User 161473

The Brightest Stars in the Commodities Boom, Part I

Mark,

You always have good comments.

I wanted to say a few things about coal. One thing you didn't mention(at least I think you didn't mention) was the price of Nat Gas which is the direct competition for coal. As nat gas prices go up, so will demand for coal as utitilities switch to the cheapest generation input further pushing up prices.

I think everyone is starting to realize that all energy sources are interconnected(oil, gas, coal) When we have shortages of one it pushes up the price of others. Currently oil companies are having a difficult time in finding new places to drill where the hurdle rate makes sense. At some point they are going to have to start drilling or buying other energy companies. If you look at a coal company as an energy company such as an oil company is an energy company, you could come up with higer valuation. I know this is kind of twisted logic especially when you look at earnings but here is an example. Peabody(BTU) has more reserves in the ground than Exxon does in terms of BTU's. The market cap of Exxon is $450 billion vs. $20 billion for Peabody. Every year Exxon's production is declining with not much hope of ever stopping it. Would XOM be willing to pay $30 billion (50% premium) to double it's reserves in terms of BTU's? What should we value future coal reserves if believe worldwide oil production will start to decline soon?

Thanks,
Don