March 15, 2019 - Access to capital, a lack of capital discipline and negative public perception continue to be a significant restraints for the global coal industry, several industry leaders said during panels Thursday at the CERAWeek by IHS Markit conference.

Even though global coal demand is projected to rise in the coming years due to growth in Asia, the industry is struggling to move off the back foot, said the panelists at the conference in Houston.

Coal "is often a fuel, in my view, that's cast as a Hollywood villain," said Glenn Kellow, the president and CEO of St. Louis-based Peabody Energy, during a late afternoon panel.

Kellow said the industry has a number of good things going for it, including consistent demand, "a fabulous track record" developing technology to cut emissions and providing affordable, reliable energy.

Speaking on the same panel, George Dethlefsen, the CEO of Canonsburg, Pennsylvania-based Corsa Coal, largely agreed, noting that coal's greatest challenge is public perception but it's greatest opportunity "is delivery low cost electricity and low cost steel that elevates living standards ... and I don't think it's something we should ever apologize for."

Coal remains the world's primary fuel for power generation, at roughly 38%, according to the International Energy Association, but concern about carbon dioxide emissions are helping push down coal's share of the generation stack in Western economies.

Kellow said technology is a great way to solve the carbon problem, from increased use of carbon capture technology to improving heat rates at coal-fired plants. But as others pointed out in earlier panels Thursday, the question of who pays for such upgrades is harder to answer.

Access to Capital

A serial theme Thursday was the increasing struggle coal producers face trying to find financing. It's harder to find and more expensive to secure, said the panelists.

Environmental, Social and Governance programs are pushing major banks away from coal, while private investors are either unwilling to put money into coal names, or are demanding significantly higher returns.

"Among many commercial banks, thermal coal is taboo," said Garold Spindler, the CEO of Coronado Global Resources, during the late afternoon panel. "Private equity and long-term debt remain options but project-based financing is a thing of the past."

The lack of financing options is most acute for pure play thermal coal producers without access to export markets, while metallurgical coal producers with access to export markets are seen as having an easier time finding financing, said Jeremy Sussman, an equity analyst with Clarkson's Platou Securities, during an earlier panel Thursday.

"Eight of the 10 calls we get are for met coal names," Sussman said. For thermal coal producers without access to export markets, "there is virtually no interest for those names from the investment community."

Another issue facing the industry is what executive called "a lack of capital discipline."

"One of the bigger things we're seeing is ownership is much more focused on taking capital out of these companies than putting it in," said Ted O'Brien, head of capital markets and marketing for Latrobe, Pennsylvania-based coal marketer Xcoal, during the earlier panel.

One panelist argued that the industry has a history of overinvesting when times are good, but two and a half years into a relatively strong market, coal production remains flat.

Returning money to shareholders can be a good thing if it attracts long term capital back to the industry, said Jesse Parrish, the chief financial officer of Lexington, Kentucky-based Blackhawk mining, during the earlier panel.

"There are different classes of money and different risk profiles, so it's upon the coal industry to generate more steady cash flow, to improve risk and improve valuations so we can get cheaper capital," said Parrish.