Tips for Investing in the New King Coal

8/3/2019 Tips for Investing in the New King Coal

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Tips for Investing in the New

"King Coal"When it comes to commodity investment, it's critical that you know your history.

Poll any American about the origins of coal, and you'll likely get the answer that it was first

minedhere. Perhaps they were paying as much attentionin history class as I was. More

likely schools never touched this subject in the first place.

But it's importantto understand the productionorigins of any commodity, as this knowledge

can provide you with a better understandingof where and how to invest. America was a

littlelate to the coal party. Production actually started in Europe, more than 200 years ago.

The Industrial Revolution began in Great Britain in the eighteenthcentury. Its spread to

other parts of Europe - eventually to North America - and was largely due to a new, cheap

and readily availablefuel: coal.

Coal: Fuel for Industrial RevolutionsSince 1805

The United Kingdom's western valleys are the heart of the massive South Wales coalfield.

It provided the fuel for England's industrial steam engines, railroads and steamships.

The longest continuously operatingcoal mine in the world was the Tower Colliery in South

Wales. Opened in 1805, it operatedfor 203 years until it closed in 2008.

Coal is found just about everywhere in the world. The graph below, courtesy of the World

Coal Association, shows where the largest oil, coal and natural gas reserves are.

You can ignore the figures for natural gas, since this graph was produced prior to the

developmentof shale gas fields. The biggest coal reserves are in the United States, India,

China, Russia, Africa and the Asia/Oceana region.


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In terms of consumption, the picture is a little different. In the graph below, from the Energy

InformationAdministration's InternationalEnergy Outlook, you can clearly see that since

2000, China has been gobblingup coal at a frenetic pace.

By 2030, China alone will be consuming half of all the coal produced in the world. Where's it

all going to come from? One nearby country (besides Australia) is shaping up to become a

major supplier of coal to China.

The Two Types of Coal

Coal is generallyclassified into two types: soft coal and hard coal. Soft or low-rank coal is

either lignite or sub-bituminous. It represents about 47 percent of all the world's mined coal.

Both are used for power generation, and some sub-bituminousis also used to manufacture

cement.

Hard coal is either bituminousor anthracite. Today, anthracite represents only about one

percent of all coal mined, with bituminousmaking up the rest (52 percent).

Bituminousis further divided up into coking coal (used in iron and steelmaking), and

thermal or steam coal, used in power generationand other industrial processes.

Most of the world's coal trade is in thermal or steam coal. It represents about 70 percent of

world coal exports.

The top three exporters of coking coal are Australia, the United States and Canada.

They're expected to hold those positions through the next several decades.

Care to guess the top exporter of thermalcoal? I'll give you a hint: It's none of the above.

The answer? Indonesia. The country is loaded with thousands of low-cost surface mines.

Indonesia's Bumi Resources: The Top Producer of Thermal Coal

While Indonesiahas been in the coal business for some time, it's jumpedto the forefront of

the coal scene in a big way in just the last decade.

In 2010, Indonesia produced 325 milliontons of thermal coal. Of that, 265 milliontons were

for export. Most of it landedin India, China, Japan, South Korea and Taiwan.

The country's - and indeedAsia's - biggest thermal coal producer is Bumi Resources

(PINK: PBMRY). Bumi is under the watchful eyes of the Bakries, one of the most politically

connected families in the country.


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Bumi's first quarter revenue was up 21 percent to $1.23 billion. Profits grew by 16.5 percent

to $113 million. Higher coal prices as a result of strong demandfrom all of its customers

made up for lower production due to heavy rainfallin the vicinity of its main mining

operations.

For 2011, Bumi expects its output to rise by 10 percent, and analysts are forecasting 2011

net profits of $498 million.

Investors wanting additionalexposure to a strong Asian coal player mightwant to consider

addinga few shares of Bumi Resources to their portfolio. China's demandisn't expected todecline any time soon.

Good investing,

InvestmentUResearch

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Tips for Investing in the New King Coal