The unthinkable has actually happened. A Democratic senator broke ranks last month to publicly compliment President Trump on his promise to get coal miners back to work. Some are wondering if it’s too late to save the industry, but I don’t think so at all.
The coal mining industry has taken a hit over the past 30 years, with jobs declining rapidly from 174,000 to just 64,000. And production peaked over ten years ago.
But I think it’s interesting to note in the chart below that jobs did start to come back in the early 2000s. Then they collapsed when President Obama put in those onerous regulations for utilities. He deliberately went after this industry, and he took a mighty toll on it.
But Trump is trying to bring the industry back, and last week he signed an executive order that would roll back several environmental regulations that had been put into place by Obama. He called it the “start of a new era in American energy and production and job creation.”
Regarding coal specifically, he said:
“My administration is putting an end to the war on coal. I made them this promise. We will put our miners back to work.”
I love metallurgical coal and see thermal firming up with strong demand from emerging nations. One company that stands to benefit nicely is Vale SA (ADR) (NYSE:VALE). Vale is one of the largest metals and mining companies in the world and is the largest producer of nickel, iron ore and iron ore pellets. It is headquartered in Brazil and has operations in approximately 30 countries around the globe.
Ferrous Minerals (led by iron ore) is the company’s largest segment, accounting for 60.2% of revenue in 2016. The group brought in $5.57 billion and 60.8% of Ebitda (earnings before interest, taxes, depreciation and amortization). Basic Metals account for 32.3% of VALE’s business and coal makes up about 6%.
I think VALE’s biggest hurdle is the credibility it’s lost over the years — the company missed on the bottom line seven of the past 10 quarters — but with a new CEO I think it has a chance to turn it all around. In fact, earnings consensus has moved significantly higher recently.
VALE stock is down from a peak in January 2011, but has bounced more than 250% since hitting a low in January of last year. It’s in a nice upward pattern now, and I suspect a close above $11 could spark a further move that eventually lifts the shares to $15. Its solid 3.6% dividend adds to the appeal.
The bottom line is that coal is still the fastest-growing source of energy around the world and the U.S. has more of it than anybody else. To me, those are two dots that are easy to connect.
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