September 12, 2008
Finding a needle in a haystack really isn't so hard, as long as you start your search right where the needle is.
Although shares of coal miners have essentially been run off a cliff since June, the evidence indicating that we haven't heard the last from coal is easy to locate; as long as Fools are looking in the right places. Since June, shares of the Van Eck Market Vectors Coal ETF (NYSE: KOL ) have lost 39% of their value.
Beginning as a typical correction for a commodity sector that was truly on fire, the pain for investors in coal mining stocks has since been exacerbated by a 20% decline in spot prices for thermal coal in Asia, a broader energy correction that included a 45% drop in natural gas prices, and a suddenly strengthening U.S. dollar.
As a result, we find former highfliers like Patriot Coal (NYSE: PCX ) and CONSOL Energy (NYSE: CNX ) down more than 50% from their June highs, while global player Peabody Energy (NYSE: BTU ) is off similarly. Judge the following evidence for yourself to determine whether opportunity lies right next to the needle in the haystack:
- The world's largest thermal coal exporter, XSTRATA, recently proposed a 40% price hike for coal sold to Japanese utilities.
- Joy Global (Nasdaq: JOYG ) reports that thermal coal supplies in China remain below a three-day supply.
- Coal imports in Taiwan rose 7% in July from prior-year levels, after a 14% decline reported for June.
- London-based IPSA Group will double its capacity to build power plants in South Africa, even as the world's largest coal export terminal is considering further additions to the capacity expansions already under way.
- Acquisition activity within the sector has continued unabated, including Teck Cominco's (NYSE: TCK ) purchase of profitable JV partner Fording Canadian Coal Trust.
- Australian miner Straits Resources last week called the outlook for thermal coal prices "extremely favorable," citing "unprecedented tightness due to strong demand from Asia."
- At the last G-8 forum, coal was a major focal point among proposed answers to the world's insatiable thirst for energy.
Accommodations aboard the coal train have not been terribly cozy of late, but this Fool remains aboard for the long haul.