Out Fox The $treet

Puda Coal (PUDA) is a coal mine consolidator and met coal washer in China that has been hit by fraud allegations from a noted short seller. At question is whether the Chairman of PUDA illegally transferred shares from a subsidiary 90% owned by PUDA to himself, then sold 49% of the shares to CITIC (China govt fund) and further pledged the other 51% for a massive loan that could threaten to bankrupt the company. With all of the recent news regarding fraud amongst China Reverse Mergers, the stock plummeted 50% within a week .  The company issued a press release prior to the stock opening on the 11th that the allegations might have some validity and announced they were launching an investigation. The stock was halted on the 11th and has yet to reopen. Also the margin requirements were raised to 100% which means the stock can no longer be margined. Although the Opportunistic Arbitrage model heavily relies on margin, the model hasn't been impacted with this increased requirement since t...

Anybody following this blog knows that Puda Coal (PUDA) has been one of our favorite stocks. PUDA was a small cap Chinese coal washing company trading at 4x estimates when we originally bought the stock. They are in the process of becoming a coal mine consolidator with numerous deals in the works. These consolidation deals provide huge upside for the stock, Read previous posts for more details on PUDA. Today the stock has hit a high of $15.42 up some 9% easily hitting a new 52 week high and highs not seen in over 3 years. Why? Hard to tell why PUDA has chosen to take wings over the last month while the Chinese markets have swoon. Clearly it trades more based on US investor sentiment then Chinese market action. The likely reason for the lift off is further awareness by the US media. Lately they've been included in reports by Investor's Business Daily, TheSteet.com, and Indie Research. Until recently PUDA flew under the radar rarely getting mention by such publications. Its p...

Typically I don't post videos of companies that are mentioned on TV, but its rare to see somebody talking about one of the small caps that we own. Puda Coal (PUDA) is a leading coal mine consolidator in China and met coal washer. Last night on CNBC Aisa, the CEO of Pacific Sun Investment Management did a great job of discussing the bright future of PUDA. As he mentions, PUDA remains a very cheap stock even  with the huge run the last month. PUDA is a top pick in both the Growth and Opportunistic portfolios. Earnings will be on Friday and we're looking forward to hearing about the mine consolidation process. Disclosure: Long PUDA

After a few weeks of looking like the China market might just roll over and signal a move down in the market, the Shanghai Index jumped solid back into positive technical levels. Copper and oil have broken out as well so it appears that October is set up for some gains in the stock market as well. The two smallcap China stocks we own, Puda Coal (PUDA) and Lihua International (LIWA) also appear to be getting a bid. Makes us more encouraged to look at a China IPO tomorrow. More on that as the story develops.

This morning Puda Coal (PUDA) reported a whopping 50% beat on its Q2 earnings. PUDA reported .36 while the street expected only .24. PUDA is a coal mine consolidator and producer of clean metallurgical coal in China. Being an uplisted Chinese stock it is still very untrusted and under followed. They reported $82M in revenue for the quarter so its not a small operation. Not to mention that the consolidation of 12 mines over the next year or so should add significantly to revenues creating a decent sized coal miner. Everybody currently wants operations in Australia so why not go directly to the source and buy assets directly in China? The stock trades at a significant discount to its prospects and risks currently trading at just 4x the estimated 2011 earnings of $2.17. Considering how easily they just beat the Q2 numbers those could turn out to be very conservative. The market continues to doubt these Chinese stocks but at some point they won't be able to doubt their prospects. Highl...

It seems some of the developed markets still haven't figured out that China and the emerging markets rule the world now. The US was down Friday and Japan is weak tonight based on a weak Q2 GDP report. But does it matter when China was up nicely on Friday and is up another 1.3% today? Anybody looking at the wrong markets is likely to underperform the remaining months of this year. The stock markets in China have turned around in a dramatic fashion yet the US market remains weak. We're heavily invested in China based plays such as local stocks like Puda Coal (PUDA) and Lihua International (LIWA). Both companies trade at lower PEs then the growth rate of China. How is that possible? You'd think a fast growing China stock would trade at 15, 20, or even 30x earnings. Well, you'd think so but I guess every small cap China play is a fraud, but any India company brought public by the large US investment banks is considered safe. See the MakeMyTrip.com (MMYT) IPO last week. Comp...

