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Time To Gamble On Arch Coal

This past week, I took a small speculative position in Arch Coal (NYSE:ACI), one of the world's largest coal producers. They produced 140 million tons of coal in 2014, accounting for 14% of US coal production, and have reserves of 5 billion tons. ACI projects production levels in 2015 to be on par with 2014, but expects higher prices, with 90% locked in above market prices. There is $1.2 billion of liquidity including $983 million of cash on hand, 5.3 times the current market cap.

There is no long-term debt due until 2018, when $1.9 billion is due. Arch should have plenty of liquidity until this wall of debt hits in 2018. By purchasing ACI, I am gambling on a turnaround in coal prices prior to Arch's debt maturity in 2018. If coal prices don't rebound by 2018, the price of ACI will likely go to zero, but the stock price could increase by 400% in the next few years if Arch Coal returns to profitability. Read more