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Jefferies takes a contrarian stance on coal, making a positive investment case for the surviving...

Jefferies takes a contrarian stance on coal, making a positive investment case for the surviving producers. All four major coal companies - ANR, ACI, CNX, BTU - have decades of reserves, so there's little need to spend money on exploration, the firm says; even at current prices, the industry should generate substantial levels of free cash flow for years to come.
Comments (27)
  • Every time I see "jeffries" I think of that russel brand movie where they smoke the 'Jeffrey'


    such a funny scene
    22 Mar 2013, 10:50 AM Reply Like
  • Why the exclusion of WLT?
    22 Mar 2013, 10:54 AM Reply Like
  • just read some more of the commentary and the discussion is entirely about thermal coal (of which WLT has very little). they have a 13 dollar price on ANR and a 12 dollar price on ACI so they are pretty bullish.
    22 Mar 2013, 01:08 PM Reply Like
  • They seemed to have left out WLT, but included ANR (they just made a big deal about becoming more like WLT). I love when people talk about ANR as a met coal name when China is doing well, and then talk about it as a them coal name when nat gas is doing well. ANR has way too much high cost them coal to really benefit from $4 nat gas -they need it above $4.50. This is where I would expect ACI to outperform, but who knows.
    22 Mar 2013, 10:59 AM Reply Like
  • ANR has spent a great deal of time shutting down their high cost thermal mines, they should improve incrementally over the next 3 quarters (according to their guidance anyway).
    22 Mar 2013, 11:06 AM Reply Like
  • But they are very small PRB producer. I wouldn't think they would want to pillage the little reserves they have in the PRB just to make a quick buck. Plus their debt structure is way worse than any of the others. I know they have less of it, but it comes due way sooner than the rest.
    22 Mar 2013, 11:10 AM Reply Like
  • I'm not talking about the PRB, although it is true they don't have a great presence there. ANR's management didn't seem to concerned with being able to meet debt obligations last I checked but I should look into it again to get an update.
    22 Mar 2013, 11:13 AM Reply Like
  • ANR mgmt declared central app (capp) coal to be dead for as long as they can see but northern app (napp) coal may be coming in the money here from what I remember.
    22 Mar 2013, 12:16 PM Reply Like
  • On ANR how people talk about is exactly right. Much of their coal is "crossover" coal that can be burned as is as for steam purposes or it can instead be blended to PCI for met purposes depending on market conditions. Nobody has a more flexible crossover profile than ANR. It gives them the ability to squeak by selling it as steam while waiting for another met rally to lock in longer term met contracts.
    22 Mar 2013, 02:23 PM Reply Like
  • thats the first i've heard of met or coking coal (of which pci is a type) being used as steam coal
    22 Mar 2013, 11:37 PM Reply Like
  • looks like a discussion on thermal coal so WLT is not part of this
    22 Mar 2013, 11:03 AM Reply Like
  • plus WLT won't be around for decades because as soon as there's a hint of a met coal recovery it will be taken out by one of the large diversified miners
    22 Mar 2013, 11:09 AM Reply Like
  • It would be informative if they defined the coal types in these articles, but it would be nice to see a big buyout of WLT asap.
    22 Mar 2013, 11:16 AM Reply Like
  • selling calls on cnx is a good way to earn money while waiting for it to get back to $45/ Is there hope for aci?
    22 Mar 2013, 12:06 PM Reply Like
  • I have been selling long calls on cnx, so far it has worked. I can do nothing with aci;will lt ever get to $20
    22 Mar 2013, 12:06 PM Reply Like
  • I don't understand how they could make positive comments about coal and not include ARLP, which is the only high quality investment in the industry. Aside from strong cash flow, a high and growing dividend with tax benefits, they have strong organic expansion already in progress.This is very apparent from their recent quarterly reports, but will become even more evident in their next report coming in April.
    The rest of the coal industry is very speculative and chancy, although trading at such low levels some of them may be worthy of risk oriented funds. But not from me.
    22 Mar 2013, 12:19 PM Reply Like
  • dy2, I think you are absolutely right about arlp which i believe also relies on long term contracts which provide earnings visibility (something that most of the others lack) but due to this fact and the fact that all the things you mentioned above are already priced into the stock there is not nearly as much upside in ARLP. Go back and chart the up and downs of these coal names and compare with the more stable pricing of ARLP and you will see what I mean. When coal does turn around again (assuming the world and U.S. economies do come back) you will make a lot more money in ANR, BTU and ACI.
    22 Mar 2013, 12:37 PM Reply Like
  • I understand your comment, but I don't agree that all the info. on ARLP is already baked in.Their latest exp. project, Tunnel Ridge, came on stream last May 14th, and really only began major expansion in the Dec. qtr. Tunnel Ridge is likely the lowest cost thermal coal producer in the Eastern US. As a result, every qtr. this year will show substantial comparative increases in rev. and profits. By the 4th qtr. of this year, their White Oak investment begins to produce. In 2014 or 2015 their South Gibson mine begins to produce. These are very large investments, some of which will be used for the export market, but all of which will be very profitable.
    Two years ago, arlp was over $80./sh, and I fully expect it to substantially break that price in the next 2 yrs. And the shareholders(partners) get paid very well to wait.
    I expect ARLP to be anything but stable in price, but I feel strongly that the lack of stability will be to the upside. The rest of the industry is too troubled for me to be confident of any appreciation potential. In fact, I think ARLP coal will start to replace more expensive CAPP coal soon. Good Luck.
    22 Mar 2013, 01:07 PM Reply Like
  • A lot of good this did. Market is up half a percent and three out of four of these names is flat with CNX trading negative. I figured traders would ride these names up on this note.
    22 Mar 2013, 12:52 PM Reply Like
  • The way these names have performed relative to the market makes me think they are all going to take a leg down near term. Could be wrong though.
    22 Mar 2013, 01:53 PM Reply Like
  • I agree. The axiom of "buy low,sell high", could not be more appropriate at this time. With BTU trading at $20 and change,and a 52 week of $33.00, it looks like time to buy. The acquisition of MCC is the cause of BTU's projected first quarter loss,which is minimal,but it earnings will rebound,as will the stock price. Buy now, be patient,and by the second quarter,BTU's stock price should see substantial gain. BTU has huge reserves,and there will always be a demand for coal.
    22 Mar 2013, 04:22 PM Reply Like
  • I know JRCC/ James River Coal is not in the article but I own a chunk of it at $3.05/share. Any predictions on that one in near term?
    22 Mar 2013, 06:36 PM Reply Like
  • This is an example of George Soros' theory of reflexivity. I've been reading his '08 book off N on for the last 5 months. It's the nature of humans that dictate the market not economic theory.


