# Alpha Natural Resources (ANR)



## PMREdmonton (Apr 6, 2009)

I am wondering if now is a good time to start building a stake in the coal companies. They have all gotten beaten up due to falling coal demand in the USA and lower prices for met coal. They have also been majorly hit by the dropping price of natural gas which is leading to substition from electrical utilities. They were further bludgeoned by the unusually mild winter which also diminished the demand for coal. I think many are also paying for untimely acquisitions back in the 2011 peak that are now stuck on their balance sheets as losses.

However, natural gas prices will eventually increase as it is being sold at a loss by many operators and export markets will eventually drive up the local price as well increasing demand for transportation and utilities. There is a huge infrastructure debt right now in the developing world and a large need for infrastructure in the emerging markets and developing world that will need to be met eventually which will need steel and energy (coal). Then there is the presumed eventual recovery of the US housing market that will soon happen which will need steeel and energy (coal). Right now nuclear is shunned. Natural gas will get more expensive eventually so that it will not be economical to substitute gas for coal. Alternative energy still cannot come close to filling the gap. So coal is still king in the end and I do see the prices going up in the next couple of years which should cause a huge increase in coal prices. The other thing which I don't think is being adequately priced in is how much new demand will come from India and China which need to import lots of coal for energy and heating needs as well as for steel production.

I have thought about TCK.B but they have a lot of copper which I still don't want at these prices. Then there is ANR, BTU and ACI as the main US coal players. I do like ANR which has a lot of met coal deposits, P/B of 0.26 and total market cap now of $1.9B and a strong balance sheet with debt/equity of 0.4 only. BTU is another possibility but they trade at a premium to book, have higher debt and horrifically overpaid for those Australian coal assets based on present valuations.

This one is a true contrarian play and I really don't have a timeline for the recovery of their stock price but they still have good assets and don't have a lot of debt. They are still strong so that a takeout would probably occur at favourable terms if at all.

This is one of those "they can't fall that much further" picks and I know many contrarians piled back in October 2011 (I played ACI for a short bit and left with a small loss back in Jan) after it bounced back up to 20 and those that held long are down about 57% right now and I don't even want to bring up anybody who bought at the peak around 105 in 2008. However, I really don't see how this one can get much lower without value guys coming in to pick up the stocks with a P/B of 0.26 and a recent history of profitability in 2010 and a history of strong revenue growth. As things usually go producers will cut back production, some weaker firms will become insolvent and then the stronger ones will emerge stronger once the coal prices bounce back up.

So any of you dipping your toes in on this one yet?


----------

