Rhino Resource Partners (RNO) stands out because of its around 14% yield. That is a level at which most investors should assume that a huge dividend cut is, no doubt valued in. In any case, Rhino is really less levered than most of its competitors, providing for it an edge in an industry with high settled costs.
Owning and operating coal mines requires a considerable measure of in advance capital. You have to purchase or lease the mine and you have to purchase or lease the gear. It doesn't matter the amount coal is hauled out of the mine or the extent to which you get paid for the coal. Obligation costs raise the bar much further, since those costs don't go down either unless you pay off obligation or refinance at lower rates.
Case in point, long haul obligation represented around 75% of Walter Energy's (WLT) capital structure. Comparatively, long haul obligation made up around 55% of industry goliath Peabody Energy's (BTU) capital structure. Obviously, Walter Energy isn't in as solid a money related position, which helps clarify why it needed to trim its dividend to a token penny a share and alter a credit office to enhance liquidity.
Walter focuses on metallurgical coal that is used in steel making. Case in point, its closed or is currently closing mines. Furthermore it plans to cut full-year 2013 capital spending to about $150 million, less than 50% of what it spent in 2012. Peabody trimmed its funding by a similar sum, however didn't need to cut its dividend or alter credit facilities.
The organization paid about $53 million in the first and second quarters. That added up to 10% of revenues in the first quarter, but since the top line headed bring down, 12% in the second quarter.
Walter started the year anticipating coal sales of between 11.5 million and 13 million tons. It is currently anticipating just 11 million tons, down around 6% year over year. Taking a gander at lower volume and powerless evaluating, met coal estimating was down in excess of 20% from the year prior period.
Investors should most likely maintain a strategic distance from high obligation Walter. Despite the fact that Peabody is anticipating feeble coal valuing and low request to prompt a drop in second from last quarter earnings. It's a far superior alternative than Walter. With a yield of just around 1.9%, on the other hand, it won't energize income investors.
The best of both worlds?
Obligation at Rhino Resource Partners accounts for only a third of its capital structure and obligation payments represented just 3% of sales. In spite of the fact that Rhino has also needed to diminish generation and focus on controlling costs, obligation hasn't been an enormous issue.
Yet the organization's decision to trim its quarterly distribution by around 8% in late 2012 and Wexford Capital, the general accomplice, settling on the decision to stop taking motivation distributions both look like cautioning signs of money related weakness. They aren't.
These efforts should permit the organization to prosper over the long haul. For instance, oil and gas revenues bounced almost 300% between the first and second quarters. What's more, Rhino is on track to start generation at another mine in 2014.
Rhino "remains poised to increase creation" when conditions warrant. With low obligation and development projects in the works, it remains in development mode. With coal business sector weakness prone to last in any event through the end of this year, it is better to focus on a fiscally strong member than an organization with lots of power like Walter.