Out Fox The $treet

Several Massey Energy (MEE) shareholders attempted to block  the Alpha Natural Resources (ANR) buyout in court today. Talk about shooting yourself in the foot to make a point. The crux of the lawsuit is that MEE shareholders aren't getting fair value due to reckless management. Not to mention if shareholders don't want the merger they can vote it down. Huh? Just how exactly do they expect to reclaim that value if the deal is blocked? MEE stock would surely drop without a deal. The company has very valuable assets, but its operations continue to struggle making it very difficult to attract much more of a premium. The funds which include several pension funds claim that Massey's stock is discounted by as much as $1.5B because of management's long disregard for safety. Hmm. Well doesn't that safety record therefore impact any future value? The new CEO would have to clean up the safety record and get operations back to normal prior to getting a higher value. By then...

March was another volatile month. The month ended on a solid note with the Opportunistic Levered model ending with a 2.3% gain compared to a slight loss for the SP500. Considering this model ended the month with considerable leverage on the long side, its always very positive when it outperforms the market in negative months even if the loss was negligible. As mentioned in the March Investment Report, the market was in need of a selloff and the SP500 got that in the form of a roughly 7% drop to the intra-day low of 1,249 on March 16th. While many experts continue to expect and expected a larger selloff, in our view this was the buying opportunity we were waiting on. Added More Long Exposure Since we expected a drop to around 1,250 to be close to a bottom in the SP500, we added more long exposure around the middle of March. Specifically we added exposure to the oil services and commodity sector to benefit from the rebuilding in Japan and continued emerging market growth. Also our r...

With the nuclear crisis in Japan, it's become very clear that coal will remain the King fuel of the developed world and maybe even the emerging world as even China delays its nuclear program. Considering the Opportunistic portfolios managed by Stone Fox has a heavy does of coal investments this is good news. Even if the reason for the gain is because of such a horrible tragedy. Sadly, though nuclear has many benefits it can be a very unstable fuel option. Sure coal has likely killed more people especially in the underground mining and even via the pollution caused by the burning of the material, but it never causes mass panic of a major catastrophe. With coal, the only people that really face daily danger are the miners. People supposedly paid for taking that risk and fulling understanding the danger whether they can find other employment or if that is the only option in the area. With radiation though, whole cities can be destroyed and even though a major catastrophe hasn't ...

Rumors that began circulating prior to the close on Friday were finally confirmed Saturday afternoon that Alpha Natural Resources (ANR) had an agreement to purchase Massey Energy (MEE) for $69.33 a share based on Fridays closing price for ANR. This deal comes as little surprise to anybody in the market following the turbulent 2010 MEE faced after the Upper Big Branch explosion back in April. Then more recently, the company placed itself on the auction block after its long time CEO departed and ANR has been speculated as the top candidate for a merger. The combined companies will become the 3rd largest metallurgical (met) coal miner in the world. Met coal is the coal needed by China and other BRIC nations to produce steel for the massive infrastructure projects they all have under way...... See complete article at Seeking Alpha . 

he recent floods in the state of Queensland in Australia have ravaged the operations of coal mines, specifically those that mine coking coal. Queensland produces roughly 90% of the coking coal in Australia, so that's a huge impact to the global trade of this commodity. According to this report from  Mining Weekly ,  some of the flooded mines, especially open pit mines, could be off line for up to 6 months. It's still early in the process, but it'll be interesting to see how this will play out on demand and pricing. See the rest of the article at Seeking Alpha . 

While I've been a fan of how the CEO of Massey Energy ( MEE ) has handled the investigation of the Upper Big Branch ( UBB ), it does appear that his leadership places the company to direct odds with MHSA. Mr. Blankenship has done a great job of showing that government ventilation plans may have been the cause of the UBB explosion. Rolling over and taking all responsibility didn't work so well for BP in the Macondo explosion and oil leak. According to the WSJ it appears that he BOD is willing to vote agains the long time leader of MEE. Typically this doesn't happen as the CEO usually controls the BOD like pawns. If true, MEE is likely to be sold in the near term for a nice premium. Sure the stock has run lately, but it's also below the March high. The WSJ speculates that Mr. Blakenship might be the only vote against a deal. He appears to be arguing that MEE will be more valuable when the company emerges from their recent problems. Maybe so, but the time value of mone...

More reports over the weekend of companies lining up to bid on Massey Energy (MEE). MEE has reportedly been on the auction block for a month now with rampart reports from Alpha Natural Resources (ANR) buying the company to Coal India buying a mine. Neither make much sense considering the size of ANR and lack of benefit to MEE from selling just one mine. MEE has been struggling under higher scrutiny and regulation since the explosion at the Upper Big Branch (UBB) mine back in April. The benefit to suitors is that MEE has the largest reserves of met coal needed for the production of steel in the US. With reserves of roughly 1.3B plus another healthy 1.5B of thermal coal, MEE offers a plethora of valuable assets to potential suitors, Considering the combination of management under attack and valuable assets, its no surprise that the acquisition news is heating up. Over the weekend, the WSJ leaked news that ArcelorMittal (MT) had been reviewing a bid for MEE for months now. MT as a sui...

