ANR's CEO gave a speech today (yesterday maybe?) in which he said that there's a chance that only 2 US major coal companies will survive. At least that's what the headline said. Actually, he said that only 2 to 4 would survive. I don't know if he included ANR in the survivor group. The story did point out that ANR is the second largest US miner after BTU. In the same speech he said that ANR would be interested in buying met coal mines if the price were right. Maybe in this context "right price" means someone will pay ANR to take the mines of their hands.
The "Rockefeller" you refer to is the Rockefeller Brothers Fund, a tax-exempt foundation, whose goal is to "advance social change that contributes to a more just, sustainable, and peaceful world. The RBF’s grantmaking is organized around three themes: Democratic Practice, Peacebuilding, Sustainable Development, and three pivotal places: New York City, Southern China, and the Western Balkans." The "sustainable development" part is illustrated on the RBF web site as fighting greenhouse gases and climate change mitigation. It doesn't sound like the kind of place that ever invested in fossil fuels, and certainly not coal.
And if you track down the RBF's investments (Dec 2012 is the latest date available), it doesn't own any individual stocks or mutual funds. It is fuilly invested in hedge funds and private equity funds, so it can't sell any individual stocks. And less than 3% of its hedge fund/private equity fund investments had the word "energy" in their names. And RBF didn't say it was going to get out of energy; it just said it was going to exit coal and tar sands investments currently. I'd bet they didn't have anything invested in coal or tar sands. So I think the announcement was just public relations.
Per the eia.gov web site, the price of NYMEX thermal coal was $ 60 at June 30. It closed yesterday at $ 52 and change. The volume that is listed on the web site is always minimal, so take the exact prices with a grain of salt. But the trend is there. I think the price quoted is for CAPP.
Actual coal prices depend on numerous factors, including the energy content, the chemical content. the location, etc., so that production from a particular mine can get priced at a premium or a discount to NYMEX. Also, Illinois Basin is always cheaper than CAPP. I'm just pointing out the obvious - the pricing increases that resulted from last winter's harsh weather seems to be gone.
A very long time ago, Terra Nitrogen's name was Agricultural Minerals something or other. That was when the controlling 75% interest was owned by a company named (guess what?) Agricultural Minerals. Then Agricultural Minerals (the corporate GP) was acquired by Terra Industries, and the MLP's name was changed to Terra Nitrogen. Then, CF acquired Terra Industries and its 75% interest in TNH. So if the CF/Yara deal goes thru, it will be the third time that TNH's GP has been acquired. Other than a name change, nothing else changes.
I think we're talking about the same Canadian coal deal. You subscribe to the Wall Street Journal too? I saw the reference there and then did a few searches on Yahoo Canada's web site.
Not much detail, but one of Mr Cline's companies purchased a 75% interest in an underwater met/thermal coal mine in Nova Scotia last month. Underwater in this case means that the coal bed is actually under the sea. I think is actually part under dry land and part under the sea, but it sounds better to just say the mine is underwater. Really weird story and I can't find out how much he paid for the reserves. Apparently, Canada (the government, that is) built out the mine in the 1980s and then abandoned it before any production came out. The property reverted to the province who sold it to private operators, one of which was Glencore, one of the biggest mining companies in the world. Glencore just sold its 75% to Mr Cline's company. Assuming they can get the coal to dry land, the mine is close to a deep water port for shipping the coal to Europe.
Interesting story, anyway. At least NRP didn't buy the reserves.
ANR updated its closing plans on Friday. Out of the 11 mines that got WARN notifications, ANR is closing 3, keeping 1 open, and extending the WARN period for another 60 days at the remaining 8. I know that adds up to 12 mines, I think maybe the 3 that are being closed only counted for 2 mines in the original notice; I think they might be 2 mines at 1 mining complex. Also, an ANR subsidiary has immediately shut a very small met coal mine.
I can't be sure, but based on the counties listed, one of the closed mines might include NRP's Kingston mine. The location is right, but It's impossible to be sure without a lot more research. I'll wait for NRP's 10-Q and see if they say anything.
I just found the time to listen to the presentation, No wonder the stock tanked that day. Lots of long-term good news, but short-term news is a different story. Q2 results are going to be ugly.
Here on Long Island, our local paper had a short blurb on VOXX's drop last week, attributing it to Europe. Maybe true, but the presentation also hurt. Probably not an issue for Q2, but in Q3 the drop in the euro isn't going to help matters. I know VOXX hedges the euro to an extent, but unless the drop in the euro is temporary, it's going to hurt.
Carryover basis. To get a step up, you need to have a taxable event. The merger of KMR and KMI will be tax-free. So no current tax, no step up to either party - you or KMI.
I think that this week was a bottom for coal companies, at least until Q3 earnings are released. With the exception of the "news" that met coal prices in China had declined very slightly, there was no news that would account for the severe drop. I think it was just sentiment, and that sentiment is just about exhausted. Like you, I spent yesterday buying coal, but in my case I bought more ARLP. I kept buying and it kept dropping, so during the day I felt like an idiot. But today I look smarter, and hopefully the shares will continue to rebound.
I'm still staying away from NRP because it's too exposed to met coal and because I don't believe its Q2 DCF from the new oil & gas investments is sustainable. To be fair, I can't see the Q3 numbers being all that different from Q2, and the Q2 numbers supported a price in the $ 15 range, so on a short-term basis NRP should work out as an investment. I just like ARLP a lot better. I like AHGP even more, but for some reason that didn't tank like ARLP did this week, even though they are essentially the same company.
BTW, I found the Rockefeller Bros Fund 2012 tax return and it had a lot more detail about the fund's investments. I see funds with the word "energy" in their names make up about 3.5% of the fund's investments. Plus they own an interest in a fund that one of my clients is invested in, so I know there's a little energy exposure there. Maybe 4% in total, and I doubt any of them focus on coal. Of course, most of the investments have nondescript names, so I couldn't know where they have invested. My guess is still that they're close to zero in coal and tar sands, and their announcement was hype.
Have a good weekend.
I think Mr Rockefeller is dead. At least the original one. "He" isn't selling any stocks, fossil fuel related or not. Its the Rockefeller Brothers Fund (RBF) that says it's going to dispose of fossil fuel companies starting with coal and tar sands. Funny, the fund's target is to get coal/tar sands companies down to 1% of the fund's value by year end. I have no idea what the % is today. The most recent financial statement I could find for RBF was for 2012. At that time, essentially all of its investments were in equity long/short hedge funds, private equity funds, multistrategy hedge funds and fixed income hedge funds. There was some cash also, but no disclosure of any particular stocks that ti owned. I kind of doubt the fund had any significant amount invested in coal or tar sands. I think it was all publicity.
I say this because the RBF is a tax-exempt private foundation, whose goal is to "advance social change that contributes to a more just, sustainable, and peaceful world. The RBF’s grantmaking is organized around three themes: Democratic Practice, Peacebuilding, Sustainable Development, and three pivotal places: New York City, Southern China, and the Western Balkans." The "sustainable development" part is illustrated on the RBF web site as fighting greenhouse gases and climate change mitigation. It doesn't sound like the kind of place that ever invested in fossil fuels, and certainly not coal.
The stock has dropped 13% over the last week. It hit an intraday high of $ 48.78 within the last 7 days and trades at $ 42.48 as I write. It has dropped 14.6% since the end of August.
That's just splitting hairs, though. The funny thing is AHGP is not reflecting the drop in ARLP at all. After all, AHGP is just a leveraged bet on ARLP, so you would think they would trade in lockstep. Neither has all that much volume, and AHGP almost trades by appointment, so sometimes you get swings in their prices. So while ARLP is down 14.6% this month, AHGP is "only" down 5%. I have posted that I have thought AHGP was underpriced for quite a while, and maybe this is just a reversal to the norm. But AHGP is not confirming the drop in ARLP's price. So I doubt the issue is company specific at all.
To put things in perspective, so far this month, BTU is down 23%; NRP is down 18.5%; FELP is down 10%; CLD is down 21%; and ACI/ANR are down 31% and 40%, respectively. And WLT (god help those investors) is down 60% this month. And a lot of the damage has been done this week, with all the focus on how bad fossil fuels are.
So energy prices are dropping (strong dollar) which hurts coal, people are focusing on fossil fuels, and the President is still the President. And since I mostly own AHGP, I can be somewhat objective about it.
What do you think?
For once, I'm not disagreeing with you on the lows. Compared to last Friday's close, the "certain survivors" are mostly down in the 5% range - BTU down 4.4%, CNX (gas + coal) down 2.7%, ARLP down 6.1%, AHGP down 4%, FELP down 4.6%, CLD down 5.6% (I don't follow CLD at all, so I really don't know it's a survivor), and NRP is down 5.4%. Among the "future roadkill" are WLT down another 22.5%, ACI down 15.5%, ANR down 14.1%. But RNO is actually up 1% this week, mostly because it blew up the last 2 weeks.
I don't see any financial news for the debacle. I saw a downgrade or 2, but those were company-specific, not across the board. I assume enough people saw the demonstrations in NYC earlier this week against fossil fuels, and the UN Meeting this week on the same subject, and the announcements from a few funds that they were exiting coal investments, and decided to sell. I haven't checked each of these stocks/units for trading volume, but it looks like volume is high. Maybe we're reaching the end of this selling frenzy but I'm not willing to throw money after these names yet. But companies like ARLP have already sold out their production for the rest of this year and most of next year as well. At some point, they look attractive. But I've said that before; probably I'll wait for Q3 earnings to buy anything.
