Reuters reported that when Patriot Coal was spun off by Peabody Energy Corporation five years ago, it aimed to become the dominant producer in the Appalachian coalfields, buying up small, struggling mining companies and increasing production to cater to growing demand from power companies and steelmakers.

For a while, Patriot was a darling of Wall Street, its stock rising from USD 15 at its IPO on October 31st 2007 to an all time high of USD 80.70 on June 18th 2008. During the same period, the shares of Peabody, which had shifted its focus to lower cost mines in Wyoming and lucrative, export oriented mines in Australia, nearly doubled from USD 44.65 to USD 88.69.

Patriot had only one profitable quarter since the spin off and on Monday it filed for Chapter 11 bankruptcy protection. It is continuing to operate, but has cut 1,000 of its 4,700 workforce, idled some of its 19 underground mines and lowered sales targets.

Patriot, like most of its peers, was rocked a year after its spin off when the economy went into a slide, sending coal prices tumbling, along with demand from utilities and steelmakers. But the downturn also prevented Patriot from achieving its stated goal of acquiring other assets and becoming the premier coal company in Appalachia.

As a smaller producer with lower revenue, Patriot had trouble obtaining adequate financing. In addition, it was saddled with legacy pension and health cost liabilities of around USD 2 billion, almost twice that of Peabody, a company that produces 10 times as much coal.

Mr Irl Engelhardt chairman & CEO of Patriot said that "The coal industry is undergoing a major transformation and Patriot's existing capital structure prevents it from making the necessary adjustments to achieve long term success."

Despite Patriot's bankruptcy, analysts do not expect a wave of similar action by publicly traded coal companies, although many smaller, independent mining companies are vulnerable.

Source - Reuters

(www.coalguru.com)