According to the WSJ , Massey Energy (MEE) is reviewing a buyout offer from Alpha Natural Resources (ANR). Oddly though the title of the article currently says Arch Coal (ACI) instead of ANR. For the last couple of weeks, its been speculated that MEE was on the auction block. MEE is a major holding of our Opportunistic and Growth portfolios since the stock swooned down to the $30 area following the mine explosion in April. The stock is up roughly 12% to $47 providing for a major gain already so any large premium over this level would be sweet. Unfortunately, these portfolios are also heavily invested in ANR so a buyout by them would likely dilute the gain as their stock will possibly drop similar to todays reaction where MEEs gain has doubled ANRs loss. Still very positive, but naturally we'd prefer another suitor over ANR. Since ANR has a lot of similarities to MEE especially the US met coal production and reserves and outside buyer would also drive up their price. Oh well, ...

A couple of analysts have come with targets in the $60+ range for Massey Energy (MEE) based on a report that the company is up for sale. Recall that MEE suffered the mine explosion at Upper Big Branch (UBB) that killed 29 miners. Naturally MEE has suffered under tighter regulatory scrutiny and a management team that has been focused on the tragedy. Results have suffered, but back in May we suggested that investors focus on the assets particularly the met coal reserves [ Buy the Other Disaster Stock ]. The WSJ broke news last Wednesday that MEE was seeking a sale. Today we've seen estimates from a couple of analysts that MEE would be worth north of $60 in a buyout. That number seems high, but the stock has been highly depressed due to the accident hence the signal to buy the stock over the summer in the first place. MEE just didn't face the long term issues of a continuous leak so it seemed absurd for the stock should suffer so much. Stock dropped from a high near $55 on April...

Brean Murray upgraded one of our favorite coal stocks in Massey Energy (MEE) today helping lead to a 6% jump in the shares. MEE has been a stock that we've loaded up in the sub $30 range for a few months now. The stock was completely oversold following the accident at the Upper Big Branch back in early April. Investors buying now missed out on a steal in a early July and late August but the run is likely just getting started. See article from July 14th: Buy the Other Disaster Stock According to Brean Murray : Sussman wrote that "the regulatory pressures are largely priced into the stock, so that the risk-reward balance is now favoring investors who own the stock." In addition, Massey should benefit from its leading position in producing Central Appalachian coal. Its value for each ton of reserves is around $1.40, compared with an average of $1.90 for similar companies, he wrote. Stock is in the process from breaking out.  Needs to clear $34 but it has already...

That's the bad news. The good news is that 2011 targets remain intact and the all important met coal market remains strong. After the close last night, Massey Energy (MEE) reported that Q3 production was lower then expected and operating costs were higher then expected. Not exactly an investor friendly combination. Of course that has always been the risk of investing in MEE after the Upper Big Branch explosion in early April as Stone Fox highlighted in July [ Buy the Other Disaster Stock ]. Management focused on the UBB investigation combined with regulators being extra cautious is never a good combination. Hopefully that will change as the year ends and 2011 starts. Higher regulation has been a big issue in the US coal sector since the explosion. Short term that regulation just leads to higher costs and lower production impacting just about every company in the Appalachia region. See the Patriot Coal (PCX) news . Long term though it leads to higher prices because supplies will...

George Soros is a legendary investor so its natural a good sign when somebody like him buys into a stock in your portfolio in a big way. During Q2, Soros Management Fund bought 1.7M shares of Massey Energy (MEE) for a total position of 2.2M shares. Anybody following this blog knows that MEE hit our radar after its huge drop following the mine explosion in April. See Buy the Other Disaster Stock for more details. MEE remains a very cheap stock having recovered very little from that post explosion drop so far. According to Tickerspy.com Soros Fund Management was busy buying the following stocks in Q2. Looks like a big focus on material and ag stocks: Soros Fund Management was adding to positions in agriculture giant Monsanto Company (NYSE: MON - News ) and energy plays InterOil Corporation (NYSE: IOC - News ) and Massey Energy Company (NYSE: MEE - News ). The firm also hiked its bet on consumer technology giant Apple (NASDAQ: AAPL - News ) and pharmacy CVS Caremark (NYSE...

As we've been writing for the last month, the China economy and hence the local markets continue to rule the world. See China Market Rules the World on June 30th. Last night, the Shanghai market surged over 2% and made a very impressive jump off the 50EMA showing signs of more gains coming in August. Copper has also been surging and met coal prices remain steady so the commodity stocks such as Massey Energy (MEE), Alpha Natural Resources (ANR) and Freeport-McMoran (FCX) continue to be our favorite domestic stocks to play this theme. Additionally, we continue to follow China based commodity plays and mainly 3 companies that are dramatically expanding operations but remain at show me valuations. Puda Coal (PUDA) is acquiring and consolidating numerous coal mines and trades at a 4x '11 estimates. China Armco (CNAM) recently started up a steel recycling facility that should lead to $200M in revenue for a stock trading for $50M. Lihua International (LIWA) recently doubled its copp...

