Coal Stocks On The Rise As Demand For Steel Soars In 2024
Naples, Florida
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January 24, 2024 05:00 AM Eastern Standard Time
Although there has been a global push towards cleaner energy sources, coal still remains a vital part of our energy mix. In fact, a recent report by the International Energy Agency found that global coal demand hit an all-time high in 2022 amid the energy crisis, far outpacing the previous record set in 2013. According to the U.S. Department of Energy, coal accounted for about 20% of the country's electricity production as of October of last year, highlighting the commodity's significance in maintaining grid stability.
Despite the fact that the coal industry has grappled with major headwinds like a string of coal companies going bankrupt, the broader coal industry had an impressive year in 2023, with coal stocks collectively gaining about 40% in the year, further reaffirming the resilience of the commodity. That was thanks to a renewed focus on metallurgical coal, which experts agree will continue to experience robust demand going forward, driven by an increase in the demand for steel. For investors looking for a way to play this demand, here are some coal stocks that could offer exposure to the sector.
Benjamin Hill Mining Corp. (OTCQB: BNNHF) (CSE:BNN), which is currently focused on its Alotta Exploration Project and Aion Mining Corp.’s Coal Project, has been making significant inroads in its exploration activities.
Hosted in the Canadian Yukon, the Alotta project, which is BNN’s flagship project, initiated a diamond drilling program in November last year. Leveraging intricate IP data showing anomalous copper and gold in soil, in addition to compelling geophysical anomalies, the drill program strategically targeted the central area of a substantial chargeability anomaly spanning over 2 kilometers at the project.
The company selected Archer Cathro and Associates as the consulting firm to provide logistical, permitting, and drilling services based on the fact that it has been one of the most prolific explorers in the Yukon for the past five decades and has been responsible for discovering and advancing a wide variety of deposits.
The findings of the program didn't disappoint, as the results revealed a large, multiphase porphyry system at the south-central portion of the induced polarization chargeability. According to the core samples, the project showed mineralization rich in pyrrhotite, pyrite, chalcopyrite, and molybdenite, which reaffirmed Alotta’s significant resource potential.
Following the success of the diamond drill program at Alotta, Benjamin Hill Mining Corp. (OTCQB:BNNHF) (CSE:BNN) made the strategic decision to double down on its coal investments. The company announced that it had signed a non-binding letter of intent with Aion Mining Corp. for the acquisition of a 20% interest in Aion and its fully permitted coal project located in Santander, Colombia. This move not only reaffirms the company’s commitment to strategically expanding its coal resource footprint but also diversifies its portfolio of coal projects.
Earlier this month, BNN provided a corporate update regarding the project, which revealed a number of interesting facts. Both historical and recent drilling programs revealed that the FLG-111 concession has eight known seams of metallurgical and thermal coal. CEO Cole McClay noted: “Our strategic investment in Aion Mining Corp. presents a great opportunity to enter the coal industry with a project that is primed to advance quickly with all required permits, exciting exploration discoveries, and a highly skilled multi-national technical and operations team.”
With permits already granted to Aion for the extraction of up to 180,000 tons of coal per year, the project is set to advance rapidly. Right now, the focus is on quickly developing the infrastructure following the acquisition of an additional 24-hectares of land to provide surface access rights and, at the same time, the mobilization of large equipment for advanced site preparation and surface works.
Thanks to taking the stake in Aion, Benjamin Hill Mining Corp. (OTCQB:BNNHF) (CSE:BNN) is positioning itself to become one of the key players in the resurging global coal market, a move that could ultimately unlock significant shareholder value in the future.
Alpha Metallurgical Resources, Inc. (NYSE: AMR) needs no introduction to most energy investors based on the fact that it is one of the largest coal stocks globally. The Tennessee-based miner, whose operations are mainly concentrated in Tennessee, boasts high-quality reserves and specializes in supplying metallurgical products to the steel industry. Its portfolio also includes highly productive and cost-competitive coal mines across the Central Appalachian coal basin.
The company is America's largest producer of coking coal, producing about 20% of total 2022 production. In FY2022, Alpha Metallurgical produced 16.1 million tons of coal and had over 300 million tons of reserves. Roughly 70% of the company’s coal output is exported, which ties in well with the fact that it owns 65% of the DTA (Dominion Terminal Associates) export terminal, which is capable of loading up to 6,500 tons per year.
AMR recently reported its third-quarter earnings, which had a number of interesting highlights. Although the company reported an adjusted EBITDA of $154 million, down from $258 million in the second quarter, it achieved a significant milestone by closing its last remaining thermal mine, Slabcamp, making it a pure-play metallurgical producer. The company also continued its share buyback program in a bid to further increase shareholder value. Since January 2022, AMR has bought back 28% of its stock, making it one of the most aggressive buyback programs on the market across all sectors and industries. Going forward, the company has increased its share repurchase program authorization by $300 million to a total of $1.5 billion, allowing for approximately $560 million in additional repurchases.
Looking ahead to 2024, the company provided guidance, anticipating shipping between 15.5 and 16.5 million tons of metallurgical coal.
Alabama-based Warrior Met Coal, Inc. (NYSE: HCC) is a metallurgical coal producer with a strong focus on export sales. It has two active mines that have the capacity to produce 8 million short tons of metallurgical coal per year. Warrior also has the Blue Creek development project, which produces coal with low sulfur and strong coking properties similar to its premium hard-coking coal produced in Australia. While the company is already a highly profitable coal producer, the Blue Creek mine will be a major catalyst for the company once it is fully developed.
Warrior recently reported third quarter earnings, revealing it had sold approximately 2.3 million short tons of metallurgical coal, a significant year-over-year increase on the backdrop of better rail and terminal availability. This brought in about $417 million in revenue for the quarter, which translated to a pre-tax income of $102 million and a net profit in excess of $85 million for an EPS of $1.64 per share.
The company’s balance sheet remained robust as it generated $456 million in cash flow, closing the quarter with roughly $687 million in cash. That means that the anticipated $350 million capex to be spent on Blue Creek this year should be fully covered by the company's cash. Warrior Met Coal will have deployed almost $500 million on the development of Blue Creek by the end of the year, which should put it on track for initial production by then.
The company revised its capex guidance upwards to $820–830 million to include the development of Blue Creek’s longwall section in order to boost the production rate to 9.6 million short tons per year, which should be reached by the end of 2026.
Colonial Coal International Corp. (TSX-V: CAD) is a pure-play metallurgical coal developer with a 100% interest in two resource-stage coal properties in the Peace River Coalfield of northeastern British Columbia, Canada: namely, the Huguenot and Flatbed properties. The Huguenot property boasts 189 million metric tons of combined measured and indicated resources, plus 194 million metric tons of inferred resources of hard coking coal, while about 298 million metric tons of inferred metallurgical coal resources have been delineated at Flatbed. In the company’s recent annual general meeting held in December, a number of key decisions were made, including:
The re-election of David Austin, Ian Downie, Anthony Hammond, John Perry, Gregory Waller, and Partha S. Bhattacharyya as directors of the corporation for the year 2024.
PricewaterhouseCoopers LLP, Chartered Professional Accountants, were re-appointed as the company’s auditor following board approval, and the directors were authorized to set the auditor’s compensation.
Shareholders approved the continuation of the corporation’s current share option plan.
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