Investing in Coal a Great Idea (Think China,India) – US Coal Stocks,Market Vectors Coal ETF(KOL) Analysis

Coal is the biggest source of Energy for Electricity Production in the world and its use is expected to continue to grow to 44% of the Electricity Production by 2030 (IEA).Despite Coal having many dangerous disadvantages,its Advantages of cheapness and abundance have made it the Fossil Fuel of choice.With global reserves estimated to be around 200 years,it does not have the “peak oil” characteristics as well.Though not a Coal Fan,nonetheless Coal stocks are a great investment choice due to the fact of its growing demand which is outstripping supply.China and India are massively growing their electricity,steel and cement production which  requires billions of tons of coal.China consumers almost 45% of the global coal production while Indian demand is growing by leaps and demands as well.Indian Power Utilities are grabbing up Coal Mines in Africa,Australia and Asia to secure feedstock for their gigawatt thermal power plants.Despite its growing importance Coal does not have a lot of choice in terms of investment unlike Fossil Fuels like Oil and Gas.Here is a list of Coal Stocks which one can invest in  and the sole Coal ETF – Market Vectors Coal ETF (KOL).

List of Coal Stocks

US Coal Stocks

Peabody Energy Corporation (BTU) – Market Cap of $18.5 Billon.Peabody Energy Corporation is the largest Coal Company in the United States with operations both in USA and  other countries.The Company has equity interests in a wide variety of Coal Mines and Coal Related Companies.It owns majority interests in 28 coal mining operations located in the United States and Australia.The Company holds approximately nine billion tons of proven and probable coal reserves and more than 500,000 acres of surface property.

CONSOL Energy (CNX)  – One of the the biggest Coal Companies in  the US with a Market Cap of around $12 Billion.CONSOL Energy is not a pure play Coal Company rather it has equal interest in Gas and Coal.. The Company produces pipeline coalbed methane (CBM) gas from its coal properties in the Northern and the Central Appalachian basin, and oil and gas from properties in the Appalachian and Illinois Basins.During 2010, it had 13 mining complexes, including two 49% equity affiliates, all located in the United States. The Company had an estimated 4.4 billion tons of proven and probable reserves

Arch Coal ACI – Market Cap of $5.6 Billion .During the year ended December 31, 2009, the Company sold approximately 126.1 million tons of coal and  operated 19 active mines at 11 mining complexes located in the United States.  On October 1, 2009, the Company acquired Rio Tinto’s Jacobs Ranch mine with 345 million tons of coal reserves and integrated it into the Black Thunder mine.

Alpha Natural Resrouces (ANR) Market Cap of $7 Billion,Alpha Natural Resources  is a coal supplier in the United States. It operates 66 mines and 13 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. During 2010, Alpha sold a total of 84.8 million tons of steam and metallurgical coal.

Walter Energy (WLT) – Market Cap of $7.5 Billion  primary business, the mining and exporting of hard coking coal for the steel industry.During 2010, the Underground Mining segment produced 6.7 million tons of metallurgical coal. Underground Mining also extracts methane gas, from the Blue Creek coal seam. Its natural gas business produces approximately 38 million cubic feet of gas daily from over 1,700 wells

Massey Energy (MEE) – Market Cap of $6.9 Billion.Massey Energy Company (Massey), incorporated in 1920, is a coal producer in the United States. At January 31, 2011, the Company operated 84 mines, including 66 underground mines  and 18 surface mines in West Virginia, Kentucky and Virginia. On April 19, 2010, the Company completed the acquisition of Cumberland Resources Corporation and certain affiliated entities (Cumberland). The Cumberland operations include primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. The Company owns a majority interest in Coalsolv, LLC (Coalsolv).

Alliance Resource Partners (ARLP) has a Market Cap of around $3 Billion.It operates primarily to serve  United States utilities and industrial users. It operates nine underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia. At December 31, 2009, ARLP  had approximately 647.2 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and sold 25 million tons of coal.

Patriot Coal Corporation (PCX) has a market cap of $2.25 billion and produces coal in the eastern United States, with operations and coal reserves in Appalachia and the Illinois Basin. It is also a producer of metallurgical coal. The Company’s operations consist of 14 mining complexes which include company operated mines, contractor-operated mines and coal preparation facilities.During the year ended December 31, 2009, the Company sold 32.8 million tons of coal and  controls approximately 1.8 billion tons of probable coal reserves

International Coal Group (ICO) – – Market Cap of $2.2 Billion  is a producer of coal in Northern and Central Appalachia .As of December 31, 2009, the Company operated a total of 11 surface and 11 underground coal mines located in Kentucky, Maryland, Virginia, West Virginia and Illinois.The Company’s mines in Central Appalachia produced 10.1 million tons of coal in 2009, and the mines in Northern Appalachia produced 3.9 million tons of coal in 2009.

