Cloud Peak Energy (CLD) announced that it has dropped the idea to issue $100 million mandatory convertible preferred stock. The company had earlier announced that it would utilize the proceeds from the issue to partially lower its outstanding debts and allocate a portion for general corporate purposes (read: Cloud Peak Energy to Refinance Debt via $100M Stock Issue).
The objective behind the issue was to lower the cost of capital. However, Cloud Peak’s management decided to scrap the idea as it felt that the issue would go against the interest of its shareholders.
In fact, the announcement of the issue of mandatory convertible preferred stock did not go down well with its investors. Cloud Peak Energy’s shares lost 8.92% yesterday to close at $11.43. With this Cloud Peak Energy lost most of its gains it had shored up following its third quarter earnings beat of 300%.
The global coal industry is currently facing multiple challenges. The coal operators to remain competitive in weak market conditions are undertaking measures to cut expenses. Cloud Peak Energy’s earlier decision to lower its cost of capital was one among many such initiatives. We have seen coal operators lowering production by idling and closing mines and trimming capital expenditure.
However, coal miners could definitely expect some improvement in global demand, both for thermal and metallurgical coal, primarily from the developing Asian countries in the 2014-2018 time frame. Cloud Peak Energy with its three surface mines in the Powder River Basin is expected to benefit from a resurgence in Asian demand.
Cloud Peak Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the coal space include SunCoke Energy Inc. (SXC), Natural Resource Partners LP (NRP) and Hallador Energy Company (HNRG). While SunCoke Energy Inc. sports a Zacks Rank #1 (Strong Buy), both Natural Resource Partners and Hallador Energy Company carry a Zacks Rank #2 (Buy).
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