Peabody, Alpha and Arch all reported negative free cash flow in the second quarter, meaning they didn't generate enough cash to run their businesses.
This year has been unprecedented, Peabody's Svec said. The St. Louis-based company expects coal burned for power in the U.S. to be down by as much as 120 million tons, as utilities use more gas instead. That's something that couldn't have been predicted, he said.
Peabody, Alpha, Walter and Arch have lost a combined $9.4 billion in market value in 2012, according to data compiled by Bloomberg.
Alpha paid $7.5 billion including debt for Massey Energy in July 2011. Bristol, Va.-based Alpha paid 25 times Massey's earnings before interest, taxes, depreciation and amortization, making it the most expensive and the largest U.S. coal takeover, according to data compiled by Bloomberg. Alpha has plunged 70 percent this year, the worst performer on the Standard and Poor's 500 Index.
"Our fundamental conviction is that the world is structurally undersupplied of high-quality metallurgical coal for the foreseeable future," Alpha Chairman and Chief Executive Officer Kevin Crutchfield told investors on a January 2011 conference call when Alpha announced the deal.
"We continue to believe that the Massey acquisition makes great strategic sense for Alpha," Ted Pile, an Alpha spokesman, said Monday. "What we're seeing right now is a speed bump."
Peabody acquired Australia's MacArthur Coal in December for A$3.8 billion ($3.9 billion) to expand its sales of metallurgical coal to Asia. Arch bought International Coal in May last year for $3.1 billion and Walter completed its takeover of Canada's Western Coal for C$5.3 billion ($5.4 billion) in April of 2011.
"With the acquisition of ICG, Arch obtained some of the highest-quality metallurgical coal reserves in the world," said Deck Slone, an Arch spokesman. "The market potential for these coals will only grow in the years ahead."
Paul Blalock, a spokesman for Walter, declined to comment.
Not all producers made similar decisions on metallurgical coal. Consol Energy opted to expand into gas, paying $3.5 billion for assets of Dominion Resources. Canonsburg, Pa.-based Consol overtook Peabody in May as the biggest U.S. coal miner by market value. It's trading at about 17 times estimated 2012 net income, a higher ratio than Peabody and Walter, according to data compiled by Bloomberg.
"Consol Energy is developing its metallurgical coal assets organically at a cost per ton well below competitors' recent acquisition rates," said Lynn Seay, a Consol spokeswoman.
"Consol made a big bet on natural gas, Peabody made a big bet on Australia," said Lucas Pipes, an analyst at Brean Murray Carret & Co. in New York. "Investors in my opinion are more comfortable about natural-gas prices bottoming than about the outlook for seaborne coal prices."
Most metallurgical coal that's seaborne — the industry term for coal exported by oceangoing ship — is priced each quarter based on a benchmark established by the largest exporters and users.