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Bankruptcy Looms Over Cloud Peak

As the coal giant continues to lose money and faces potential delisting from the New York Stock Exchange (NYSE), Cloud Peak Energy may file for bankruptcy before spring’s end.

Despite it once being a prominent producer of Powder River Basin (PRB) coal, Cloud Peak faced nothing but problems near the tail end of 2018, according to a report submitted to the U.S. Securities and Exchange Commission.

Antelope Mine reported continued production issues stemming from weather-related, spoil failure due to heavy rains. The costs of moving coal by truck and shovel fleets also spiked, which in turn, resulted in the mine pushing off a number of planned 2018 projects to 2019.

Pushing the projects off until this year, however, meant that the cost of capital and development projects in 2019 significantly increased as well.

Increasing costs spell trouble for Cloud Peak; the money simply isn’t there, and the income expectations for 2019 are far lower than previous years.

Coal export prices took a huge dip with the Kalimantan Index declining by 14 percent from $53.25 per ton to $46 per ton, which means Cloud Peak cannot expect a positive return from coal exports in the coming year.

Cloud Peak’s cash balance decreased over $16 million in 2018, mostly due to cash flow from operations being too low to fund the company’s cash interest and capital expenditures throughout the year.

In 4Q2018, the balance had fallen from $109.5 million in September to $91.2 million in December 2018.

Lower customer demands, especially for the 8400 Btu coal from Cloud Peak’s crown jewel, Cordero Rojo, have created a financial forecast calling for significantly lower levels of cash flow from 2019 operating activities.

Cloud Peak can’t realistically borrow the money it needs either; its borrowing capacity fell from $21.3 million in December 2018 to $13.5 million in March 2019.

Reduced cash flow and low borrowing capacity means that Cloud Peak cannot afford to complete two development projects — Young’s Creek and Big Metal — in the PRB.

And there’s still the NYSE to consider. Cloud Peak’s common stock has failed, so far, to meet the minimum $1 per share requirement to be listed on the exchange.

As of March 18, Cloud Peak’s common stock closed at $0.20 per share, but it still has three months to raise its stock value before it is delisted.

According to the report, Cloud Peak expressed strong doubts as to its ability to continue as things stand, but said that they will continue to pursue options to pull itself out of its current predicament.

The company is currently engaged in discussions with advisors to determine if asset sales, private debt restructuring, or declaring Chapter 11 bankruptcy are the best ways to move forward.