An Opportunity Too Coal to Pass Up

You may have noticed that The Motley Fool replaced that spooky Panic 2008 header with Opportunity 2008. Following an indiscriminate commodity sell-off of irrational proportions, and given the sharp reversal of the U.S. dollar in recent days, I believe that when it comes to select commodity sectors like coal, the headline could be amended to read: Opportunity of a Lifetime 2008.

Eastern U.S. coal miner Patriot Coal (NYSE: PCX  ) this week joined a growing chorus of companies touting the robust long-term fundamental outlook for coal -- regardless of any short-term reverberations from global financial challenges. Especially while Patriot shares remain 80% cheaper than they were just four months ago, the near-term impact to earnings from regionwide production challenges should be of little concern to the long-term investor. In fact, given the importance of Appalachia to world markets, these challenges should serve to support long-term prices.

Despite beating analyst estimates with $490 million in revenue and swinging to a $73 million net gain from a loss a year earlier, the result would have looked quite different without a one-time gain of $122 million. Without it, Patriot would have posted a loss for the quarter just as competitor Foundation Coal Holdings (NYSE: FCL  ) did last week -- and for virtually all the same reasons.

Both Foundation and Patriot report an identical set of challenges to Appalachian coal production; Fools can expect these to afflict every producer in the region until we learn otherwise. These include an acute labor shortage, increased labor costs, a stringent and uncertain regulatory environment for permitting, and increased mine safety site inspections.

Addressing these issues, Patriot is stepping up labor recruitment, miner training, and adding staff to accommodate site inspections. Still, these and other factors yielded a 1.4 million ton production shortfall from earlier projections, and the company expects similar challenges to remain a factor in the fourth quarter.

As the panic of 2008 abates, coal is definitely still a hot commodity. Whether we look to Peabody Energy's (NYSE: BTU  ) incredible earnings, benefits to rail companies like CSX (NYSE: CSX  ) and Burlington Northern Santa Fe (NYSE: BNI  ) from strong coal exports, or the crystal-clear assessments of bullish long-term fundamentals from leading miners like Arch Coal (NYSE: ACI  ) and CONSOL Energy (NYSE: CNX  ) , I believe coal miners at these prices represent some of the very best means to transition out of panic mode and start seeking long-term opportunities.

Further Foolishness:

The "Coal" tag within the Motley Fool CAPS community lists 22 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Arch Coal and Peabody Energy. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 31, 2008, at 1:36 PM, Brettze wrote:

    Use your mindpower not fossil energy!! Use your mindpower to conserve energy!! Use your mind, use your mind!!! Energy conservation runs on , guess what?, your mindpower....

  • Report this Comment On October 31, 2008, at 1:37 PM, Brettze wrote:

    Stop leaving your home/office thermostats on automatically.. Control your thermostats with your mindpower!

  • Report this Comment On October 31, 2008, at 1:37 PM, Brettze wrote:

    We are not fossil fuel powered zombies!!

  • Report this Comment On October 31, 2008, at 2:02 PM, Brettze wrote:

    Use your mindpower not fossil energy!! Use your mindpower to conserve energy!! Use your mind, use your mind!!! Energy conservation runs on , guess what?, your mindpower....

    Your mind is out of shape,, exercise your mind!! Your mind will be stronger and you will conserve energy more with stronger mind power!! Keep your mind in shape ! Flex your power by flipping switches everywhere! Hang your washed clothes on an indoor clothesline to dry.. Stop using your dryers!! Use your mindpower and creativity!! Mindpower will defeat fossil fuel corporations!!

  • Report this Comment On October 31, 2008, at 2:03 PM, Brettze wrote:

    flex your power flex your power!

  • Report this Comment On October 31, 2008, at 4:21 PM, Brettze wrote:

    Use your mindpower not fossil energy!! Use your mindpower to conserve energy!! Use your mind, use your mind!!! Energy conservation runs on , guess what?, your mindpower....

    Your mind is out of shape,, exercise your mind!! Your mind will be stronger and you will conserve energy more with stronger mind power!! Keep your mind in shape ! Flex your power by flipping switches everywhere! Hang your washed clothes on an indoor clothesline to dry.. Stop using your dryers!! Use your mindpower and creativity!! Mindpower will defeat fossil fuel corporations!! Every homeowner and apartment dweller should turn off thermostats one or two days a week to conserve energy and wear sweaters and thermal underwears!! This is just one of many, many ideas to conserve fossil fuel !! Keep fossil fuel prices suppressed forever!!! Even if fossil fuel prices stop falling, we will pay even less with increased energy conservation overall.. We must put a serious seige around the fossil fuel industry!! We must mean business with our mindpower!!! We are not weak!! We are strong! We can and must defeat the fossil fuel industry!

  • Report this Comment On November 01, 2008, at 2:38 AM, 10qdetective wrote:

    Chris:

    A big concern remains: Can Foundation Coal hold production costs down in an environment where volumes are declining?

    http://industry.bnet.com/energy/1000338/production-delays-pl...

    Your thoughts?

    My Best,

    David J Phillips – Editor, 10Q Detective

    Contributing Energy Analyst

    CBS/CNET

Add your comment.

DocumentId: 766447, ~/Articles/ArticleHandler.aspx, 7/26/2014 3:18:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement