Why Coal Stocks? Isn’t Coal a Dirty Energy Producer?
In 2009, nearly 45% of all electrical energy was generated with coal as the primary source of fuel, that is by far the single largest source of fuel for electricity. While people tout wind and solar power as the renewable energy sources of the future, the fact remains that we are a long way away from being able to move away from coal.
The fact remains that energy demands are increasing, not decreasing, and unless there is a fundamental shift in how both the West and the emerging economies of the East generate power, coal will remain in huge demand for many more years. This is one of the reasons that coal stocks are an excellent option as a long term investment, and there are a number of producing coal companies which trade well under $1.
Quality, Production and Reserves
2010 and 2011 were big years for small to mid sized coal companies as there were a number of acquisitions made in the market. The fact is that there are three major factors which drive a potential acquisition of a coal stock. First, the quality of the coal, as metallurgical coal or coking coal demands a significantly higher premium than thermal coal. There are a number of specialty coal markets that also generate huge premiums, such as the activated carbon market and the silicon metals market.
Second, coal stocks which are either in production or near production offer an interesting option to investors. With the price of coal above historical levels, many small coal mines are recording excellent earnings, especially with some metallurgical coal producers. There are not many opportunities for penny stock investors to purchase a company which is making substantial earnings per share, something that mitigates the obvious risk factors. There are several coal companies lingering under $1 per share, and market capitalizations that are not indicative of their earnings.
Finally, when looking for a top coal stock, there is no substitue for coal reserves. It is fine to compare production numbers between two companies, but if there is a significant difference in the proven and probable coal reserves between two companies, there may be an opportunity to capitalize on a value opportunity. The best coal stocks in the market place have large reserve and resource numbers, and in the end this will be the largest factor for a potential acquisition.
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