Alpha Natural Resources (ANR) appears to have hit the lows for now. The stock has had a couple of higher lows now based off trading today. Also, it has huge support in the $32-34 range having trading in that range for a couple of months now without breaking lower. ANR and its met coal is a big play on the growth in coal demand in China and India. With the China stock markets turning around lately (up 2% on both Mon and Tue), its only natural that ANR would follow. Massey Energy (MEE) is still lagging somewhat but we'd be buyers of them at this level as well.

With all the focus on BP, everybody has forgotten the damage done to the stock of Massey Energy (MEE) after the explosion at the Upper Big Branch Mine (UBB) in early April. MEE might be thankful for the attention focused on BP, but the stock price hasn't come close to recovering. All mining stocks are down over the last couple months so its not as though MEE has been harshly punished just for the explosion but it is down significantly more then industry leader Peabody Energy (BTU). The difference between MEE and BP and what interests us in the stock is that they've made several brilliant moves even in the face of the tragedy. MEE is working to enhance shareholder value while BP hopes to keep shareholder value from completely collapsing. While the CEO of BP can't seem to catch a break, the CEO of MEE has made numerous moves that benefit his company. The damage to MEE seems to be in the past and recently they've done a decent job showing that the government is possibly re...

Postings have been slow of late because of moving into a new house. Regardless, we've been focused on taking advantage of the drop in the market. Yesterday, the Opportunistic Portfolio bought Massey Energy (MEE) and China Armco Metals (CNAM) and covered the short on Research in Motion (RIMM). Unfortunately besides a small short on RIMM, we missed reducing exposure on the drop, but we're confident that we picked up MEE and CNAM on the cheap yesterday. Last check that portfolio is up nearly 8% today. The basic theme was to buy what China needs and the met coal from MEE and the recycled steel from CNAM were the just the ideal options. It doesn't hurt that the stocks are down 40-60% from recent highs. Its become evident that China is going to protract any rate hikes due to the issues in Europe and hence the market is likely to flock back into the China theme which means more commodities. More on this subject later.

Anybody not under a rock that follows the financial world has heard about the proposed plans in Australia to tax mining profits by 40%. Not but a few weeks old and we've already seen several signs of the unintended consequences of the taxes. First, BHP Biliton CEO discussed the likelihood of putting projects on hold. Second, Peabody Energy (BTU) lowered its bid for MacArthur Coal in Australia. Stone Fox Capital's read: Buy companies with assets outside Australia in particular we've bought Freeport-McMoRan (FCX), Massey Energy (MEE), and US Steel (X). More on them later. Our reasoning is that the tax will limit the supply especially from new projects in Australia with limited impact to demand. It clearly makes assets outside Australia more attractive. In the end, the announcements this weekend could go a long way to pressure the government to ratchet back the tax plans. It clearly places short term risk around projects. BHP CEO Kloppers made it clear over the weekend that th...

Massey Energy ( MEE ) has naturally been weak since the mining explosion. The 30% drop seems excessive at this point, but its broken the 200ema so we're staying clear for now. The Transocean ( RIG ) drillship explosion hasn't helped remove the stronger regulation fear. The Cumberland purchase makes MEE a lot more appealing as well. That access to 5M more tons of met coal was a huge purchase, but for now it'll be completely ignored while MEE deals with the legal and regulatory issues. It's also highly possible that several funds are unloading the stock at month end so that it won't appear in the list of investments. With the Chicago PMI hitting 63.8 today this seems like the ideal stock for a much stronger industrial environment. For now we'll just keep our position in Alpha Natural Resources ( ANR ) and wait for the best entry point in MEE. Edit 10:40am: Now we see the news stories about the bribery probe by the FBI. Clearly a few people knew about this prior to...

The Cloud Peak Energy IPO (CLD) priced last night at $15 which was below the original range of $16-18. Very perplexing considering the commodities sector and especially coal stocks have been very hot of late. Then Reuters published some analyst comments that made us more bullish. Basically the analysts are concerned that the proceeds are going back to Rio Tinto (RTP) and that the deal was overpriced and coal demand is uncertain. Huh? Are they serious? Why has Peabody Energy (BTU) and Massey Energy (MEE) rallied so hard lately? This really seems like Wall St playing games with a forced seller. RTP needs the money to reduce it's debt load. CLD is clearly not overvalued as both BTU and MEE sport PEs in the 20s while CLD starts in the 7-8 range. If anything CLD is extremely undervalued. Gillette, Wyoming-based Cloud Peak raised about $459 million but almost all of the proceeds will go to Rio Tinto, which will retain a 48.3 percent stake in Cloud Peak. Rio Tinto is saddled with debt st...