    I'm reading Arch's 10-K report and they admit that they're holding a great deal of debt but they've been in similar waters back in '01-'02.


    It's a commodity folks. Between December and November of '12 37% of America's electric consumption came from coal. All the natural gas producers are in bad shape as well. And look at Utility companies heavily tied to natural gas. BTW, I own oil/ng producer stocks too. 
    22 Mar 2013, 08:20 PM Reply Like
  • If you click on the link and read the article, you read that japan and germany are shutting down their nuclear plants.
    22 Mar 2013, 08:24 PM Reply Like
  • They are getting wise. Nuclear is far to dangerous. Coal is the cheapest, safest and most abundant energy source.
    23 Mar 2013, 06:15 PM Reply Like
  • BTU is the most logical coal play. It is the biggest and best,and the price will rise with the earnings,(2nd-4th quarter).The first quarter is a temporary setback brought on by the aquisition of MCC that will more than pay for itself in the long run. BTU is very well managed,they know what they are doing.Be patient,it won't be long for positive earnings and a substantial stock price increase.
    23 Mar 2013, 06:40 PM Reply Like
  • Pittsburgh #8 can be used either steam or met. It fueled the blast furnaces for US steel makerd for years. Since the seam is very predictable, it can be longwalled and sold as a high quality thermal product also.
    24 Mar 2013, 10:49 AM Reply Like
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