Arch Coal Inc (ACI) Stock Soars 24% After Self-Bonding Patents’ Approval

Arch Coal stock closed up 24.4% following Wyoming Environmental Quality Department’s assessment of self-bonding applications

Arch Coal Inc. (NYSE:ACI) stock closed up 24.4% on the New York Stock Exchange (NYSE) on Monday, September 14, following the news that the Wyoming Department of Environmental Quality ended its assessment of self-bonding applications. The applications for two patent permits were under renewal, and the regulators confirmed the worthiness of those patents.

The company further mentioned that all of its other patents qualify for self-bonding. The reaffirmation of these two patents boosted the confidence of its investors. The denial of self-bonding application for Alpha Natural Resources, Inc. (OTCMKTS:ANRZQ) back in May tumbled Arch Coal’s stock. According to company, as of June 30, 2015, it had self-bond of around $457 million in the Wyoming state.

Why Self-Bonding Is So Important For Coal Companies?

Under federal and state rules, mining companies have to clean up all the mess created during their operations. The coal companies should restore the land; nullify the damages on rivers and streams, and to reduce environmental damages. The restoration and cleanup could cost billions of dollars to large mining companies.

To assure that the companies have enough financial health for cleaning up the mess,, the law demands them to issue bonds. The bonds serve as an assurance that the company has enough capital available for restoration of land.

Sometimes, the state allows companies self-bonding for their liabilities. These self-bonds are backed by company’s name and financial health without a collateral rationale.

The self-bond is beneficial for companies in a way that there capital does not get stuck up. However, this is not good for the tax payers, who have to bear the cleanup costs, if company gets into financial trouble. The investors knew the importance and traded actively, following the news, and shares climbed upwards.

Analysts’ Ratings

Despite of yesterday’s share price, the Street has a bearish outlook on the stock. The company received coverage from 16 analysts with an average target price of $3. The target price is 38% lower than Monday’s closing price. Only one analyst recommends a Buy, nine rate it a Hold, while the rest suggest selling the stock.

There are many reasons behind such bearish rating. The company’s net loss for 2QFY15 was $168.10 million as compared to $96.86 million during same period last year. In 2014, Arch Coal stock has fallen 83%.