beegdawg007

Time to Buy and Hold for Reflation: Four Promising Sectors

The impact of Co2 on global warming is an issue very relevant to the future of coal. China and India both understand that our view of Co2's potential impact on the environment is, at best, silly!

Many "real" scientists are now speaking out on this. Most are amazed that the junk science promoted by Al Gore has gone this far, when there is really ZERO evidence that our climate is behaving now, any differently than it has for the past 12,000 years.

www.petitionproject.or.../

People who understand nothing at all about CO2, are now radically opposed to burning fossil fuels which release CO2. Most non-analytical people (probably 4 out of 5 people) view CO2 as a toxic gas which, if left unchecked, will eventually kill all life on earth. Given that CO2 is necessary for life to exist, this is really some marketing job which has been done by the Gorite camp.

If you ever find yourself discussing the "horrors of global" emissions with a "radical believer" in the 'CO2 will kill the earth theory', here are two questions to ask.

1. How much Co2 is now in the atmosphere, compared to 150 years ago? Most will not know... the answer is 285 ppm vs. 385 ppm. To put that into a visual format, picture a 5 ft by 20 ft cylinder filled with 10,000 tennis balls, where each tennis ball represents some form of atmospheric gas, i.e. Nitrogen, Oxygen, Argon, Helium, Water Vapor etc.. , Going back 150 years ago, 3 of those balls would have represented Co2. Today, at 385 ppm, Co2 would be represented by 4 balls. So "at least" 3 out of 4 of those tennis balls were put in the atmosphere by mother nature. Many scientists also believe that a significant percentage of that 4th tennis ball is also natural. This they believe to be true because as the temperature of the ocean increases (the ocean contains 93% of all of the Co2 on earth) and as plant life flourishes (plants contain 2 times as much CO2 as the atmosphere), CO2 is released into the atmosphere. And the earth has definitely warmed during the past 150 years because we are exiting the latest phase of the little ice age. But, lets stay focused on the forest vs the leaves for now. All of this hysteria about fossil fuels and CO2 is in regard to the fact that man may have added the equivalent of 1 tennis ball out of 10,000 to the atmosphere in the past 150 years. This is extremely minimal, ant that is why CO2 is referred to as a trace gas in the atmosphere.
2. Next ask your opponent, "how much CO2 is good?" 99 out of 100 people will have no idea how to even answer that question! The answer is not a precise number, but we know that plants (both land and marine) become more abundant and grow larger and faster as the amount of CO2 is increased. Based on sampling the ratio of certain microscopic marine critters buried in layers of deep ocean sediment, scientists have been able to estimate that CO2 on the planet earth was 4 -5 times higher than now during the Triassic and Jurassic periods. This 100+ million year period of time is the period of time when life was "most abundant" on earth. During this period, based on fossil evident, we know that flora and fauna were most abundant.

To summarize my points, most people who are radically opposed to man's use of fossil fuels because of their fear of CO2 emissions, have no understanding at all of the role that CO2 plays on earth. Their fears of CO2 are but a boogie man that has been placed under their bed by politicians who clearly have an agenda that does not involve good science. There is ZERO real scientific data to lead any thinking scientist to believe that CO2 being added to our atmosphere at the current rate, will have any "negative" impact. We do however know that CO2 stimulates plant growth which has historically always been beneficial to earth's animals.

www.petitionproject.or...

31,000 American Scientists agree with what I have just posted...

www.petitionproject.or.../

Time to Buy and Hold for Reflation: Four Promising Sectors

I agree with coal and steel. Coal is so misunderstood by the average American investor. It is impossible to mention "coal" without someone responding with "obama's administration will kill coal" or something to that effect. People, the growth for coal is coming from China and India. Between the two countries there are 550 power plants under construction and they are going on line at the rate of 2 a week. Obama may be able to curtail the construction of future U.S. coal powered electric plants, but he can do little about those that are already operating because most cities have but one source of power. China already uses nearly 3 times as much coal as the U.S. and that will grow to 4 times in the next decade. China and India realize that this hysteria over CO2 will pass. If CO2 was the cause of global warming, why have the oceans been rising for 18,000 years. CO2 is good because it stimulates the growth of both plant and animal life on earth. Most non math type people do not realize that the CO2 in the atmosphere now at 385ppm, is to having 4 yellow tennis balls in a building which contains 10,000 tennis balls in total. And, 3 of those four tennis balls were put there by mother nature. And there is no evidence that yellow tennis balls have any more negative impact on the atmosphere than do white tennis balls. I am not the only nut who thinks like this. As for the ocean rising, it is. And, during the past 180 centuries (18,000 years) the ocean has risen 395 feet which, at over 2 ft a centure, is faster than it has been rising since the start of the industrial revolution. Go to the link at the end and you will see that 31,000 American scientists (9,000 PHDs) have signed a petition requesting that our government not sign Kioto or anything remotely resembling it because there is ZERO scientific evidence available which would lead any real objective scientist to conclude that CO2 is now or will in the future have an adverse effect on our economy. Pah.... leese do not take my word for this.. just go to....

www.petitionproject.or.../

This is important to understand because it explains why both China and India will continue to pursue those 550 coal powered electric plants over the next five years.

Peabody Delivers on Quarter, But Guidance Not Ready for Prime Time

Good article. I agree with almost everything, but several relevant issues were not included.

