Coal

Vulture Capitalists Are Sucking Life from the U.S. Coal Industry

A Promise to Restore Coal

President Trump’s 2016 campaign was bolstered on his promise to restore the American coal industry. However, since he took office in January 2017, eleven U.S. coal companies have filed for bankruptcy, including Murray Energy, the largest privately-owned coal company in the nation (Moritz-Rabson, 2019). As coal mines have shuttered across the country, a get-rich-quick scheme is sweeping through Appalachia and western mining towns, where corporations are buying up remaining coal industry assets, avoiding worker and environmental liabilities, and in turn, making a profit through serial bankruptcies and corporate manipulation.

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Vulture Capitalism

The model of buying struggling mines in an effort to turn a profit from bankruptcy has become known as “financial engineering” or “vulture capitalism.” Basically, highly skilled individuals have been purchasing dying mines on the cheap, squeezing out a last bit of profit, and then aiming for bankruptcy to enrich themselves and top executives with large payouts and bonuses for managing the restructuring of a coal company.

A key benefiter of this scheme is Tom Clarke, who is a former Virginia healthcare entrepreneur that has found success in buying distressed coal mines in Appalachia. Clarke is behind last year’s high-profile bankruptcy of Mission Coal and has been directly involved in ten bankruptcy cases in recent years that have enriched himself and his close business associates (Roberts, 2019). Corporations have been able to hack complex bankruptcy laws to achieve hefty paydays without the need to address environmental cleanup or worker pension obligations.

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Revival Attempts

While vulture capitalists have found success in coal industry bankruptcy schemes, other companies that have made actual attempts at reviving the industry have consistently failed. Cloud Peak Energy Inc. is a prime example of a company that bet big on a coal revival, but ultimately failed to deliver reliable profits. The company recently reported a $718 million loss for 2018, which is much steeper than the $6.6 million loss in 2017 (Wade, 2019). Moreover, within the course of one year, Cloud Peak Energy experienced a 14 percent decline in coal sold, while the company’s average cost per ton of coal increased by nearly 13 percent (Wade, 2019).

In an effort to save the coal industry, the Trump administration has been working diligently to scrap numerous Obama-era regulations. In 2017, the Interior Department repealed a rule that forced coal miners to pay millions in royalties for coal extracted from federal lands (Wade, 2019). However, even with a massive rollback in coal-related regulations, the industry has still been on a decline that has proven to be much faster than energy analysts originally anticipated. Falling renewable energy prices and abundant natural gas have drastically impacted coal’s market share (Roberts, 2019).

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A Troubled Future

According to the Energy Information Administration, coal provides only 27.5 percent of American electricity, which is down from nearly 50 percent just ten years ago (Moritz-Rabson, 2019). Furthermore, the price of coal has fallen over 38 percent since October 2018, which is back down to 2016 prices (Jones, 2019). A consistent stream of bankruptcies has rippled through the coal industry. Armstrong Energy Inc. and Mississippi Minerals went bankrupt in 2017; Westmoreland Coal and Mission Coal filed for bankruptcy in 2018; while this year alone, Trinity Coal, Piney Woods Resources, Cloud Peak Energy, Cambrian Holding, Blackjewel, Blackhawk Mining, and Murray Energy have filed for bankruptcy (Moritz-Rabson, 2019). Unless market forces dramatically change, another string of bankruptcies are expected through 2020.

Sources:

Jones, C. (2019). “Even Trump Can’t Keep Coal Companies From Declaring Bankruptcy.” Forbes: https://www.forbes.com/sites/chuckjones/2019/11/09/even-trump-cant-keep-coal-companies-from-declaring-bankruptcy/#3a089d9410c4

Moritz-Rabson, D. (2019). “Eleven Coal Companies Have Filed for Bankruptcy Since Trump Took Office.” Newsweek: https://www.newsweek.com/eight-coal-companies-have-filed-bankruptcy-since-trump-took-office-1468734

Roberts, D. (2019). “Coal left Appalachia devastated. Now it’s doing the same to Wyoming.” Vox: https://www.vox.com/energy-and-environment/2019/7/9/20684815/coal-wyoming-bankruptcy-blackjewel-appalachia

Wade, W. (2019). “The Coal Miner That Bet Everything on U.S. Power and Lost.” Bloomberg: https://www.bloomberg.com/news/articles/2019-03-16/the-coal-miner-who-bet-everything-on-u-s-power-markets-and-lost

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