Out Fox The $treet

That headline just seems incredible considering how much China already spends on generating power and especially the commodities such as copper and met coal. According to a research report by the China Electricity Council, China plans to spend $1.7 Trillion (yes Trillion) on power generation over the next 5 years versus the previous 5 years from 2006 to 2010. Yes, thats a whopping 68% increase! The expectation is that power generation capacity will rise 8.5% annually to 1.437 million megawatts by 2015. By 2015 only 33 percent of the power generation will be by non-fossil fuel and some 36% by 2020. So while the percent of non-fossil fuel will increase it appears that the fossil fuel (read coal) portion will continue to rise. Will it ever end? Can China continue to grow at an enourmous clip? Well, until they eclipse the US in GDP, they likely can keep it up. With roughly 4x the population, China should have a bigger economy. This growth means that copper at $4.27/lb might be relat...

Interesting report from Financial Times that magnifies some of the recent negative reports on copper mining activities. Stone Fox has been very bullish on copper for a while now because of the promise of high demand from China and a return of demand from the US. So far the demand from the US hasn't materialized but the production issues and lower grade ore deposits have more then offset any lagging demand. As the report shows, the top 4 public miners produced 12% less copper then in 2009. Thats while prices have been above historical averages. In the first half of the year, the world’s top four listed copper miners – Freeport McMoran, BHP Billiton , Xstrata and Rio Tinto – saw their collective output drop 12 per cent from 2009. Freeport McMoran (FCX) remains our best pure copper play and operator. They also mine gold which happens to be very positive at this time. Lihua International (LIWA) could be a huge beneficiary of this trend towards lower mining output. LIWA is a Chinese re...

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...

Cloud Peak Energy (CLD) is an IPO spin off from Rio Tinto (RTP) that has huge potential. By all accounts, the deal will be cheap as evidently RTP needs the cash. The deal is expected to price in the $16-18 range giving it a7 PE multiple. Very odd considering the PE multiples in the 20s that most coal producers trade at currently. CLD is completely focused on the Power River Basin (PRB) area in Wyoming and Montana. The surfice coal in the PRB is much easier to mine then the mountaintop mines in the East and especially in Central Appalachia. Also, the coal is 'cleaner' then the East because of lower sulfur amounts. Now honestly just about every other energy option is 'cleaner' then coal such as natural gas, solar, and wind. Unfortunately coal is the cheapest option and the US along with emerging economies like China and India are somewhat stuck using it so demand is expected to grow. Another issue with the Central Appalachia is that it has declining reserves and faces reg...