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Is The Coal Industry Void Of Opportunity?

Mention the word “coal” to most investors without the word “short” attached in some way and they, understandable and usually rightly, run as fast as they can to get away from the crazy person talking to them. Despite the industry’s best efforts to promote what they refer to as ‘clean coal”, most people view the fuel as dirty, dangerous to recover and essentially a thing of the past.

That perception is certainly held by the current administration in the U.S., where the Environmental Protection Agency (EPA) rules regarding emissions will effectively close dozens more coal fired power plants over the next few years. Overseas, even the Chinese and the Indians have at least paid lip service to cleaner electricity production recently and declared an intention to move away from coal. When push comes to shove I am still not convinced that the necessary huge investment to make that shift will be forthcoming in either case but, even without that, low global prices and relatively high production costs have made exports unlikely to fill the gap between supply and demand here in the U.S. Indeed, total exports of coal dropped by 21.8 percent from 74,981,013 short tons in 2014 to 58,659,154 last year, according to the EIA.

Those realities have certainly been reflected in the stock and fortunes of U.S. coal producing companies. Bankruptcy has already been declared by Patriot Coal, Alpha Natural Resources, and Arch Coal and, any day now if reports are true, the country’s largest producer, Peabody Energy (BTU), will be following suit. The once proud, dominant industry seems to be in terminal decline. Whether you view that as a good or bad thing depends on your political outlook and proximity to the industry, but from a trader’s perspective, the question is does it create any opportunities?

My immediate, logical reaction to that was no. The decline and fall has been so rapid that there have been no winners. The fact is, though, that coal is not disappearing completely any time soon. If you look at most of the bankruptcies they are, at least partly, caused by a rush to borrow and expand a few years ago when coal was in better shape. The debt acquired at that time, rather than actual operational losses, are what killed the big boys.

The glory days of black gold may be over, but smaller, more focused, less debt laden companies can still make money. Hallador Energy (HNRG), for example has not posted…




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