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That's not strictly right. If the pool of potential buyers for these coal stock shares dries up, the price of the shares will be much lower than it otherwise wo

That's not strictly right. If the pool of potential buyers for these coal stock shares dries up, the price of the shares will be much lower than it otherwise would be. This makes in increasingly less attractive for these companies to raise capital for new mines or mine expansions. It even makes merging less attractive. It also makes recruiting and retaining skilled executives harder. All of this surely impacts these companies in the longer term (say 5-10 years from now)-- they are likely to be a lot smaller and to employ fewer people.

hodder 7y ago
So... that is exactly what I said. How is it wrong? I specifically said the only impact is on WACC and cost of capital of marginal debt of primary issuances... which are minimal considering these companies are for the most part cash flow positive and have no need to issue equity (in fact they are buying it back). The cost of debt has slightly more of an impact but still minimal.
- eigenvalue 7y ago
  What’s wrong is that you dismissed this as not having a real impact on these companies. This will have a very large impact that will only grow over time.
  - hodder 7y ago
    Given the publicly traded coal companies are cash flow positive they have little reason to tap the equity markets for capital. These are mature companies in the decline phase. For the most part they do not need incremental primary equity offerings. This isn’t like say, Tesla, which burns huge amounts of cash but has tons of things to invest in for future returns and is therefore heavily reliant on the demand for the shares. The coal companies are milking the cash flow in the decline phase for dividends and buybacks. Therefore the decision/demand for the existing shares in the secondary market has little bearing on the company. So no - it doesn’t make a big difference. Indeed, most are buying back shares in huge amounts. The debt side of the equation makes a larger impact as the companies roll the debt and most lever the FCF to the equity. The aggregate demand for the bonds will have an impact on profitability... still not much of a difference.

hodder 7y ago

So... that is exactly what I said. How is it wrong? I specifically said the only impact is on WACC and cost of capital of marginal debt of primary issuances... which are minimal considering these companies are for the most part cash flow positive and have no need to issue equity (in fact they are buying it back). The cost of debt has slightly more of an impact but still minimal.

eigenvalue 7y ago
What’s wrong is that you dismissed this as not having a real impact on these companies. This will have a very large impact that will only grow over time.
- hodder 7y ago
  Given the publicly traded coal companies are cash flow positive they have little reason to tap the equity markets for capital. These are mature companies in the decline phase. For the most part they do not need incremental primary equity offerings. This isn’t like say, Tesla, which burns huge amounts of cash but has tons of things to invest in for future returns and is therefore heavily reliant on the demand for the shares. The coal companies are milking the cash flow in the decline phase for dividends and buybacks. Therefore the decision/demand for the existing shares in the secondary market has little bearing on the company. So no - it doesn’t make a big difference. Indeed, most are buying back shares in huge amounts. The debt side of the equation makes a larger impact as the companies roll the debt and most lever the FCF to the equity. The aggregate demand for the bonds will have an impact on profitability... still not much of a difference.