Black Twilight

Peabody Energy Corporation (NYSE: BTU - News) is the world’s largest private coal mining company, supplying about 10% of the fuel for US electrical power production.

BTU’s proven and probable reserves are about 10 billion tons – equivalent to 243 trillion cubic feet of natural gas (10 times the annual U.S. natural gas consumption).

The three largest U.S. coal producers are:

• Peabody Energy (NYSE: BTU - News)
• Arch Coal (NYSE: ACI - News)
• CONSOL Energy (NYSE: CNX - News)

Only BTU has free cash flow and it has the lowest dividend payout ratio. BTU also has a lower PEG ratio, but is more expensive than ACI and CNX in terms of P/E, P/B, P/S and EV/EBITDA.

Hot summers and increasing population in Sunbelt areas drives up demand and prices for coal. Coal assets have a place in a portfolio oriented toward energy.


Burning The Furniture

Total World Coal Reserves (2002)
Bituminous coal + Anthracite 479 billion tons
Sub-bituminous coal 272 billion tons
Lignite 158 billion tons

Each coal class has a different energy content:

Anthracite 30 MJ/kg
Bituminous coal 18.8–29.3 MJ/kg
Sub-bitiminous coal 8.3–25 MJ/kg
Lignite 5.5–14.3 MJ/kg

Only coal with a high heating value is suited for long-distance transport and in metallurgical processes. From the standpoints of size of reserves, energy content, and suitability for a range of significant uses, bituminous coal and anthracite are the most important.

90% of coal reserves are concentrated in 6 countries: USA, Russia, India, China, Australia and South Africa. The USA alone holds 30% and China 15%. The development of these two countries is a key for future coal production.

China will experience peak coal production within the next 5–15 years (2010-2020), followed by a steep decline. Once China cannot increase its production anymore, world coal production will peak. It is very likely that bituminous coal production in the US already has peaked, and total coal production will peak between 2020-2030.

If global coal peak occurs around a decade after the petroleum/gas peak (2010), this implies a 10-year interval, of relatively slow fall-off in total energy from fossil fuels, followed by a gradually accelerating decline.