It's easy to think that we live in a world that is much
cleaner and less polluting than the one we lived in 20-50 years
ago. And that may be true locally - depending on where you
But much of our existence still depends on a very old, very
polluting and much hated resource:
And according to a recent report from the International Energy
coal will soon replace oil as the top energy
Even the most environmentally conscious hippie who lives in a
yurt somewhere in the Pacific Northwest can scarcely avoid
deriving some portion of their subsistence from the burning of
Is coal dirty? Yes. Does it send more noxious chemicals into
the air and water than any other fuel source? Yes. Does it kill
hundreds, if not thousands, of coal miners every year? Yes.
But it's not going anywhere. We can ignore the evidence that
the world will use more coal in the next decade than it does
today - or we can profit from it.
Before I get into the "how" of investing in coal, I'd like to
meet any objections it may raise for some investors.
First off, if you're investing at all, then you have to
understand that you're probably a party to some form of
pollution, graft, corruption, and general criminal behavior.
Obviously there's a continuum of bad to worse, but if you want
to have a total morality-based high ground, then investing in
almost anything is not for you. Keep your money in a Credit Union
and stay away from any investment if you seek a completely "just"
If you're investing in the resource sector, you have to be
aware that it's filled with terrible people, liars, killers and
Your job is to find the best way to profit from commodity
trends without actively funding the worst actors in the
Who are the worst actors? I'd argue that any state-run
corporation, and any stock that trades on the pink sheets only
should be avoided entirely if you want to salvage your dignity as
Focus on blue-chip type companies. Yes, they can be terrible
too, but they usually are held more or less accountable for their
crimes, so they tend to be angelic compared to smaller
In that vein, we already know who the big players are in the
coal mining industry. And according to the IEA, we know that
Australia will be the biggest coal exporter for the foreseeable
Now that we've narrowed things down, there's not much of a
choice. If you want to give your portfolio access to the
projected uptrend in coal usage, Australian coal exports and
blue-chip safety, you basically only have two choices:
Rio Tinto (
Both sell huge amounts of coal to Asia, both are $100 billion+
market cap companies and both sell for less than 15 times forward
BHP is at its 52-week high, but it pays a better dividend
(3.3% vs. Rio's 2.6%).
To be honest, trying to pick which one is better seems like a
crapshoot. I'd average into one or the other - or both - on
Now, I know that most investors have no attention span
whatsoever, so you should understand that these companies would
only make sense to buy if you were going to hold them for five or
more years. That's about as far out as we can reasonably estimate
Coal isn't a quick trade. It's a long-term trend - and should
be a long-term holding.