Oct. 30, 2006, 2:33PMShares of Coal Partners Feel a Chill
© 2006 The Associated Press
NEW YORK — Shares of two coal property managers tumbled on Monday after an Citigroup analyst downgraded the stocks over concerns that they might eventually feel pressure from issues negatively impacting the broader industry.
Shares of Houston-based Natural Resources Partners LP fell $2, or 3.7 percent, to $52.35 in afternoon trading on the New York Stock Exchange.
Shares of Alliance Resource Partners LP retreated 70 cents to $36.26 on the Nasdaq.
Analyst John Tysseland downgraded both limited partnerships to "Buy" from "Hold." He cut the target price on Natural Resources Partners to $55 from $65 and took Alliance Resource Partners to $36 from $41.50.
Tysseland observed that coal mining stocks, or shares of the companies that lease land from the limited partnerships in exchange for royalties, have significantly underperformed recently due to margin compressions and lower production volumes.
In recent months, most coal miners have faced higher production costs from factors such as rising equipment prices, more expensive labor and greater safety measures. Many have also faced unwanted production cuts because of mine issues, or have voluntarily slowed production to ease an inventory glut estimated at about 20 million tons.
Tysseland said limited partners could feel some of the effect.
"As this tough operating environment persists we are led to believe that the coal (partnerships) are likely to experience similar challenges, such as declining margins, lower royalties, and potentially lower production," he said in a research note.
In related downgrades, Tysseland also moved to "Hold" from "Buy" the subordinated units of Natural Resources Partners and Alliance Holdings GP-LP, the holding company for Alliance Resource Partners.
Shares of subordinated units of Natural Resources Partners fell $1.03, or 2 percent, to $51.88 on the NYSE. Shares of Alliance Holdings lost 55 cents, or 2.7 percent, to $20.04 on the Nasdaq. The stock has traded in a range of $18.55 to $26.25 since going public in May