7 Uniquely Positioned Coal Mining Stocks [2022]
Since the industrial revolution, coal has been a leading source of energy — however in recent years there has been an increasing global concern regarding the effects of coal-powered energy sources on the environment by governments and NGO’s.
Many developed countries have made massive commitments to invest in energy sources that are more renewable and environmentally friendly than coal. But, what does that mean for coal stocks?
The first reaction most of us would have is that this would be horrible for coal socks, but this is simply not the case — coal as an energy source is still needed and with such a negative sentiment towards the industry stocks often trade at a low valuation with little competition or risks, making coal stocks, often times, fantastic dividend companies with extremely high yields and low single-digit valuations.
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Why Should You Invest in Coal Stocks?
Coal has been one of the leading energy sources in the world since the beginning of industrialization. Many people believe that this is likely to change soon, due to concerns regarding the climate and developed countries’ commitment to renewable energy sources.
However, according to Statista, the production of coal across the globe has actually been increasing steadily over the past few years and continues to do so. Coal consistently remains to be the cornerstone of generating electricity in China and India. That isn’t to say that the demand for coal isn’t decreasing due to climate concerns. In the year of 2019, the demand for coal globally decreased by around 1.8%. Further, the amount of power generated from coal also decreased by 3%.
It is estimated that, by the year 2025, the demand for coal is to flatten out at around 7.4 billion tonnes. As a consequence of this decreasing demand and pressure on coal companies to cut their CO2 emissions, nearly all coal stocks are plummeting. As such, the question above is a rather complicated one. Whilst a decreasing demand for coal may be concerning for potential investors, it is important to understand that the demand for coal remains to be incredibly high.
In fact, it is estimated that, as economies begin to recover from the COVID-19 crisis, the demand for coal may even increase again — especially now that sanctions against Russia are interfering with global energy trading forcing Europe and western countries to rely more and more on coal.
As it stands today, investing in coal is decent idea, as P/E ratios remain low with most coal companies — however there is significantly higher risk than there was a couple years ago when everyone hated coal — back then in 2020 we called out Coal as an undervalued sector and since it’s performed amazingly with many of our picks going up by 300%+ in the following 24 months, however now with this ‘return to normal’ pricing the future is uncertain to us.
Where Is Most Coal Mined?
Coal is mined in many places around the world. As it stands, the world’s largest producer of coal is China, which produces almost 3.7 billion tonnes of coal during the year 2019. It is estimated that this is around 47% of the world’s entire output that year. Following China, India is currently the second-largest producer of coal. It produced an estimated 783 million tonnes of coal in 2019, which was around 10% of the global production. The state-owned coal mining company Coal India was responsible for 80%.
The US is understood to be the third-largest producer of coal in the world, producing around 640 million tonnes in 2019. Interestingly, this was the lowest level of coal produced by the US since the 1970s.
7 Uniquely Positioned Coal Stocks to Consider:
Below, we’ll cover some of the best coal mining companies that are publicly traded and investable — some will be pure-play coal companies that carry higher risk, but higher reward if coal performs well, but we’ll include a couple diversified mining companies that simply have decent exposure to coal mining as well.
There’s lots of other diversified miners that have coal exposure than we’ll cover below, but they have very low coal exposure in their portfolios and thus we don’t believe them to be worth considerations, nor do they have unique moats like the companies covered below.
Arch Coal Inc. ($M): 17,898.5
Arch Coal is the largest coal miner in the USA and has the biggest moat of any coal miner in our opinion due to it’s size, scale, and existing partnerships. They’re the main supplier to America’s remaining Steel Mills, but they also sell a significant amount of coal to power plants as well — they even export some of the coal they produce, which is rare for US-based coal miners.
The attractive part of Arch Coal is they’re generally much more attractively priced due to the US being a jurisdiction that is particularly hostile to coal mining, however due to financial freedoms it’s not reasonable for the government to seize assets and not pay stockholders more than fair compensation so we aren’t concerned about them being based in the USA — even if crippling regulations were put in place stock holders likely wouldn’t be screwed.
Alliance Resource Partners LP Market Capitalization ($M): 1933.2
Alliance Resource Partners LP is a natural resource company that focuses on producing and marketing coal to industrial users and utilities in the US. It is a laster limited partnership with common units traded on the NASDAQ Global Select Market under the ticker ARLP.
Alliance is the second-largest producer in the east of the US and the largest producer within the Illinois Basin. It has an excellent track record that consists of great long-term performance whilst maintaining a conservative and strong balance sheet.
Alliance boasts strategically located mining operations. In turn, they are able to provide their customers with a variety of coal qualities and multiple transportation options. Consequently, Alliance tends to be the preferred supplier to the markets that it serves.
Peabody Energy Corp Market Capitalization ($M): 1731.9
Peabody Energy Corp. is a significant player in the business of coal mining. It works within the business segments of Powder River Basin, Midwestern U.S., Western U.S., Seaborne Metallurgical, Seaborne Thermal Mining, and Corporate and Other.
It is a leading coal producer that works to provide essential products to ensure the production of affordable and reliable energy and steel. Interestingly, Peabody Energy Corp. also claims to have a strong commitment to sustainability that underpins its future strategy.
New Hope Corporation Limited ($M): 1766.9
New hope is an Australian-Listed Coal, gas, and oil drilling company, so they’re basically involved in everything hated by ESG folks, making their stock extremely cheap relative to others, with single-digit P/E’s and high dividend yields they’re fantastic.
Just keep in mind they’re a smaller company, and thus news/updates on operations are less common, and they are not solely a coal stock — so if you want exposure specifically to coal rather than just deep value stocks then it might not be right for you.
CONSOL Energy Inc. Market Capitalization ($M): 3794.5
CONSOL Energy Inc. is a company that engages in the production of bituminous coal. Specifically, it focuses on the extraction and preparation of coal within the Appalachian Basin. It operates in the PAMC and the CONSOL Marine Terminal.
Since the origins of this company in 1860, CONSOL has focused on providing the nation with affordable, reliable, and redundant domestic energy. Today, CONSOL helps to generate the fuel that accounts for nearly ⅓ of the whole nation’s power supply.
BHP Billiton Ltd. Market Capitalization ($M): 193,602.5
BHP Billiton Limited is an international resources company. The principal lines of business are mineral exploration and production. In addition to coal, they also focus on iron ore, gold, titanium, ferroalloys, nickel, and copper concentrate.
BHP Billiton also works in petroleum exploration, production, and refining. The company additionally manufactures steel products for both residential and commercial building and construction industries. However, mining is this company’s main focus.
In fact, as of 2022, the Australian-British company has become the largest mining company in the world, when measured by market capitalization.
Natural Resource Partners LP Market Capitalization ($M): 507.9
Natural Resource Partners LP works in the businesses of owning, managing, and leasing diversified portfolios of mineral properties. Natural Resource Partners LP also owns an equity investment in Sisecam Wyoming, a trona/soda ash operation.
Natural Resource Partners LP serves many of the industries that serve America, such as steel, energy, chemicals, construction, and carbon capture. They also focus on a range of carbon-neutral opportunities for the future.
Summary & Wrapping Up
Considering the current concerns regarding coal mining and its negative effects on the planet, many people believe that coal stocks are no longer a good investment.
However, long-term analysis suggests that coal stocks without a doubt remain to be a worthy investment. We hope that this article has shed some light on the best coal stocks to invest in.