The coal market is falling apart at its seams – now’s your opportunity to buy great shares at even better prices
The thermal coal price has crashed from $120 in 2011 to $60 at the end of 2014.
The metallurgical coal price came down from above $300 in 2011 to just shy of $120 today.
Mines are closing like crazy.
The Hatfield Colliery – one of the last three remaining deep coal mines in Britain is actually borrowing around R140 from the government just to have cash to CLOSE the mine down.
Patriot Coal Mining has closed down its Highland mine and its Dodge Hill Mining complex.
Alpha Natural Resources is in the process of closing down at least two mines and laying off hundreds of workers at existing mines.
The list goes on with Coal River Energy and ArcelorMittal both closing mines in the US as well.
South Africa hasn’t been spared either. As we speak Optimum Colliery, a once 10 million ton a year producer of coal, is in the process of shutting down. By end of March 2015 it will lay of more than 1,700 workers when it closes its doors. Production costs at this mine are around $75 a ton. So at $60 a ton for thermal coal it was making a massive loss of more than R1.7 billion on its 10 million ton a year production level.
AngloAmerican chief Mark Cutifani said in an interview given to MiningMX.com: “I expect metallurgical coalmines to be mothballed, at a rate of one every three weeks, around the world until enough supply has fallen out of the struggling sector to drive a price recovery.”
In Australia, about 12,000 jobs have been cut from the broader coal sector following a string of mine closures.
I’m sure the idea gets clear. The coal sector is falling apart piece by piece. Mines are closing at a rapid pace because they simply can’t get production costs low enough for the current coal price.
As these mines close down, millions upon millions of tons of coal disappear from the market. Yet demand is still slowly growing. So this will do only one thing – push the coal price back up again. It won’t be quick – but it will happen.
The fact is there are coal miners still making money.
These coal mines that won’t shut down.
And these are the ones presenting you with an incredible opportunity today!
The best opportunities to profit in the coal sector today
Just think about it: If a coal mine has managed to stay profitable with a massive dive in the coal price like we’ve seen up to now it is worth investing in. Imagine how its profits will leap when the coal price goes up again.
Since December 2014 the massive closures in the coal sector has already seen the coal price recover nearly 10% to $64.50. If it goes
back up to $75 (another 16.27% recovery) a coal miner that mines 1million tons of coal a year will bank an additional profit of R122 million.
And at a coal price of $75 it still won’t be worth re-opening mothballed coal mines again.
So what opportunities are there in the coal mining sector right now?
Three junior coal miners profiting from the worst coal price in years
Keaton Energy – Expanding production and booking record profits
Keaton Energy has increased production from its coal mines every six months for three years now. And the company is booking record profits as well! At a PE of 8.54 this company is really cheap. Especcially considering the low coal price. If the coal price recovered to $75 Keaton’s profits would jump at least 25% overnight! Keaton is also in the process of building a new coal mine that’ll share infrastructure with its existing mine. This’ll save costs and make it more profitable in these difficult times.
Wescoal – The little coal miner that could just keeps growing stronger
Wescoal follows a different model from other coal miners. It doesn’t try to put up the meanest, largest coal mines around. It looks for small, low cost coal mines. These mines are cheap to mine, take little capital to start up and make it big profits in a short time. Currently the share is on a market beating PE of 10.92. But it is busy putting up a very low cost coal mine that’ll more than double the value of its share in a year’s time. This is one to look out for.
Petmin – Producing more coal without extra mining costs!
Petmin’s Somkhele mine produces anthracite for the metallurgical industry. Around 40-50% of what it mines ended up as anthracite it sells, the rest of the mined material was always dumped on mine heaps. But the company soon realised there was still a lot of valuable material locked up in this ‘rubbish’. So it built a new coal processing plant and now it’s producing up to half a million tonnes of coal that it can sell to Eskom every year as well. That’s without any extra mining costs, just by taking advantage of the coal it mined anyways. Petmin is on a low PE of 8.70, a more than 50% discount to the market average!
You see, all three of these coal miners are very profitable at the CURRENT coal price. They’re on price earnings ratio’s in single figures while the JSE average is more than 17.
Investors have written off these shares. But they’ll make their comeback.
All these companies have the potential to at least double on a coal price increase.
And they’ll all grow their profits in the coming year even if the coal price doesn’t recover. That’s because they’re growing production.
Here’s to unleashing real
Editor, Red Hot Penny Shares