Coal stocks/etfs

[tlengoc]

Merry Christmas to All!

I was wondering if anyone had any thoughts on Coal stocks/etfs.

[ChuckGeb]

China is making significant strides in the field of nuclear power, with a rapid pace of construction that outstrips any other nation. The country currently has 38 nuclear power reactors in operation and 19 under construction, according to the World Nuclear Association. This expansion is driven by a combination of factors, including a high energy demand, a desire to reduce reliance on coal and oil, and a commitment to limiting CO2 emissions.

Further the massive buildout of worldwide LNG facilities is bearish long term for coal.

[tlengoc]

I agree with what you're saying but that takes time -- years. Plus there will be supply issues with acquiring uranium. What are countries going to use in the meantime as a stop gap? Coal is cheap and efficient.

[ChuckGeb]

I agree coal has good prospects short term. It will be the go to solution until the other alternatives replace it. I Don know how to value goal but I would be looking at a low multiple of FCF.

[JBtheBrit]

I have a number of coal holdings - both Met and Thermal. I am bullish coal in the medium term - very similar to Oil, the IEA produces an annual report forecasting that coal has peaked and will decline next year... but despite these claims being made each of the last 8-10 years, coal usage continues to rise - 2022 was a record and 2023 will likely be another one. China, in addition to building Nuclear, is also building out coal plants in record numbers (to give a sense of the scale of their build, capacity being added in the next 12-18 months equals current total US installed capacity, and the US is the 3rd largest thermal coal generation country after China and India). India's build plans are also significant. On the thermal side I have made significant money this year from Consol (CEIX) and anticipate great returns from a couple of Australian names I have added over the last few months (Whitehaven and Yancoal). All are generating tons of cash and not having to spend very much of it on Capex (very different to the shale O&G names in that regard) and yet valued at 2-3x cash flow. I do agree the rapid global build of LNG is a threat and I am watching that. The thermal coal stocks feel a lot like my tobacco stocks have done for the last 15-20 years - hated by many... but damn good returns for me !

On Met coal - different dynamics - obviously driven by the steel markets... but often the uninformed just tar them with the same brush as thermal - this world can't continue without steel...so its very much a needed commodity.... but has suffered from the lack of capital / investment due to ESG concerns. My primary Met holdings are Arch and Peabody (BTU) - both have thermal coal as well, but the Met is their main driver.

[ChuckGeb]

Excellent insights on coal. I had no idea about these factors. Appreciate you listing the investable names. thanks so much for posting. Merry Christmas.

[mitchl]

I agree with JBtheBrit. The current trend is still up for demand. 2021, 2022 and now 2023 have all eclipsed the previous year in record coal demand.

https://oilprice.com/Latest-Energy-News/World-News/Global-Coal-Demand-Is-Set-to-Hit-a-Record-High-in-2023.html

I have owned ARCH and BTU before but currently do not. I keep them on my watchlist though. I do appreciate you listing those Australian names. I will add them to my watchlist. I'm short term cautious and medium-long term bullish. I try to only pick them up on the deepest of discounts.

If you look at a price chart on coal, it has really taken a beating this year but the equities have done alright. From what I understand, coal is very regionally priced like natural gas. I do think nuclear and gas will offset a lot of the western demand for coal used in power gen - but I do believe India and other developing countries have a lot of electricity demand growth baked in the next few decades which will definitely require a lot of coal.

The best part is - sometimes coal gets shipped around in a ship called Climate Justice! ha

Merry Christmas all

[JBtheBrit]

Thanks Mitchl. I have paired back my holdings a bit this year (basically taking profits from 2021 through mid 2022), but ultimately I am terrible at timing, so if I believe in the thesis, I am holding until my belief in the thesis changes. The dynamics between thermal and met are also of course very different....although many people lump them into the same bucket of "coal". It's interesting to see what Bloomberg is trying to do... basically shut down US coal.... someone needs to tell him that we still need coal power generation in the US given its stable base load.

There were a couple of good write ups on Robert Bryce's substack on the topic of coal - I was able to access them without a paid subscription.

https://open.substack.com/pub/robertbryce/p/cop28-gets-coal-in-its-stocking?r=1b6igi&utm_medium=ios&utm_campaign=post

https://open.substack.com/pub/robertbryce/p/two-days-after-cop28-iea-delivers?r=1b6igi&utm_medium=ios&utm_campaign=post

[JBtheBrit]

@ChuckGeb - you are welcome. Whitehaven is particularly interesting. Take a look at their 2022 results and the cash generated - at the time they were pretty much 100% thermal and really benefited from the run up in thermal pricing. They have used a chunk of this cash to buy Met coal assets being sold by BHP at I believe a very low multiple. The reaction by the market was mixed - some wanted them to basically return all their cash to shareholders. To me, that gives two opportunities - an M&A deal at a low multiple (they used the cash and then got seller financing) and the market not rewarding them for the deal. I think over a 2-3 year period this should be a double or triple and once they have cleared the seller financing, should be a cash machine and will have a more balanced portfolio of Met and Thermal assets. Just my opinion of course and not investment advice !!. Merry Christmas and good luck to all in 2024.

[JBtheBrit]

A good listen for anyone wanting to learn more on coal. Matt Warder is the Dan S of coal !!

https://www.youtube.com/watch?v=iExcjU1Id4I