The aptly named protagonist in director Tim Burton's Edward Scissorhands could trim a hedge like nobody's business. Given the incredible volatility the commodities sector witnessed in 2008, the trillion-dollar question for 2009 could be whether companies should be trimming hedges, or keeping Edward Scissorhands at bay.
Conveniently, two coal-mining companies with operations in Appalachia delivered earnings this week that open a window onto this important consideration.
Foundation Coal Holdings
International Coal Group
Quite unlike Peabody Energy
International Coal Group, on the other hand, faces slightly more spot market risk, with 92% of planned shipments priced at an average of $61 per ton. Similarly, CONSOL Energy
Given dire economic projections for 2009, the miners with less spot market risk might indeed celebrate these forward contracts over the coming quarters. If, however, the combined impact of rapidly contracting industrial production and global stimulus efforts produce a resumption of coal demand that's more swift than many expect, then a lightly hedged miner like Arch Coal could in fact have the last laugh. Despite this possibility, both Foundation Coal Holdings and International Coal Group offer a safer road forward.
The "Coal" tag within the Motley Fool CAPS community lists 21 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 wishes he could squeeze mediocre coal miners into diamonds. He can 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 scrubs its disclosure policy before releasing it into the atmosphere.