Richard Kary and I recently discussed the nature of money and taxes and the ideal size of the government. Have psychopaths come to power worldwide because of a conspiracy or something banaler? Following Occam’s razor, I choose the latter. Is the US dollar going to be replaced, and where does the US stack up compared to other countries?
An Indian immigrant, Meyrick Abreu, and I recently talked about the ossification of the Indian mind, the revival of the pre-British lawlessness, and rising all-out corruption. We spoke of the Delhi Commission for Women Chief, Swati Maliwal, who filed what looked like a fake molestation charge, Adani (companies run by whom are crashing), Dilip Suryavanshi (a wannabe Adani), etc. The podcast is linked here.
Shad Marquitz and I discussed some coal mining companies and why they deserve a look. Linked is the conversation, and the following are some details for clarity.
Institutional investors and sovereign funds have heavily sold their ownership in coal, and the only coal ETF was wound up in 2020. Diversified mining companies have been forced to spin off their coal assets. The reason is that coal is demonized, although usage of coal-based energy isn’t. And the assumption is that spinning off assets would somehow reduce carbon emissions—this does improve ESG reports. I don’t know how this adds up, but this has underpriced coal companies offering me opportunities. Here is the list that I talked about with Shad:
- Coronado Global (ASX.CRN; A$1.92): Metallurgical coal; P/E of 5; dividend yield 12%
- Yancoal Australia (ASX.YAL; A$5.70): 20% metallurgical coal and 80% thermal coal; P/E of 3; dividend yield 17%
- Warrior Met Coal (NYSE.HCC; US$38): Metallurgical coal; P/E of 5; dividend yield ~0%
- Peabody Energy (NYSE.BTU; US$26): 25% metallurgical coal and 75% thermal coal; P/E of 2; dividend yield ~0%
- Whitehaven Coal (ASX.WHC; A$7.30): 5% metallurgical coal and 95% thermal coal; P/E of 2; dividend yield 10%
- Teck Resources is spinning off its metallurgical coal projects into an independent entity, Elk Valley Resources (EVR). Perhaps, we should pay attention to if and when institutions dump their ownership in EVR.
In the above, metallurgical coal companies look relatively higher priced because since the last financials, on which my numbers are based, thermal coal prices have fallen quite a bit, and metallurgical coal prices have increased.
A question is whether I should invest in coal exploration and development-stage companies. On a like-to-like basis, my acquisition cost of a development-stage company plus the capital required to put its projects into production will likely be more than the market capitalization of coal companies already in production. So, by buying producing companies, I have the same or better upside and no permitting risks. Coal mining companies are buying back their shares and giving out dividends for all the right reasons. This preempts me from investing in early-stage coal companies until the share prices of producing companies have increased significantly.
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