Thankfully for these 2 Companies, Coal Prices are Finally Showing Signs of Life

Powder River Basin coal prices are rebounding, is now the time to get on board the coal train?

Apr 16, 2014 at 11:46AM

The domestic thermal coal industry has been in the doldrums for several years, but there are signs of life taking shape. For example, Powder River Basin (PRB) coal prices are at their highest point since late November of 2011. That's good news for Cloud Peak Energy (NYSE:CLD) and Peabody Energy (NYSE:BTU).

U.S. thermal coal has been hard hit by a combination of low natural gas prices and its dirty image. For several years gas has been price competitive for power generation and, because it burns more cleanly, has been favored over coal. For example, in 2013 gas powered over half of the new electric capacity built. Coal powered just over 10% and was added in only two states, Texas and Indiana.


In 2012, natural gas was so cheap that power companies used it over coal even for existing power plants. This led to a buildup of coal inventories, reduced coal demand, and downward pressure on coal prices. For example Cloud Peak's U.S. coal volumes fell 5% in 2012 and another 5.5% last year, and that came on top of weaker pricing. It's not surprising, then, that earnings have fallen from over $3 a share in 2011 to $0.85 a share last year.

That said, 2013 saw natural gas prices rise and excess PRB inventories burned off. At the start of 2014, the U.S. Energy Information Administration noted the shift, saying that the trends supported, "...greater demand for delivery of PRB coal."

Finally, a bright spot!
Internationally diversified coal miner Peabody Energy put some numbers to this during its fourth quarter conference call, when CEO Gregory Boyce noted that, "...PRB prices were up nearly 40% from their lows of last year."

Peabody's PRB operations accounted for nearly 40% of the top line in 2013. So an upturn in prices for PRB coal is a big deal. In fact, Peabody produces over 4.5 times as much coal from its PRB mines than it does from its next largest business segment, Australian metallurgical coal. So, even small price increases have a lot of leverage behind them.

Although 2014 is likely to be another difficult one for Peabody, an uptick in the PRB will help soften the blow from continued pricing weakness in the met market, where margins are more important than volume. It also hints that the downturn in the U.S. thermal market may be coming to an end. If that's true, Peabody's Illinois Basin assets (about 20% of sales) could start seeing notable improvement as well.

Clear focus
While $4.7 billion market cap Peabody may be the largest and most diversified coal miner, the purest play on a PRB turnaround is $1.3 billion market cap Cloud Peak Energy. The company, which produces about half as much coal out of the PRB as Peabody, only mines in the one region. While Peabody has posted losses of about $2 a share in each of the last two years, Cloud Peak has managed to keep its head above water throughout the coal industry's darkest days.


(Source: Amcg12, via Wikimedia Commons)

And it's a heck of lot easier -- at least mentally -- to own a coal miner that's making money while you wait for supply and demand to balance out than it is to own one that's losing money. So even though Peabody is a global coal giant, which provides clear diversification benefits to investors, Cloud Peak's singular focus will likely lead to a quicker turnaround and has made investing in coal more palatable.

Not out of the tunnel yet
Coal is hardly out of the tunnel, but PRB pricing hitting two year highs isn't just a glimmer of light at the end—it's more like a spotlight. The best way to play the trend is PRB-focused Cloud Peak Energy. However, if you want to play both the PRB upturn and the potential for a longer-term turn in coal, which is still a ways down the line, Peabody Energy is the better choice.

Here's what's helping to put the hurt on coal...
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers