On Thursday, in
China's Dirty Little Secret Revealed
, I discussed the strong upward momentum in coal prices and
suggested you consider adding coal mining stocks to your
Coal may bethe last thing on earth that many investors would
consider putting a dime into.
But the world is on course to transition back to coal. You may
wish it wasn't the case, but it's inevitable. Coal isn't as clean
of a fuel source as other options - but there is room for clean
coal technologies to improve, and I believe they will. Investors
should have a position in coal companies to be able to profit from
the transition - or risk being left behind.
I was speaking with my friend and colleague Gregor Macdonald the
other day. Gregor is a leading oil analyst and energy sector
investor. He invests his own money in energy stocks, and has been
quite successful. I value his opinion, and have profitably acted on
his advice on numerous occasions.
Both he and I are perplexed by the fact that more investors
aren't aware that coal is staging a comeback. We both agree that
investors need coal exposure, but very few have it.
The World Coal Institute has some compelling data to support the
claim that world coal demand is surging. According to the group, "
In recent years, coal use has risen by 4.9% per year, faster
than any other fuel. The use of coal is expected to rise by over
60% from 2006 to 2030, with developing countries responsible for
97% of this increase.
It's clear that all arrows point to China when considering a coal
mining investment.China gets around 78% of its electricity from
coal. Over the last fifteen years, coal has helped the country
double energy output. This energy boom has brought electricity to
more than 450 million people in the country. That's more people
than in the entire United States - 47 percent more.
But there are 1.32 billion people in China, meaning that more
than 60% of the population is still without electricity. And that's
just the people - manufacturing demand uses around half of China's
electricity production. Unless manufacturing contracts in a massive
way - a highly unlikely scenario - energy demand will continue to
There are a few ways you can play the coal boom. You can buy a
coal ETF, large cap miners, and domestic producers. Most coal
companies are engaged in one or more coal operations, including
mining, wholesaling, coking and washing. Coking coal is used in
steelmaking, and with the infrastructure boom in China, these
companies have seen demand soar.
I like that angle, but right now I'm more bullish on mining
operations. Growing energy demand for coal is the catalyst that I
want exposure to, and mining is the way to get it.
Over the last fifteen years, coal has helped China double energy
output. And since 2002 China's coal consumption doubled as well.
Coal demand in that China's domestic coal producers have no problem
selling all the coal they can dig up. That's a trend I want to have
There are plenty of compelling small cap opportunities in the
coal sector - so if you're looking for a way to flesh out your
portfolio with small energy companies, you shouldn't ignore the
coal story. The grass doesn't get any greener.
Small Cap Investor PRO
analysts uncovered a high growth coal mining company that is
cashing in on the coal boom. You can get the background on this
company, and other fast growing small cap stocks,