2022, which seems a lifetime ago, was a banner year for coal miners after years of pariah status that left them the world's most underowned asset. As coal prices soared when energy producers the world over left themselves short of their main fuel, the miners started making NVIDIA money.
Even though COP26 went slightly soft on the war against coal, the stigma of the miners never really lifted. Charts of the main Aussie producers, WHC and YAL show that the hype never arrived, and in the end, the stocks actually did a good job of predicting that $400 coal would not last forever.
Over the last few weeks the price of coal has made some steady ground. When viewed over fifteen years it can be argued that the price range has rerated and may not return to sub-$120 levels.
Language from COP28 has gone softer still with the removal of the "phase-out" goal for fossil fuels. These zealots have finally gained some awareness of their impared reality testing as renewable costs soar and funding everywhere backs away hard from wind investment.
As we wind down for the holiday season it may just be useful to highlight that, quietly in the corner, the coal miners continue to make large amounts of free cash, and that the price of their product may have bottomed out.
A few points about this industry to consider..
Coal miners are very good at their job. Despite the maturity of the industry they still invest heavily in technology.
They are debt-free. The firmer rate environment has no effect on them, in fact, it benefits.
The sheer enormity of their installed infrastructure is a significant inflation hedge. There could even be "write-ups" of assets (don't laugh).
There will not be an explosion of competition. All the competitive types are chasing AI.
Current dividend yields are over 10% with the coal price bottoming out.
A lump of coal in your stocking may not be a bad thing this Christmas.
One-Eyed Deer and Trenton Funds Management wish you all and your families the very best for the season. We look forward to a prosperous 2024. We'll be back in January.
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