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Monday, June 22, 2015 4:24 PM ET
UPDATE: Ahead of CONSOL's new IPO, Greenpeace warns SEC on optimistic coal forecasts
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CNX Resources Corp. (CNX-US)$ 12.00
CONSOL Coal Resources LPCanonsburg, Pennsylvania
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Greenpeace International has filed a letter with the U.S. SEC alleging that CONSOL Energy Inc.'s filings in support of spinning its Pennsylvania thermal coal operations into a master limited partnership may contain "incomplete and misleading disclosures" regarding the risks of investing in the coal market.

"Investors that bet on coal have lost big in recent years, in part because of the coal industry's failure to account for changing energy markets and rules to safeguard our health and environment," said Diana Best, a Greenpeace coal campaigner. "Potential investors should be aware of the significant financial, environmental, and reputational risks of coal investments that come with a rapidly changing energy industry — risks that the coal industry itself has largely failed to recognize, much less report."

In a June 22 letter to SEC Chairwoman Mary Jo White, Greenpeace wrote that the initial public offering filing for CNX Coal Resources LP could be out of compliance with federal securities law.

CONSOL challenged that assessment.

"Compliance with the law is one of CONSOL Energy's three Core Values, so we take our obligation to comply with the securities laws very seriously," Brian Aiello, CONSOL's director of communications told SNL Energy. "We strongly disagree with these ideologically-motivated accusations."

The steady decline of the coal industry, Greenpeace wrote, calls for extra scrutiny in those coal mining companies' disclosure of risks.

"… We believe that the company has misused the U.S. Energy Information Administration's energy outlooks to distort the view of the U.S. energy industry, relied on outdated Wood Mackenzie data, and exaggerated the quality of their customer base, which may amount to misstatements of material facts if not corrected," the letter states.

The organization attached a copy of a Greenpeace-commissioned report from the Institute for Energy Economics and Financial Analysis, or IEEFA, that says the move toward a master limited partnership is designed to shield CONSOL's natural gas operations from the risks of the coal market while attempting to segment for value considerations its currently productive mines.

IEEFA said that the company's IPO filing does nothing to fundamentally alter the conditions that are driving the downward trend of the coal industry or CONSOL's own coal segment performance. The use of "select data" from the EIA and Wood Mackenzie, IEEFA said, paints a "picture of a stable and relatively prosperous Northern Appalachia coal region" it claims is not supported by a closer look at the data.

"For example, for the past five years, the EIA has actually been showing declining market interest in the region and [Wood Mackenzie's] 'stable' long term picture only shows stability at extraordinarily low levels of production," IEEFA wrote. "Second, several [Wood Mackenzie] references, particularly those related to the global markets, are outdated. The company is changing its position, and over the past several months has offered a series of materially relevant updates to some of the data and assumptions cited in CNX's market outlook in the S-1. These updates, which were available to CONSOL, reflect a far more cautious outlook for the global thermal coal market."

The report concludes that while CONSOL's plan would improve transparency, it suffers from "technical and substantive weakness" that does not reveal the riskiness of an investment in the new company.

CNX Coal is expecting to raise about $183.5 million in net proceeds from its offering by offering 10 million common units at an initial price of $19.00 to $21.00 per common unit.

The MLP consists of CONSOL's Bailey, Enlow Fork and Harvey mines. Analysts such as Moody's Anna Zubets-Anderson have noted a "competitive cost structure and good contracted position" held by CONSOL. Zubets-Anderson also said the company had good marketing flexibility for coal that Moody's projects will find a place in domestic and seaborne markets.

Jefferies LLC analyst Jonathan Wolff also predicted the MLP would experience success based on its "efficient and low-cost" assets.

Article revised June 22, 2015 at 5:00 p.m. to include comments from CONSOL Energy.
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