Market Overview

For One Day, Coal ETF is a Diamond

The once high-flying Market Vectors Coal ETF (NYSE: KOL) is, for what feels like the first time in ages, enjoying a solid performance in Wednesday trade. Sparked by speculation of insider buying in Walter Energy (NYSE: WLT), coal stocks are popping and that is helping KOL to a gain of nearly two percent.

Not to rain on anyone's parade, but KOL was down 27.3 percent in the past year at the start of trading and while Walter is up more than 14 percent on better than double the average daily volume, the stock's impact on KOL is limited at best. Walter, the Alabama-based maker of metallurgical coal, is merely KOL's 22nd-largest holding out of 34 stocks. KOL allocates just 1.99 percent of its weight to Walter.

Still, the rally in Walter has Peabody Energy (NYSE: BTU), the largest U.S. coal producer, and rival Consol Energy (NYSE: CNX) both up more than two percent. Consol is KOL's largest holding and Peabody is the ETF's fifth-largest holding. The pair combine for almost 16.2 percent of the ETF's weight.

Walter's rally is also boosting the fortunes of some of the coal sector's single-digit "darlings" as Alpha Natural Resources (NYSE: ANR) is up 6.7 percent on double the average daily turnover while Arch Coal (NYSE: ACI) is higher by 5.4 percent. Those stocks combine for 4.8 percent of KOL's weight.

Hedge Funds
The rumors about insider buying at Walter have not been confirmed by any news outlets and this stock is just a few days removed from hitting a 52-week low. However, some noteworthy hedge funds have stakes in Walter, according to Insider Monkey.

That list includes Steven Cohen's SAC Capital Advisors, Iridian Asset Management, Marathon Asset Management and Contrarian Capital, among others.

It was also about six months ago that Walter and KOL surged on speculation that BHP Billiton (NYSE: BHP), the world's largest mining company, wanted to acquire Walter. BHP would eventually deny the rumor, which weighed on KOL at the start of this year.

Speaking of hedge funds, takeover rumors and Walter, it was almost two years ago that Audley Capital Advisors was pushing Walter management to sell the company. At the time, Audley said Walter was worth $240 a share. That is more than 12 times where the stock currently resides.

In April, Julian Treger, Managing Partner of Audley Capital Advisors, said "We believe that the current Board is ill-prepared to respond to continued price deterioration. Our analysis suggests that if met coal prices drop further, the Company could face a liquidity crisis in the foreseeable future and the Board would be forced to pursue financing that, given what we see as the Board's lack of sophistication in the capital markets, could severely impact existing stockholders. We are concerned that the very directors that created Walter Energy's leverage problem are ill-equipped to address the issue if met coal prices do not, as they wish, bail them out of the current situation."

Audley is pushing to get five directors placed on Walter's board, although forcing a sale would be better for KOL.

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