Oxford Resource Partners (OXF) has a market cap of around $550 million and produces coal from mines  in Ohio.Company produced 5.8 million tons of coal, including 0.4 million tons produced from the reserves it acquired in western Kentucky from Phoenix Coal and sold 6.3 million tons of coal.OCX controls 91.6 million tons of proven and probable coal reserves

James River (JRCC) – Market Cap of $900 million, James River Coal Company mines coal through six subsidiaries  located in eastern Kentucky and in southern Indiana. As of December 31, 2009, the Company’s six mining complexes included 14 underground mines, 10 surface mines and 10 preparation plants, five of which have integrated rail loadout facilities  As of December 31, 2009, it controlled approximately 271.1 million tons of  coal reserves. and  produced 9.8 million tons of coal

Coal Stocks Symbols

Market Vectors Coal ETF (KOL) Analysis

Market Vectors KOL ETF provides a good well diversified way to invest in Coal which is seeing a massive upsurge in demand driven by India and China.Note KOL is the only listed Coal ETF with Assets under Management (AUM) of nearly $900 million.It invests mostly in large cap companies and has a global scope.For investors looking for individual stocks here is a list  of US Solar Companies and Stocks and Indian Coal Stocks.China with around 3 Billion Tons of Coal Consumption and India with another 500 million Tons depend on King Coal for majority of their Energy Needs.While China generates 80% of its Electricity from Coal,India generates around 65%.While both countries have Huge Reserves and Production of Coal,their voracious demand is leading to surging imports.These Imports are being sourced from countries like Australia,Canada and USA which are going through Coal Mining Booms.Ports are getting congested as Infrastructure failed to meet the growing coal needs of India and China..The Biggest Advantages of Coal its Abundance and  Cheapness of Coal has made it the Fossil Fuel of Choice for Electricity Companies building power plants in developing countries despite its Drawbacks.This has led to a fight to secure Coal Supplies through vertical integration into buying up of coal mines,building ports and railways to transport Coal.Though India too faces some environmental opposition,massive ultra mega power plants with capacity of 4000 MW are getting built by new Indian private utilities.

KOL ETF

Market Vectors Coal ETF (KOL), which was launched in January 2008.

KOL Composition

KOL  is composed of 40 coal stocks  with the Top 25 Holdings make up 93% of the weight of the ETF.The ETF has  5 holdings with weight greater than 5% and has a well diversified mix of geograhies from USA,China and Indonesia.KOL largely has large cap stocks which make up more than 80% of the market cap with Mid Caps at 17% and Small Caps at a miniscule 3%.

1) Coal Sectors form 100% of the ETF Market Cap – The ETF has 5 sectors of Coal Mining and Produciton,Coal Equipment,Coal Technology,Coal Power Generation and Coal Transportation.Not surprisingly Coal Mining forms 68% of the Market Cap while Coal Mining Equipment forms 16%.This makes sense as KOL is mainly a play on Coal as a Mineral .

2) Top 5 Companies form 40% of the ETF– The Top 5 Constituents of the ETF namely Peabody,Consol Energy,China ShenHua,Joy Global and Bucyrus form 40% of the ETF’s value.2

3) Valuation of the KOL is currently quite high – The P/E and P/B of the ETF at31x ad 4x is quite high and reflects the current bull run in Coal Stocks.It may not be an oppurtune time to invest in this ETF at the present time,however its a good long term buy because Coal compared to Oil is still quite cheap.Beside KOL has given astounding returns in 2009 and 2010 vastly outperforming S&P and the Energy Index

Despite the high valuation,KOL gives a very good dividend yield of around 2%.

4) KOL Cost is cheap– The ETF is charging a total expense of 0.6% of the Weekly Average Assets which is quite cheap.It allows an investor to invest in top quality Global Coal Stocks from different countries at a relatively low cost which makes it an ideal Coal Play.

Summary

KOL has managed to rectify most of its drawbacks since its inception when it held a large percentage of coal utilities like Huaneng and has become an ideal way to invest in Coal.Given the run up in commodity prices and the sharp surge in Coal prices,KOL valuation has increased quite dramatically rising more than 30% in 2010 after a 150% run up in 2009.This may not be the best time to get in,however the massive takeover fights and high valuation being given to Coal Assets may imply that KOL might not come down in price anytime soon.The growing energy needs of China and India make KOL one of the best ways to play this stock.It is an ideal investment tool for buying into higher Oil Prices as well.

Details of KOL Holdings

Source – http://www.vaneck.com/funds/KOL.aspx

Indian Coal Stocks

1) Coal India Limited (CIL)– The State Owned Giant Coal Producer dwarfs the other companies through its sheer size,scale,cost and reach.The company has fared poorly in the current year after its IPO as its production growth has almost come to Zero.However its sells coal at such a low cost,that it could easily raise prices of coal in select categories to meet its financial goals.One of the safest investments in the stock market.It posseses high level of cash,low valuation compared to global peers and has a huge room to raise coal prices in the future.

2) Neyveli Lignite Corporation is a PSU like NTPC and is also involved in lignite mining company in India. The company is mainly based out of the southern state of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacity of 2490 MW

3) Singareni Collieries Company Limited (SCCL) is a PSU  jointly owned by Andhra Pradesh and the Federal Governm .The company is involved in mining coal  in the GodavariValley region, with reserves of around 8 Billion Tons with production of around 50 million tons a year.Note listed currently still one of the major coal companies in India.