I found another coal company that is profitable. Even its met coal operations are making money.
CNX is an old-time coal company that is trying to move to oil & gas. It sold off its Central Appalachian coal mines to Murray Energy last year, leaving CNX with the Northern App coal mines. In the first half of 2014, CNX's thermal coal operation grossed $ 863 MM and its pre-tax profit was $ 260 MM. That profit is after depreciation and interest expense, but before taxes. In the first half of 2014, CNX's met coal operations grossed $ 200 MM and i=the pre-tax profit was $ 37 MM. The profit from the met coal operations was down from 2013, but still in the black.
So now there's CNX, ARLP and FELP as profitable operators.
And to tie this into NRP a tiny bit, CNX used to be a lessee of NRP, but it doesn't seem to operate mines on NRP's properties any longer. The last mine that I think CNX leased from NRP was included in the sale to Murray last year.
You would have to ignore KMR entirely. All it owns are a special class of units in KMP, so there is no independent book value. If you're looking for total market capitalization of the group, you'd have to eliminate KMR's interest in KMP; otherwise you'd be doubling up.
Sorry, forgot the most important point. ARLP/AHGP (which I actually prefer) only make up 3% of my portfolio. And at the present time, I own almost zero other coal names - just a few units of RNO that I couldn't sell quickly enough. So I can afford to own it, risk-wise.
Coal began a secular decline years ago. Use of coal to produce electricity (the largest user of coal) has been dropping for years. And while the EIA projects that the decline will stabilize, at least until 2020, after the 2015 coal-fired power plant closings, I don't think there's much long-term hope for coal in the US. And frankly, I'm not so sure that that is a bad thing.
But at the same time, Appalachian coal miners have taken the biggest hit. In 2004, App mines produced 390 million tons of coal. I'd bet that number was close to 500 million tons 20 or 30 years ago. In 2012, production dropped to 291 million tons and the EIA projects that APOP production will stabilize at the 250 million tons per year level in the 2020s.
In 2004, Interior coal (about 2/3 Illinois Basin) was 146 million tons, growing to 180 million tons in 2012. And the EIA projects that production will continue to grow and finally stabilize, also in the 250 million ton per year area, in the 2020s.
So while coal is in decline, the Illinois Basin isn't. And that's a funny story because Illinois Basin coal is the dirtiest there is. But the EPA has forced so many utilities to install scrubbers that cheaper, dirtier, coal is now in demand.
So yes, 1. I don't want ARLP to ever open another coal mine after the 2 that are under construction finally open for full production. I want the cash flow simply returned to owners. I don't think that will happen - they are coal miners, and coal miners can always be convinced to open another mine. But I can hope.
And 2. I think ARLP (and probably FELP, another Illinois Basin coal miner MLP) are good bets for the next few years as long as they don't kill prices with over-production.
You pointed out the risk - you don't know the value of KMI at the time of closing, so you can't be certain that selling KMP today and locking in today's value is a good deal.
Both KMR and KMP are trading at small discounts to the exchange value. So you're giving up the KMP discount and getting the KMR discount. At yesterday's close, KMP's discount was $ 1.79 per unit and KMR's discount was $ 1.91 per unit. So by switching you pick up 12 cents on the exchange. But you are paying 25 cents more for the KMR units you buy versus the KMP units you sell, so the net cost would be 13 cents per unit, which is too small to worry about one way or another. I assume the commissions and the bid/ask spread aren't issues, but you will certainly lose a few pennies there as well. Still not material.
So if KMI's price stays the same until the exchange date, you will have avoided paying taxes on $ 1.79 per unit, less the costs of the switch. If KMI's price declines, you will have paid too much tax (still less the $ 1.79/unit). If KMI's price increases, you will have made a good deal. So there's one risk.
The other risk that you are taking is that you are bunching all of your KMP gain into your 2014 tax return. That will happen anyway in all likelihood, but you are giving up the chance that the exchange doesn't happen until early 2015, in which case you would have the opportunity to defer the tax payment for a year, or maybe split the gain between 2014 and 2015 by selling some of your KMP at the end of December and doing the exchange with the remainder. That is a very small risk, in my opinion, but it might happen.
So I don't think the switch is all that big a deal.
No. But just about every coal name is down today, and several (ACI, ANR) are down about as much as RNO. BTU is down more than 2%. The only coal names I follow that are up are FELP and NRP, and those not by much.