Finally some news from Puda Coal (PUDA), Chinese coal consolidator, on funding for them to acquire and consolidate 6 more mines in China under Phase II of the Pinglu Project. Being that PUDA has a market cap of roughly $200M, a lot of uncertainty hung over the stock due to the expected $150M needed to acquire these 6 mines and then upgrade them. Not to mention another 4 mine project in the works as well. That's a lot of dilution feared by the market unless they found a partner so it's likely held the stock price down. Now PUDA has come to an agreement whereby the Chairman and an outside party will contribute 60% of the funds allowing PUDA to keep 40%. Considering the profitability it would've been ideal to see some type of government loan for a % of the deal, but PUDA is still obtaining these mines at very accretive levels. Not sure yet what this deal does to the targets for over $2 in EPS next year, but it shouldn't hurt. Details on the 6 mines provided back in March:...

Even in the face of a 40% mining tax, China is still busy investing in Australia . That seems rather remarkable as any company or country with time on its hand would rather skip or defer any investments in Australia at this point. Maybe they have some inside knowledge that the proposed 40% tax will be greatly reduced, but this type of move only gives the government of Australia more ammunition to implement the tax. To us this signals how ferocious the demand for mineral assets is in China. How its not about to end any time soon. And how any assets outside of Australia at the moment are very attractive because of the tax issue. Notice how they seem desperate for iron ore mines that will supply the steel industry. This leads us back to investments in scrap steel recycler China Armco (CNAM) and met coal producer Puda Coal (PUDA). Both are Chinese companies recently up listed in the US that will benefit significantly from continuing strong steel demand in China. CNAM just opened up a recyc...

Brean Murray came out with a Buy rating on Puda Coal (PUDA) today with a $17 target. PUDA was trading sub $10 yesterday and is currently up 12% today with a new 52 week high. Since PUDA was an uplisted China stock, its greatly lacked in visibility even though its in the process of consolidating 12 coal mines that are in high demand in China. This coverage should go a long way in providing visibility and credibility to PUDA. The stock has huge upside since the first 2 mines won't be consolidated until May. Even with that, PUDA expects to earn $1.10 to $1.50 in 2010 based off a profitable coal washing business plus a partial year of these 2 thermal mines. Lots of upside from the other 6 thermal mines and especially the 4 new coking coal mines they just got approval to consolidate. Read more about PUDA from a post we wrote on March 15th - Puda Coal Cools Off But Will Heat Up Again .

China is the largest user of coal and now they've become a major net importer in the last few years. Although China has embarked on several programs to focus on renewable energy sources such as solar and wind they will rely on coal fired electricity for a long time with some sources estimating that China will nearly double coal use by 2030. The coal industry in China is very fragmented. Many of the coal mines have been operated by small companies leading to very inefficient mines and a high injury rate with several tragic mine accidents. Hence, the government has embarked on a mine consolidation plan in order to move the majority of the mines into the hands of larger operators that will be more efficient and easier to regulate. The program will reduce the number of mine operators from 1,000 to 100 while also significantly shrinking the total number of mines. Mine Consolidator Puda Coal (PUDA) is one of the selected mine consolidators. It's virtually unknown by investors as they...

Amazing report if its true. Looks like Japan is having to pay up get assets such as coking coal used to make steel away from the grips of China. Alpha Natural Resources (ANR) is likely our best play with their decent supply of coking coal. Puda Coal (PUDA) is a great speculative play in China. More to come on that stock. This is the difference between coal and natural gas. China needs coal. China doesn't need natural gas. JFE Holdings Inc. reportedly agreed to pay $200 per ton for coking coal in a three-month deal with Australian coal miner BHP Billiton Ltd. The amount was higher than expected, said William Burns, an analyst with Johnson Rice & Co. Burns, who expected JFE and other companies to pay only about $150 per ton, said this shows how aggressive countries have become in competing with China for natural resources. "China has become a black hole, and the Japanese steel makers are trying to lock up their supply," Burns said.

Interesting news from India on the coal front. Further signs of the value in having commodity assets with the growth of India and China. The Telegraph highlights the growing demand for imported coal as an issue with coal production in India. At least this time its production, but we all know that demand will surely grow. These reports how India is likely to remain behind the curve. Maybe they should make domestic coal prices more expensive and hence the local production might just magically increase. The increase from 59mt in 2009 to 65mt in 2010 to 81mt in 2012 doesn't seem overly aggressive, but in a market where you're now competing with a global recovery and China importing massive amounts of coal. Any additional pressure will spike prices for any remaining production. Coal India seems to have aspirations for the global energy stage, but for now they remain in the minor leagues. This other article talks about them looking to invest over $2B in overseas assets, but it app...

Bought less then a 1% position in Puda Coal (PUDA) in the Growth Portfolio. PUDA is a Chinese company and a play on the ever expanding demand for coal in China. It's also a play on the coal consolidation project going on in China where they are in the process of taking over 8 mines and expanding the output. Will likely add more shares if the stock holds at support. A full write up on this investment to follow later this week.