How Long Can the Coal Last?http://www.fool.com/investing/general/2013/10/06/how-long-can-the-coal-last.aspx Reuben Brewer
October 6, 2013
Although how much coal a miner like Peabody Energy (NYSE: BTU) pulls out of the ground each year is the big headline, its future success is actually more dependent on how much coal it has left in the ground. That coal, known as proved and probable reserves, represents the company's future earnings power. You should get to know it well.
That's a big... number
Looking at proven and probable reserves, however, makes the size of these two industry players even more disparate. At the start of the year, Peabody had 9.3 billion (with a b) tons of coal that it had yet to pull from the ground. Arch started the year with about 2.1 billion tons. This provides a sense of Peabody's scale.
What is proved and probable?
So the reserve number is always a work in progress. What isn't up for debate, however, is how much coal gets mined. With 9.3 billion in reserve coal at the start of 2013 and using first half production as an average run rate, Peabody has around 35 years of coal left to mine, often called reserve life.
Dividing Arch's coal in the ground by what it's been mining shows that the company has less than half that at 15 years. Metallurgical coal focused Walter Energy (NYSE: WLT), meanwhile, has reserves of 400 million tons and, based on its recent mining rate, has around 30 years of reserves.
Looking at the oil sector can give a different perspective on how important this is. French energy giant Total (NYSE: TOT), for example, only found enough new oil to cover 75% of what it sold between 2007 and 2009. Looked at in another way, its reserves fell by 25% of its annual production in those years. It was pleased