Stock Alert for International Coal Group Inc. (ICO)
  • Stock Alert for International Coal Group Inc. (ICO)
  • Stock Alert for International Coal Group Inc. (ICO)
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    Stock Alert for International Coal Group Inc. (ICO)

    International Coal Group Inc. (NYSE: ICO)

    International Coal Group Inc. (ICO) produces coal in Northern and Central Appalachia with a range of mid to high British thermal unit (Btu), low to medium sulfur steam and metallurgical coal. The Company’s Appalachian mining complexes are located in West Virginia, Kentucky, Virginia and Maryland. It also has a complementary mining complex of mid to high sulfur steam coal located in the Illinois Basin. ICO markets its coal to a customer base of largely investment grade electric utilities, as well as domestic and international industrial customers. The Company has three business segments, which are based on the coal regions in which it operates: Central Appalachian, comprised of both surface and underground mines; Northern Appalachian, comprised of both surface and underground mines; and Illinois Basin, representing one underground mine.

    International Coal Group Inc. is based in Scott Depot, West Virginia.

    Share Statistics (4-Jun-10) FY

    2007

    FY

    2008

    %

    Chg

    Q4 2008 Q4 2009 %

    Chg

    Symbol ICO Revenue, $Mn 800.0M 1.04B 30.0% n/a 246.0M -25%
    Current price $4.23 Gross marg. 0.6% 7.6% 1166.7% n/a 19.5% -33%
    52wk Range: $5.71-2.24 Oper. margin -23.3% -0.6% 97.4% n/a 0.0% n/a
    Avg Vol (3m): 4,353,920 Net margin -7.8% -214.3% 83.3% n/a -4.6% n/a
    Market Cap. 861.88M
    Dil. Shares Outst. 203.8M EPS, $ -0.97 -0.16 83.5% n/a -0.02 n/a

    Source: Reuters.com, SEC Filings.

    Financial Summary

    First-Quarter Highlights:

    • Adjusted EBITDA increases to $46.9 million
    • Margins expand by 31% over first quarter 2009
    • Income from operations up 12% over first quarter 2009
    • Strategic capital restructuring essentially complete

    ICO recently reported its results for the first quarter of 2010.

    • Adjusted EBITDA, or earnings before deducting interest, income taxes, depreciation, depletion, amortization, loss on extinguishment of debt and non-controlling interest, increased to $46.9 million compared to $44.5 million for the first quarter of 2009.

    • Net loss was $8.9 million, or $0.05 per share on a diluted basis, for the first quarter of 2010 compared to net income of $3.7 million, or $0.02 per share on a diluted basis, for the first quarter of 2009. Net loss for the first quarter of 2010 included a $22.0 million pre-tax loss on extinguishment of debt related to the Company’s capital restructuring. Excluding this loss, pro forma net income would have been $6.2 million, or $0.03 per share on a diluted basis.

    • Margin per-ton sold increased 31% to $11.67 in the first quarter of 2010 compared to $8.94 for the same period last year, primarily due to higher realized prices and improved operational performance.

    • Revenues were $288.6 million for the first quarter of 2010 compared to $305.0 million for the first quarter of 2009, with the decrease primarily due to the weak thermal market.

    Sales, Production and Reserves

    ICO sold 4.3 million tons of coal during the first quarter of 2010 compared to 4.7 million tons during the first quarter of 2009. Production totaled 3.9 million tons in the first quarter of 2010 versus 4.5 million tons in the same period of 2009.

    As of March 31, 2010, ICO controlled approximately 1.1 billion tons of coal reserves, located primarily in Illinois, Kentucky, West Virginia, Maryland and Virginia. Additionally, the Company controlled approximately 430 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geotechnical work is completed.

    Market Outlook and Committed Sales

    For 2010, committed and priced sales are approximately 15.8 million tons, or 93% of planned shipments, at an average price of $63.50 per ton, excluding freight and handling expenses. The uncommitted tonnage for 2010 includes approximately 0.7 million tons that are expected to be marketed as metallurgical coal. Metallurgical coal sales in 2010 are projected to total approximately 2.6 million tons.

    For 2011, committed and priced sales are approximately 8.4 million tons, or 49% of planned shipments, at an average price of $59.50 per ton, excluding freight and handling expenses. The Company expects to sell approximately 2.9 million tons of metallurgical coal in 2011, of which approximately 2.4 million tons are unpriced.

