Investors love to talk about taking the long view, but one would have needed telescopic vision and a diet of pure carrots to have been in position for this recovery. If you purchased Massey Energy
Massey on Friday released a forecast of significant increases in sales prices for coal for the rest of the year, and continuing through 2010. From its prior forecast of about $55 per ton, Massey increased projections nearly 13% to $61 to $63 per ton in 2008. The company now expects to be selling coal for $75 to $87 per ton by 2010, and is positioning itself accordingly to increase production capacity.
Massey also announced that it will add $90 million to its capital spending to accelerate efforts to expand production. The company's total capital spending for 2008 will now reach a substantial $550 million, and will be funded almost exclusively by cash from operations. The ambitious plan would add 8 million tons of annual production by 2010.
Coal prices have been rising steadily for several months, but supply disruptions in Asia and Australia have steepened the curve of late. Demand for metallurgical coal used in steel production has been particularly robust, with prices topping $150 per ton domestically and as much as $300 in Asia. With such premiums available, many companies like Massey are diverting the hotter-burning portions of their steam-grade coal to the metallurgical market.
In short, coal has been a relative laggard in a series of industrial commodities that are now selling at historic highs, and it appears coal is finally waking from its slumber. That's welcome news for other coal outfits like Arch Coal