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Patriot Coal Corporation Message Board

  • beegdawg007 beegdawg007 May 30, 2008 10:14 PM Flag

    Don't trust the analyst estimates for PCX 2009!

    I honestly believe that those who are really in the know, will not let the truth out until their own companies and best clients have taken positions in PCX stock. Now let me show you why I think that PCX should earn between $14 and $27 in 2009... the math here is really simple and straight forward.

    According to Patriots last presentation, for 2009, the coal owned by PCX (excluding the yet to be completed merger with Magnum) that is unpriced is 6M Tons of thermal AND 6 m tons of met coal. Although total sales of PCX coal (still excluding Magnum) will be close to 18 M tons in 2009, for now, assume that PCX makes money only on the 12 million tons of unpriced coal. The average 2007 all in (except taxes) cost per ton of coal was a bit about $51/ton. Assume that will become $54 in 2009. If 2009 coking coal prices somewhere between $180/ton and $130/ton, the EBT from the 6 M tons of unpriced coking coalwould be between $456M and $756M. Example of those calculations... 6*($180 - $54) = $756M. For the thermal coal, consider the price to be between $80 and $110/Ton. Note: PCX could sell all of its 2009 thermal coal via NYMEX futures contracts right now for more than $100/ton! At these prices, that 6 M tons of thermal coal would produce EBT of $156M to $336M. Same calculation as above. So, from only the unpriced coal currently owned by PCX the EBT will likely be between $612M and $1092M.

    After the Magnum merger, there will be about 38 million shares of stock. So at this point, assuming """ZERO"""" earnings from already priced coal and """ZERO""" earnings from Magnum in 2009, the EPS should be between $16.10 and $28.73/share. At a 35% tax rate, that translate into $10.46 and $18.67/share.

    As for Magnum, we do not now know the production cost of that thermal coal because PCX has yet to release that data. However, we do know that the Magnum coal is all surface mined coal. This coal should cost no more than $50/ton to mine (probably less than $40/ton). And since this is App coal, it should fetch something in the range of $80 to $100/ton. Per the conf. call discussing the Magnum purchase, Magnum had 6.44M tons of unpriced 2009 thermal coal. So, Magnum could/should add another $3 to $5 to the net EPS in 2009. In addition, the 2009 "priced coal" from both Magnum and PCX should produce EPS of something between $1.00 and $3.00/share.

    I realize that these numbers may seem unbelievably high, and that is why I have laid the math out for all to see. On the high side, the total PCX 2009 EPS could be as high as $25/share in 2009 and no less than $14/share...

    If you think this was worth reading, please let me know!

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    • Price target is 250 as coal is in Huge demand.

    • Yes, yes. And don't forget that the cost of digging the stuff out of the ground is also increasing rapidly. You will find out that your costs are way too low.

    • your tax rate is way too high

      should be 25% roughly at most. due to depletion credit. Sounds rediculous i know but i guess the coal miners are connected politically.

      i created an earnings model for PCX that doesnt ignore anything and although making assumptions about Magnum is harder, i get $30 per share AFTER tax. The $30 is so unreal that i keep going back trying to figure out what ive screwed up, but i keep coming back to $30.

      Your assumptions about coking prices are off too. You have top of range being $180?, WLT and ANR are already unloading '09 met for $240+.

      And share count should be 38.8 mil not 38

      But ofcourse you are right that the $9.50 estimate is an absolute joke. Pretty soon that estimate will be raised to $15.00, especially once the Magnum aquisition is completed and mgmt gives more details about all that.

      • 2 Replies to stripesound
      • Thanks for the feedback...

        1. Tax Rate.. I used 35% because I figured a company making as much as PCX will make would pay max tax. I hope your number is correct.

        2. Regarding Coking coal prices for 2009, I took a conservative position. I own shares of FDG, Western Canadian and Grande Cache coal,(all pure met coal plays) and I just sold out of a very large call spread on WLT. I know what coking coal is selling for. However, those prices are for a contract year which runs April 1, 2008 to March 31, 2009. I am not sure when PCX will be pricing their yet-to-be-priced 2009 coal. I have this all set up on a spread sheet, so all I have to is plug in coal estimates for thermal and coking and bingo, I get a new EPS est. My spread sheet goes through 2010 because PCX management provided guidance through 2010.

        The entire coal sector looks really good now... however, some plays are likely better for the next six months than others. For example, FDG and Western Canadian have almost all of their coal available as of April 1, 2008 for the new higher pricing. Both companies had a little spillover from the 2007 contract, but now much. In addition, both companies have hired Morgan Stanley to "search for strategic alternatives", a euphemism for "they are shopping for buyers". FDG also must pay all earnings as a dividend because it is a Canadian Energy Fund. The soon to be paid high dividends will attract a bunch of new buyers starting next quarter. And Western Canadian which now trades just below $8.00, will earn over $2.50/share this year. That's a PE of less than 4.... similar story for Grande Cache... another Canadian met coal pure play.

        I own ANR also.. both ANR and PCX are misunderstood sleepers right now....

        Regards, b d;?D

      • You guys burning the midnight coal don't get it. I've seen similar fundamental arguments at the peak of every commodity sector. Dry shippers, metals, fertilizers. Linear projections of unimagnable profits far into the future with microscopic forward p/e's. All I can tell you is the stock price disconnects from the business outlook when the trades get too crowded. Like now.