Thursday, August 3, 2017

Contura Coal Goes Public -- jumping off of the coal train!

Contura Energy is going public. (CTRA).

On the one hand, they have a lot of metallurgical coal; on the other hand it seems like a rather bad investment -- especially long-term.

All the proceeds will go to buy out existing stock holders. Existing shareholders are based on creditors... Alpha Resources went bankrupt and the Contura Energy company rose out out of the ashes.  (After Peabody went bankrupt also in 2016, about half of US coal miners, and about half of US coal production comes from bankrupt mining companies.)

At some point, coal should hit peak simply because we eventually run out of it... But based on reduced demand, it appears to have peaked in 2012 (see peak coal).

Coal really should be taxed because of the massive negative externalities. No one anywhere can think that the cost of coal at the meter in anyway resembles to true cost of burning coal. Many of Contura's mines are strip mines, so the added environmental costs are huge in those local areas. Health impacts affect hundreds of millions of people and contribution to deaths is millions.

Remember one of the dirty little secrets of coal: Coal Ash.

Environmental impact of coal. The true costs of coal, including externality costs, could easily be at least twice what we pay for it per ton. One estimate in Europe is that hidden coal costs are 1-2% of GDP.

Plus there's the major contribution to greenhouse gases.

China, the world's largest consumer of coal (50%) is back-peddling on coal at an astounding rate. At one point, less than 10 years ago, they had 2 new coal-powered plants coming on-board every week. Now, they may have only a handful more (finished). Like the US, we can expect China to continue converting their coal to NatGas.

As a percentage of the world primary energy mix, coal has dropped below 30%, never to return again. In the US, NatGas has switched with coal as the primary source of electric generation (coal dropping from about 40% ten years ago to only about 30% now). NatGas is so much cheaper, cleaner, safer. Plus the renewables are really starting to be competitive and gain critical mass. Many wind and solar projects are getting to be cheaper per KW than coal (before considering externalities).

India is the other big wildcard. In many cases they are aiming to skip the smokestack technology and go straight to solar. In many cases, India has serious water issues (since mass amounts of water are needed to run steam turbines in conventional energy).

So, is it a good investment to buy into the Contra IPO? All the money goes to giving existing shareholders a parachute so that they can get out of the coal plane -- well, off of the coal train, technically.

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