    The Company expects metallurgical coal pricing to continue to strengthen in 2010, primarily due to rising demand in China and India. While the thermal coal market is showing signs of improvement, utility inventories reportedly remain about 15% above the 10-year average. The Company expects utility inventories to approach normalized levels by late summer.

    Capital Restructuring

    In December 2009, the Company entered into a series of privately negotiated agreements to exchange $63.5 million of its 9.0% Convertible Notes due in 2012 for 18.7 million shares of its Common Stock. Continuing that effort in the first quarter of 2010, the Company entered into agreements to exchange an additional $22.0 million of the same notes for 6.2 million shares of its Common Stock.

    In March 2010, the Company simultaneously executed three security offerings that raised $422.9 million, before underwriting fees and other costs. The offerings included the issuance of 24.4 million shares of Common Stock valued at $109.3 million, $115 million aggregate principal amount of 4.0% Convertible Senior Notes due in 2017 and $200 million aggregate principal amount of 9.125% Senior Secured Second-Priority Notes due in 2018. Proceeds were used to repurchase $169.1 million aggregate principal amount of the Company’s 10.25% Senior Notes in March and $114.5 million aggregate principal amount of its remaining 9.0% Convertible Notes in April. The balance of the proceeds will be used for general corporate purposes.

    As announced earlier in the quarter, the Company also secured a new four-year $125.0 million senior asset-based credit facility to replace its prior revolving credit facility which was set to expire in June 2011. The new credit facility, which provides $25.0 million in additional borrowing capacity and contains minimal financial covenants, matures in February 2014. This facility is expected to be used primarily for issuing letters of credit that collateralize the Company’s reclamation bonds.

    Liquidity and Debt

    As of March 31, 2010, the Company had $301.7 million in cash, of which $136.4 million was disbursed on April 6, 2010, in conjunction with the Company’s repurchase of its 9% Convertible Notes. Currently, the Company has $41.6 million in borrowing capacity available under its new credit agreement.

    Debt outstanding as of March 31, 2010, totaled $473.2 million, net of a $43.5 million discount, consisting primarily of $115.0 million aggregate principal amount of newly issued 4.0% Convertible Senior Notes and $200.0 million aggregate principal amount of newly issued 9.125% Senior Secured Second-Priority Notes. Debt also included $139.5 million aggregate principal amount of the Company’s previously issued 9.0% Convertible Notes and $5.9 million aggregate principal amount of the Company’s previously issued 10.25% Senior Notes.

    Financial Strength (4-Jun-2010) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 1.63 0.63 0.71 0.80
    Current Ratio (MRQ) 1.92 0.93 0.95 0.96
    Long-Term Debt to Equity (MRQ) 45.24 69.47 34.84 133.93
    Total Debt to Equity (MRQ) 63.07 85.83 44.56 200.08

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    Buy Outperform Hold Underperform Sell No Opinion

    This is the consensus forecast amongst six polled investment analysts. Against the International Coal Group Inc company.

    Analyst Detail Buy Outperform Hold Underperform Sell No Opinion
    Latest 2 3 1 0 0 0
    4 weeks ago 2 3 1 0 0 0
    2 months ago 2 2 2 0 0 0
    3 months ago 2 1 3 0 0 0
    Last year 2 0 3 0 0 0

    The five analysts offering 12-month price targets for ICO have a median target of 6.50, with a high estimate of 9.00 and a low estimate of 6.00. The median estimate represents a 53.66% increase from the last price of 4.23.

    Source: www.ft.com

    Consensus Estimates Analysis

    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Jun-10 2 293.30 296.70 289.89
    Quarter Ending Sep-10 2 287.57 291.34 283.81
    Year Ending Dec-10 5 1,189.03 1,219.79 1,159.07 1,302.04
    Year Ending Dec-11 5 1,338.30 1,391.23 1,294.83 1,498.25
    EARNINGS (per share)
    Quarter Ending Jun-10 5 0.05 0.07 0.03 0.07
    Quarter Ending Sep-10 5 0.08 0.12 0.03 0.07
    Year Ending Dec-10 6 0.25 0.35 0.14 0.19
    Year Ending Dec-11 6 0.55 0.73 0.30 0.59

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=ICO

    Investment Highlights

    ICO recently announced that construction has resumed at its ICO Tygart Valley subsidiary’s Tygart No. 1 deep mine complex in Taylor County, near Grafton, West Virginia.

    The Tygart No. 1 project received all essential federal and state approvals, but challenges lodged by a local anti-mining organization caused work on the project to be suspended in late 2008. Those challenges were overruled in March by the West Virginia Surface Mine Board.

    The Company expects to finance the Tygart No. 1 mine construction through operating cash flow. Development capital requirements are estimated at $325 million, including $18 million spent prior to 2010. As a result of resuming construction at Tygart No. 1, the Company now expects 2010 capital expenditures to increase by $15.0 million to a range of $105.0 million to $115.0 million.

    At full output, the Tygart No. 1 mine is expected to produce 3.5 million tons per year of premium high-volatile metallurgical and high-quality thermal coal. The mine complex is projected to create more than 300 direct jobs in the Taylor County, West Virginia area.

    ICO is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. The Company has 13 active mining complexes, of which 12 are located in Northern and Central Appalachia and one in Central Illinois. ICO’s mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers domestically and internationally.

    ICO recently announced that its mining operations received eight awards for outstanding safety performance in 2009. The awards were granted by the West Virginia State Council of the Joseph A. Holmes Association and District 3 of the Mine Safety and Health Administration (MSHA), and were presented May 22, 2010, at the council’s annual meeting at the Stonewall Resort in Roanoke, WV.

    The Joseph A. Holmes Association is a nonprofit organization that began in 1916 to promote health and safety in the mining industry and consists of representatives from federal and state governments, mining organizations and labor.

    Operational and Other Updates

    • The West Virginia Surface Mine Board in March issued an order upholding a May 2009 decision by the West Virginia Department of Environmental Protection (WVDEP) to reinstate a surface mine permit for the Company’s Tygart #1 deep mine complex in Taylor County, West Virginia. ICO’s current business plan anticipates that construction will resume on the Tygart project in mid-2011, but the Company is actively evaluating the option of accelerating the project in light of elevated market demand. At full output, this complex is expected to produce 3.5 million tons of premium high-volatile metallurgical and high-quality thermal coal.

    • ICO’s Vindex subsidiary initiated development of the new Bismark deep mine and expansion of the Dobbins Ridge preparation plant, both located in Grant County, West Virginia. Production and shipment of low-volatile metallurgical coal from the completed facilities is expected to commence in the third quarter of this year. The Company anticipates that these projects will contribute 100,000 tons of metallurgical coal sales in 2010, and achieve targeted output of 200,000 annual tons in 2011.

    • In February, ICO Beckley received the Greenlands Award from the WVDEP. The award is the state’s highest honor for environmental excellence in coal mining. Officials praised the ICO Beckley mining operation for its many community and environmental projects in and around Eccles, West Virginia. Additionally, the WVDEP honored ICO Eastern’s Birch River surface mine with an award for its innovative handling and disposal of coarse refuse.

    • Also in February, ICO Eastern’s Birch River Surface Mine and Birch River Preparation Plant, along with Wolf Run Mining’s Imperial Mine received the prestigious Mountaineer Guardian Award for outstanding safety performance in 2009 from the West Virginia Office of Miners’ Health, Safety, and Training and the West Virginia Coal Association.

    Source: http://www.intlcoal.com/

    Technical Analysis

    Source: http://stockcharts.com

    ICO is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

    ICO is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

    ICO’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below zero, which suggests that the underlying moving averages are bearish.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Jun4-2010 symbol Share, $ $ Mn 2010 2011 2010 2011
    James River Coal Company JRCC 16.09 443.17M 9.63 n/a 0.63 n/a
    Patriot Coal Corp. PCX 16.52 1.50B 14.53 n/a 0.70 n/a
    Alliance Resource Partners L.P. ARLP 44.62 1.64B 12.56 n/a 1.31 n/a
    Coal Median 1.19B 12.24 n/a 0.88 n/a
    International Coal Group Inc. ICO 4.23 861.88M 63.89 n/a 0.72 n/a

    Source: Thomson Financial

    Insider Trading Activity

    NET SHARES PURCHSE ACTIVITY

    Inside Purchases – Last 6 Months

    Shares Transaction
    Purchases 10,000 1
    Sales n/a 0
    Net Shares Purchased (Sold) 10,000 1
    Total Insider Shares Held 2.96M n/a
    % Net Shares Purchased (Sold) 0.3% n/a

    Net Institutional Purchases — Prior Qtr to Latest Qtr
    Shares
    Net Shares Purchased (Sold) 21,945,800
    % Change in Institutional Shares Held 11.0%

    Source: Yahoo Finance

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