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Coal is the New Uranium

Written By Christian DeHaemer

Posted March 31, 2011

The Coal ETF KOL (NYSE: KOL) just broke out and is heading to $60 over the next few quarters.

kol mar 31
KOL is made up of all the big U.S.-based coal companies like Consol (NYSE: CNX), Joy Global (JOYG), Alpha Resources (ARN), Peabody (BTU), Bucyrus International (BUCY), Walter Energy (WLT), Massey Energy (MEE), and Arch Coal (NYSE: ACI).

The average P/E is 12.75.

Raking in Coal

Globally, coal is on the move because Japan’s Fukushima Daiichi power plant exploded and released radioactive material. I’m sure you’ve heard about this crisis.

This has given political power to anti-nuke forces and will, at the very least, slow down (if not half entirely) the resurgence of a nuclear power industry.

Germany has already ordered that all plants put up before 1980 close for three months for safety inspection.

But people still want their lights to work and their refrigerators to run. They are turning to the old standby: coal.


Coal to China, Europe

Japan is only one piece of the puzzle.

Coal producers and coal in general have gotten a bad rap here in the United States due to mine cave-ins and pollutants released by burning it. But up-and-coming economies like India continue to build coal plants without the coal to make them run.

They have been buying coal from places that used to sell to Europe.

This means Europe is turning to the United States, the world’s third largest producer behind China and India, but the world’s largest producer of high-quality coal.

Furthermore, Australia — a major exporter to China — is still recovering from floods to its coal-producing region.coaltrain2

Case in point: Companies in Seattle are building new coal export ports to ship 75 million tons of Wyoming and Montana coal to China. This would make Washington the country’s largest exporter. One might assume that China plans on burning this coal.

At the same time, Washington Governor Chris Gregoire is trying to shut down two coal-fired plants by 2025, citing that they emit 10% of the state’s greenhouse gases.

The English have a cliché that goes “to carry coal to Newcastle”, the UK’s first coal-exporting port.

It is the archetypal pointless activity. Perhaps the good governor should look it up.

But I got no dog in this fight; I’m just trying to turn a profit.

It is almost as amusing at the U.S. taxpayers subsidizing ethanol for export to Brazil — even though Brazil has tons of oil and, due to their climate, can produce sugar ethanol much cheaper than the American corn-based variety…

But I digress. We are talking coal here.

In West Virginia, CSX is hiring 125 new people to cover its increase in shipments of West Virginia coal to East Coast ports.

According to NYMEX, the weekly spot price of Northern Appalachia coal (13,000 Btu) has gone from $73.25 to $79.15 since February 11. High-end coking coal priced at the export docks has jumped from $100 a short ton to $200 a short ton since 2007.

Recently, U.S. stock piles at power plants are trending down more than average for this time of year.

coal stocks mar 31

I’ve been buying undeveloped Mongolian coal miners for over a year now in anticipation of Chinese demand. (China and Mongolia share a border.) One Mongolian coal company I recommended in Crisis & Opportunity is up more than 567% in that time.

Coal will continue to go up until the high price of commodities in general — and energy in particular — will cause another down-leg in the business cycle. Given the last top in energy, and inflation, this should be at least 50% higher than where we are now.

And as costs are fixed in coal mining and oil explorers, you will see a boom in margins and profits as the price of energy goes up…

Put some coal in your portfolio.


 chris sig

Christian DeHaemer
Editor, Energy & Capital

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