Concerns over coal companies' reclamation obligations have cast a shadow over the sector following a ruling by Wyoming regulators last month that Alpha Natural Resources no longer meets the criteria for preferred bonding status.
Alpha has appealed that decision, which required the company to come up with $411 million in financing to cover the cost of cleaning up its mines.
But analysts are increasingly questioning whether new bonding obligations could push firms already struggling with low prices and large debts into bankruptcy.
Fitch Ratings reported last week that more stringent bonding requirements could eat into companies' already dwindling cash reserves. The ratings house predicted a round of restructuring, as miners try and emerge from a mountain of debt.
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"It is just an additional stress on top of stress," said Monica Bonar, a Fitch analyst, in an interview Friday.
In the event of a bankruptcy, the reclamation liability would follow the mine if it were purchased by a new firm, she said.
Alpha is the only major miner to have its self-bonding status questioned, as preferred bonding status is officially known. Wyoming regulators are reviewing Arch Coal and Peabody Energy's status.
Both companies have said they believe they are in compliance, but each has seen its stock values fall consistently since late May. Arch shares are down 20 percent to 40 cents over that time. Peabody was trading for $2.30 a share on Friday, a decrease of roughly 30 percent.
Those declines are part of a wider trend. Peabody was worth about $60 a share at the start of 2011; Arch was worth around $35 a share at the time.
Coal is already facing a challenge in the form of cheap natural gas and regulatory uncertainty created by new air quality regulations.
Large amounts of debt resulting from acquisitions made around 2010 have deepened companies' troubles, analysts noted.
Whether the more recent fall in stock prices is related to worries about the firm's bonding obligations is unclear, said Kristoffer Inton, an analyst at Morningstar.
Investors may be shorting coal stocks in anticipation that their shares will fall further, he said.
"I think everyone was trying to figure out what this actually means," he said. "I’m not sure anyone has a clear view yet."
Self-bonding is allowed for under the federal Surface Mining Control and Reclamation Act of 1977. States can choose whether to allow the practice, which enables companies to forgo payment on reclamation bonds if they can prove their financial health.
Wyoming administers its own self-bonding program in accordance with federal law. The state has $2.1 billion in self-bonding obligations, with Peabody accounting for $814 million, Arch $458 million and Cloud Peak Energy $200 million.
Wyoming regulators notified Alpha on May 21 that it no longer qualified for self-bonding status and gave the company 90 days to come up with $411 million to cover the cost of reclaiming its mines.
Alpha announced the decision publicly on May 29, when its stock was trading for 50 cents a share. It was trading for 32 cents a share on Friday.
The company has questioned the state's methods for calculating its status and on Thursday filed an appeal challenging the decision.
Alpha declined comment on the story. The Bristol, Virginia-based company's appeal had yet to be officially filed Friday afternoon in Campbell County District Court.
Jonathan Downing, executive director of the Wyoming Mining Association, said concerns have been overplayed. Companies continue to meet their reclamation obligations while mining continues, he noted.
"The cost of mining coal in the Powder River Basin is lower than in other parts of the country and that is why it will continue to be competitive and a viable option," he said.
Alpha, which operates the Belle Ayr and Eagle Butte mines in Wyoming, is among the most distressed coal companies. A Morningstar analysis listed its outstanding debt at roughly $2.6 billion.
Bonding is available should Wyoming's ruling stand in Alpha's case, said Bonar, the Fitch analyst. However, companies would have to pay a considerable sum to secure what is essentially insurance for their reclamation liabilities.
She estimated companies would need to pay 25 percent to 50 percent of the bond's cost to secure coverage. In Alpha's case that would amount to roughly $102 million to $205 million.
With prices in the doldrums, coal companies have been burning through cash to keep their operations running. A substantial bond payment would only erode their reserves further, she said.
"For some of these companies, they are waiting for a recovery in market that has been elusive for at least three years now," Bonar said. "The longer it goes on, the tougher it is."
This story has been updated. An earlier version incorrectly listed the mines owned by Alpha Natural Resources in Wyoming