1. Yes, Peabody did speculate that the world might need as much as 40 mt less of met coal. They went on to say that 35 million tons (including Russia) have already been removed from the market from miners who represent only 50% of the overall market. The point being made was that supply and demand will still be very much in balance. That of course would serve to put a floor under the price of met coal.
2. In regards to earnings, using the following assumptions, Aust coal at $100 (3.25 tons are now priced at $300/T), Western coal at $15/t and Mid west coal at $45/t, my model for EPS indicates that BTU will earn at least $3.25/sh next year. Change those assumptions to Aust. coal at $110/t, Western coal at $16 and Ill basin coal at $50 (all are real possibilities for 2009) and the EPS for 2009 is about $4.75.

I think that BTU is a pretty cheap stock considering that it is the coal segment leader. For 2009, what I think will continue to move BTU is the fact that it will be constantly buying up weaker coal companies. The POLO which gives BTU access to high quality coal located only 500 miles from China's major industrial center, is really very significant in the long run. Also, BTU is working to build a supply chain to sell PRB coal to China and Japan via the Vancouver coal terminal. They have already started shipping some of this coal in 2008. BTU's future is pretty much assured because the company owns the largest supply of the cheapest coal in the world which is PRB coal in Wyo and Montana. BTU is to coal what ARAMCO is to oil. At only $15/ton the gross profit on that coal is 50%.

I do not own any BTU. I invest in coal primarily via KOL because currently every major coal company in the world is dramatically undervalued, so they will all move in tandem. BTU has a good story, but it is a story which is no better than that of ARLP, ANR, MEE, WLT, Shenhua, China Coal, Bumi, etc... One coal company, Grande Cache, has no debt and is now trading at a forward PE ratio of .... 1/2!!!

These stocks are all trading on the fantasy fear that coal prices will plunge in 2009. I say fantasy fear because the fear ignores the facts that 1.The supply/demand of coal is really well balanced because nearly 70 million tons of supply has already been removed from the 2009 market. 2. Most of 2009 coal sales are already under contract at the highest prices ever seen.

Renewable Energy Reality: We're Dependent on Coal

>>>>The recent pair of TVA catastrophes are likely to stop any new coal plants in the USA.<<<

There are now 29 new coal power plants under construction in the US. By the end of 2010, 60% of those will be operational.

The Real Rationale Behind Current Supply and Demand for Oil and Other Commodities

>>>The US coal market is now a bear market. Coal is long term bullish but short term bearish.<<<

Careful... within the next three weeks, most of the coal companies will be announcing the settlements for 2009-10 thermal coal pricing. Almost all of the 2009 coal is already priced at prices which are 50 to 100% above the 2008 prices. JRCC for example, has most of its 2009 app thermal coal priced at $96/t vs last years price of $55/t. Despite the negative news you are hearing, the 2009 earnings year for all of the pure US thermal coal producers will be a banner/blowout year. JRCC for example will earn about $7.00 share and BTU will earn over $5.00/share. It is also worth noting that the balance sheets are in the best shape they have been in for the past ten years and most are now buying back their own shares. Also, insiders have been buying a lot of stock this past quarter.

Because their 2009 coal is all sold under contract, none of the US coal producers have any real exposure to the decline in the world economies until the second half of 2009 and than, and even than it is only the coking coal sales which will require new contracts. For the biggies like ACI, BTU and ARLP... all 2009 coal is already priced at very favorable prices! Also, China's largest supplier last week, signed three power plants to new contracts for low quality (10,000BTU/lb) thermal coal at $80US/tonne. Also, current US spot prices are still way above the cost of producing coal which is roughly $55/ton for App coal and $32/ton for Ilb, $10/t for PRC... at the current spot prices these companies would make money butt over boot day in and day out!

www.eia.doe.gov/cneaf/...

3-Pronged Profits from China's Worst Winter

Another way to play China is with U.S. and Canadian mettalurgical coal. China's demand for met-coal combined with other factors - flooding in the coal mining area of Australia, extreme port congestion at the Aussie coal ports, etc. - will result in met-coal (vs. thermal coal, a completely different issue) 2008 - 2009 contract prices which are up from an average of $95/Tonne in 2007 to over $200 Tonne for 2008. Since the cost of mining the coal does not increase with the price of coal, all of that price increase flows directly to the bottom line. Met coal pricing is no longer a local issue. When the price of coal goes up in China, it goes up by just as much in Alabama, Calgary and West Verginia. An added benefit for U.S. miners is the weak dollar, which now makes U.S. coal looks very cheap when compared to the rest of the world. Some stocks which will benefit from China's need for coal are FDG, WLT, WTN.to, and TCK.

I own both WLT and WTN.to. WTN.to is located in Western Canada. I like this company now because it almost all of its production of coal for 2008 is free to price at the new rates. Many other companies can not benefit from the coal price increases until 2009, because of existing contracts at much lower prices for the current production. WTN.to also has access to a good port in Western Canada. Coal is shipped from this port to Asia for about the same cost of coal that is shipped from Australia.

WLT sells most of its coal to Europe and Brazil. But the price per ton will still be up over 100% this year. WLT also manufactures COKE from Coal. WLT's COKE is all being sold at 2008 prices in the range of $370/ton, vs. $225/ton in 2007.

Another play which results for the coal trade combined with the iron ore trade - the are mixed together in blast furnaces to create steel - is driving dry bulk shipping prices through the moon. Investors might be interested in looking at a few of the drybulk maritime shippers like GNK, DSX, EXM and DRYS. All of these companies are now bouncing off of recent lows after soaring in value last year. Very low PEs exist here. For example, both DRYS and EXM are trading at PEs that are less than 6 times 2008 estimates.