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Cloud Peak Can Wait Out the Lows

The coal miner has the financial flexibility to cope with low natural gas prices.

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 Cloud Peak Energy (CLD) recently released copies of its self-bonding renewal approval letters from the Wyoming Department of Environmental Quality. In letters dated April 14, Wyoming stated that Cloud Peak continues to qualify to self-bond its reclamation obligations at Antelope and Cordero Rojo, the company's two Wyoming-based mines. As government regulators continue to examine coal companies' self-bonding qualifications, we think Cloud Peak is the least likely to lose its ability, given its significantly lower debt levels. With no impact from the announcement to our forecasts, we maintain our fair value estimate of $12 per share and our narrow moat rating.

We think the renewal of Cloud Peak's self-bonding is evidence of its best-in-class financial health among its coal peers. As competitors face questions on self-bonding abilities and general liquidity, Cloud Peak's relatively lower leverage gives the company the time to wait for coal markets to improve as bankruptcy questions linger over its peers. At current natural gas prices of roughly $2.80 per thousand cubic feet, Powder River Basin coal's cost advantage remains threatened. However, we continue to believe that as natural gas approaches our energy team's forecast of $4 per mcf, Powder River Basin coal will regain a cost advantage throughout much of its footprint, leading to higher levels of coal burn.

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Kristoffer Inton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.