The reduced costs and locked in customers was supposed to be foolproof and that didn't work either: spglobal.com/marketintellig… 6/

A few coal companies thought it might be good strategy to buy up distressed coal mines cheap or free in exchange for picking up liabilities. Despite deploying that plan, Blackhawk, Mission, Cambrian and Blackjewel all eventually ended up in bankruptcy: spglobal.com/marketintellig… 7/

Even Cloud Peak Energy had a special strategy. It was the only pure-play coal miner operating mines exclusively in the Powder River Basin. That was supposed to shield it from volatility in met and diminishing resources in Central App. 8/

However, each quarter we heard Cloud Peak execs hoping for a turn in gas prices, weather to drive more electricity demand, or improved export conditions. A confluence of competition from other fuels, diminished export opportunities, and operational issues led to bankruptcy. 9/

Many of those obstacles are still there. It would be nice to know Navajo Transitional Energy Co's strategy.

Sure, they've run the Navajo mine, but that has one customer, a nearby power plant. How will they manage three mines with dozens of customers differently than Cloud? 10/

Broadly, we've seen the industry trade groups change strategy a few times too btw, but coal keeps slipping. We've seen message change from focus on low-cost, to being a champion of energy poverty, to the latest arguments centered on grid reliability. spglobal.com/marketintellig… 11/

Only a few large public companies survived all of this decline w/o bankruptcy. i.e. Consol (though much smaller after divesting to Murray), Alliance and Hallador. All three were conservative about acquisitions and haven't really grown very much in the last couple of years. 12/

None of major names that made it so far are in Powder River Basin, where two largest producers are consolidating into a supercompetitor and folks like Moody's are anticipating mine closures due to lower demand and oversupply from the region soon. spglobal.com/marketintellig… 13/

Maybe NTEC's strategy will work. But I'm really very curious about what it is. Hopefully, a big part of their plan was not low premiums and reduced collateral requirements as that's possibly out the window with recent news from Navajo Nation president/vice president. /end