Arnold Van Den Berg Exits Cloud Peak Energy

Coal prices and environmental activism have impacted company's market price

Author's Avatar
Sep 20, 2016
Article's Main Image

Guru Arnold Van Den Berg (Trades, Portfolio) sold out of his position in Cloud Peak Energy (CLD, Financial) at an average price of $2.04 per share during the second quarter. Van Den Berg originally purchased his stake in the company in the first quarter of 2015, paying an average price of $7.37 per share. Van Den Berg lost an estimated -65% since then, causing him to sell  367,315 shares.

Cloud Peak Energy is a Delaware corporation that was organized on July 31, 2008. The company is headquartered in Wyoming and is one of the largest U.S. coal producers based on its reported 2015 coal sales. Cloud Peak Energy mines low sulfur, subbituminous coal and provides logistics supply services. The company owns and operates three surface coal mines in the Powder River Basin (PRB), the lowest cost major coal producing region in the nation. The Antelope and Cordero Rojo mines are located in Wyoming and the Spring Creek Mine is located in Montana. In 2015, Cloud Peak Energy shipped approximately 75 million tons from its three mines to customers throughout the U.S. and around the world.

Cloud Peak Energy has a market cap of $220.75 million, an enterprise value of $648.52 million, a price-book (P/B) ratio of 0.23, a price-sales (P/S) ratio of 0.24 and a quick ratio of 0.95.

GuruFocus gives Cloud Peak Energy a 4 of 10 financial strength rating with a Piotroski F-Score of 3, which usually implies a poor business operation. The company has an Altman Z-Score of 0.98, indicating that it is in the distress zone and is in danger of filing for bankruptcy in the next two years. The company also has a 4 of 10 profitability and growth rating with an operating margin of -1.99%, a net-margin of -16.17%, an ROE of -15.63% and an ROA of -8.01%, ranking it beneath 65% of the 158 companies in the global coal industry.

Arnold Van Den Berg (Trades, Portfolio) may have decided to sell out his holding in Cloud Peak Energy in the second quarter because the stock had been declining ever since Van Den Berg initially purchased his stake in the first quarter of 2015. It's possible that Van Den Berg wanted to cut his losses. The company also reported a few severe risk factors in its most recent 10-K report, which may have influenced the guru’s decision to sell out his remaining shares.

Risks Related to the Business and Industry

  • Numerous political and regulatory authorities, along with well-funded environmental activist groups, are devoting substantial resources to anti-coal activities to minimize or eliminate the use of coal as a source of electricity generation, domestically and internationally, thereby further reducing the demand and pricing for coal, including PRB coal, and potentially materially and adversely impacting future financial results, liquidity and growth prospects.
  • Coal prices are subject to change based on a number of factors and coal prices are currently depressed. If coal prices remain depressed, or if there is a substantial or extended decline in prices, it could materially reduce revenue and profitability, cash flows, liquidity and value of coal reserves and result in losses.

Cloud Peak Energy’s market price had already been in steady decline prior to Van Den Berg's purchase. It is possible that protests from well funded environmental activists groups, as well as high volatility in coal prices, influenced the guru to sell out his remaining shares of the company.

It is noteworthy that Andreas Halvorsen (Trades, Portfolio) and Charles Brandes (Trades, Portfolio) purchased a stake of the company during the second quarter, and gurus Jim Simons (Trades, Portfolio) and Arnold Schneider (Trades, Portfolio) added to their stake in Cloud Peak Energy during the second quarter.

Arnold Van Den Berg (Trades, Portfolio) began his investment career in 1968 after he received his securities license. From there, Van Den Berg worked at John Hancock Insurance and then for Capital Securities. It was during this time that the market saw one of the worst declines in Wall Street history when the stock market lost 46% of its value in a single calendar year from 1973 to 1974. In 1974, he founded Van Den Berg Management, which is now known as Century Management. The firm currently owns 47 stocks with a total valuation of $597 million.

Disclosure:Â Author does not own any shares of this company.

Start a free 7-day trial of Premium Membership to GuruFocus.