Four coal miners dominate the U.S. thermal market, accounting for over 50% of coal supplies. However, there are smaller players worth a look as industry supply and demand balance out.
The BIG fish
According to The U.S. Energy Information Administration (EIA), Peabody Energy (NYSE: BTU ) , Arch Coal, Alpha Natural Resources, and Cloud Peak Energy provide over half of the coal used by U.S. electric plants. That's a huge market share that looks even more formidable since 500 participants fight over the rest. Statistics, however, can blur the fine points.
For example, Peabody Energy sold around 44 million tons of thermal coal in the second quarter. Arch, the second largest producer, sold around 30 million tons. Peabody sold nearly 50% more coal than Arch. Cloud Peak sold 20 million tons, less than half Peabody's total, and Alpha brought up the rear, with around 16 million tons in the quarter—about a third of Peabody's total. Clearly, Peabody is the big fish.
Growth either way
CONSOL Energy (NYSE: CNX ) , meanwhile, sold about 12 million thermal tons in the quarter, 25% less than Alpha. But CONSOL happens to be a very interesting company even though it didn't make it into the big four.
Unlike the other four, it has both a coal business and a natural gas business. While coal has been struggling, CONSOL has been aggressively growing its gas business and expects production there to increase about 10% this year and between 20% and 30% next year. Natural gas is increasingly important as a fuel source for electric utilities. So CONSOL is positioned to benefit from a coal rebound and the broader industry shift toward natural gas.
Finding a niche
Another company to watch is Alliance Resource Partners (NASDAQ: ARLP ) , which sold just less than 10 million tons of thermal coal. However, about 75% of that coal was out of the Illinois Basin (ILB), which is gaining market share from nearby basins. This has allowed Alliance to increase production at a time when others are cutting back.
So Alliance has been posting record results at the same time that other coal miners, including three of the big four, have been struggling with red ink. And, as a limited partnership, Alliance offers a hefty 6.1% yield backed by a distribution that's been increased for over 20 consecutive quarters.
Rhino Resource Partners (NYSE: RNO ) is another company to monitor. It's taken a page from CONSOL's playbook and started to expand into natural gas. Although gas is just a tiny fraction of the top line today (the company had just 15 wells in July), that just means that growth in the segment will be easier to achieve.
And, Rhino is planning to open a new ILB mine in the middle of 2014. That's a page out of Alliance's playbook. The mine is also located near a river, providing low cost transportation and access to export markets.
Rhino is a tiny player, producing about half the quarterly total of Alliance in an entire year. That said it is making strategic moves that should position it well for the future. And, another limited partnership, it offers an impressive 14% yield. If you have an aggressive bent, it's worth looking at.
Big things in small packages
Although companies like Peabody and Arch dominate the coal industry, that doesn't mean they are the only companies to look at in the space. The other 50% of the market holds some interesting names, including CONSOL, Alliance, and Rhino. Don't get blinded by big numbers and miss the good things in these small packages.
More from The Motley Fool
One home run investing opportunity has been slipping under Wall Street's radar for months. But it won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock... because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!