Latest SituationI first reviewed Cline's financial statements for setting a credit limit, know a little about the coal industry as more of my portfolio was concentrated with different companies, PCX, ICG, ACI, and MEE. Cline seemed to spark the most interest as in the long run, they have the greatest potential. I am in for the long run and will add more as the price declines. But lets get down to the meaning of this blog entry...
I do not see anything heading in a bad direction as to managements actions. Sure, we all would have liked to had some warning about this and not have been blind sided, as I am sure it has been brewing for some time. But this move was not a bad one at that.
Management could have took on debt to finance the rest of the developing operations, but whats the advantages of this? Tax benefits? They have enough deferred tax assets at the moment from all of the accumulated losses over the years. Don't need anymore as we can not use them until we turn a profit. Some are about to expire if not used anyway. Dilution? We have not reported a profit yet, so what earnings would be be diluting? So these are not really big deals. Another equity offering seems to be a decent idea and has the least financial risks. Worst case scenario, the market tanks, debt comes due, and we have a company that stands to possibly go under like last year before they announced the equity offering to repay the debt incurred to purchase New Elk. Sure we do not have any operating leverage at the moment, but until we see earnings, I believe I would rather see it that way. If things are going good with leverage, things are GREAT! If things are not going good, we are going to wish we never heard of Cline.
Now lets consider the equity offering by TD. They have to name a price to issue the shares. If they are selling at a price to high, whats the incentive for them? TD raises the capital, and they sell the stock as they see fit, pocketing profits for themselves along the way. If the stock offering is set to high, TD will have trouble moving the shares. This underpricing will create additional interest in the stock as well.
Now considering operations for the future, short run, we will not see the revenues we all had in mind this year. Long run, this pans out, we will make out well with the additional coal reserves. Production will be almost on track by 2012, the rail line will be in and trucks will not be needed to export the coal to the loading terminals. This will cut down along on the hauling costs, as I do not see fuel costs dropping even if Oil does decrease in the near future.
Overall, if I was going to be invested in a stock that depends highly on the value of a commodity, I believe I would be in coal...but if I wasn't already in, I would not be doing all this work and sharing my point of view!