Out Fox The $treet

With Bank of America issuing a negative report on metallurgical coal, Walter Energy ( NYSE: WLT     ) slumped 20% on the news. The analyst was also bearish on other met coal producers including Alpha Natural Resources ( NYSE: ANR     ) and Arch Coal ( NYSE: ACI     ) . Typically a beaten down stock would grab some interest in the market, but in the case of Walter Energy, recent debt financings and weak prices for met coal make it questionable whether the stock will rebound. Walter Energy is the largest pure play, met coal miner in North America with operations primarily in Alabama and Canada. The stock was a poster child for the booming commodity sector back in 2011 when it soared to over $140 on relentless demand from China. Now, the stock has a prominent firm placing a $2 target on the stock. Read the full article here . Disclosure: Long ANR. Please review the disclaimer page for more details. 

After weak met coal guidance from Alpha Natural Resources ( NYSE: ANR     ) and Arch Coal ( NYSE: ACI     ) , Walter Energy ( NYSE: WLT     ) surprised the market with bullish commentary on the coal needed for steel production. Walter Energy is the largest pure-play met coal miner trading on the domestic stock exchanges. After closing another thermal coal mine, the company expects to only produce 300,000 tons of thermal coal this year, leaving the sole thrust on met coal. Other domestic coal miners produce met coal along with sizable amounts of thermal coal used for electricity production. Read the full article here . Disclosure: Please review the disclaimer page for more details. 

Even after reporting further loses and weak pricing in the met coal market, Alpha Natural Resources (ANR) has formed a beautiful chart. Won't ever claim to be a technical expert, but this chart shows consolidation for a year and an eventual rise above the 200ema. When a stock starts breaking above the moving averages and the news isn't overly bullish, its a good sign that the momentum has turned in the stock. The sellers are done for the time being. Everybody needs to remember that Alpha Natural has very significant and valuable met coal assets. At this point, its just a matter of rationalizing supply and demand to get prices higher. These resources will be valuable again at some point. Disclosure: Long ANR. Please review the disclaimer page for more details. 

Though the stocks haven’t traded well the last couple of days, costs cuts have improved the potential for rebounds in both Peabody Energy (NYSE: BTU ) and Walter Energy (NYSE: WLT ) . Peabody easily smashed estimates while Walter provided hope that a liquidity crisis wouldn’t smash the stock. Coal stocks trade at multi-year lows as falling commodity prices have hit revenues, but now the companies have been able to drastically more » Disclosure: Long ANR. Please read the full disclaimer page for more details. 

A typical headline such as the above usually signals a stock that has an absurdly high valuation and that is due for a correction. In the case of Walter Energy (NYSE: WLT ) , the amazing part is how low the market cap has dropped. This stock was a poster child of the commodity boom and has collapsed around 90% in just over two years. The company is seen as the “pure more » Disclosure: Long ANR. Please review the disclaimer page for more details. 

After the market close on Wednesday, Walter Energy (WLT) reported earnings that beat estimates. The earnings this quarter were important considering the rapid decline of the stock over the last couple of months. The company is a leading "pure-play" producer of metallurgical coal for the global steel industry with operations primarily in the U.S. and Canada. The company reported a solid $0.43 from continuing operations compared to the $0.36 expected by analysts. Although production was up year-over-year, lower prices hurt earnings causing them to drop from last years $1.83. Read the full article at Seeking Alpha. Disclosure: No position mentioned. Please review the disclaimer page fore more details. 

According to this Reuters report on CNBC, iron ore demand is set to grow at 11% through 2017. Wait, didn't stocks initially plunge today due to fears of slower demand in China for iron ore? Talk about a confusing market with conflicting currents in the news. The actual news from BHP Billiton (BHP) today was that demand from China was "flattening" or otherwise growing in the mid single digits versus the double digit growth of the past decade. Slower growth, but still growth. How this is news was beyond me. Everybody should know by now that China wants slower growth. Stocks like Alpha Natural Resources (ANR) are down some 75% since early 2011 peaks. The market has already harshly punished this met coal producer to the extreme making the initial 6% drop further signs of a bottom. Remember that met coal is used with iron ore to produce steel. So now basically within 24 hours the media is spinning out reports of massive growth in iron ore demand and the expectations f...

After a not so surprising weak Q4'11 report, coal miner Alpha Natural Resources (ANR) started trading down nearly 5% today. It didn't take long for the stock to reverse and is now trading up nearly 3%. It really isn't worth focusing on the earnings report. Alpha Natural is a long term trade on the increasing demand for met coal in countries like China and India. The low cost of natural gas is having a dramatic impact on thermal coal pricing and demand placing serious margin pressure on Alpha Natural. Since it is all temporarily, it just isn't worth the effort. Nat gas prices will eventually rise and China appears to be storming back. Normalized earnings will be the key going forward. More importantly today was the major reversal that has a tendancy to signal a bottom in the stock. With the major support now put in around $20, longs have a basis for being more aggressive. If the stock can break above the channel around $22.50, longs will get very aggressive. ...

Friday was a wild day in the metallurgical (MET) coal sector as Patriot Coal (PCX), Walter Energy (WLT) , and Norfolk Southern (NSC) all made noteworthy announcements. With Patriot Coal and fellow met coal producer Alpha Natural Resources (ANR) both sinking more than 10%, one would assume that all of the announcements were negative. Summary of the announcements from Friday: Before the market opened, Patriot Coal put a major damper on the sector by announcing the closure of several high-cost met coal mines due to slumping demand for seaborne coal. During the day, Norfolk Southern announced the loading of the largest volume cargo in the history of Pier 6 at Lamberts Point. After the market closed, Walter Energy announced a reduction in 2012 production due to equipment and facility issues while announcing the market remains robust. (Walter still expects roughly 19% to 34% production growth for the year) Naturally the news for Patriot Coal is disastrous for the company. Yet another...

Always interesting to see what the major miners such as BHP Billiton (BHP) are producing and developing. Most noteworthy for BHP are the iron ore, met coal, and copper production figures from their 2nd half 2011 production report . All 3 commodities are in hot demand in China and BHP had all the incentive in the world to increase production in 2011 over 2010. Iron Ore production increased 23% for the 2nd Half (2H). Production in Western Australia delivered a quarterly record. Full year production for 2012 is expected to increase.  Met Coal production dropped 2% in the 2H over 2010. The December quarter did see a 9% increase over last year. No real prediction on 2012 production levels.  Copper production dropped 16% for the 2H and 7% for the Dec quarter. Production is forecast to drop in 2012 These results are consistent with the general opinion that iron ore is relatively easy to mine while copper and met coal are much more difficult and hence will become much more val...

Walter Energy (WLT) is a leading met coal pure play not only in the US but in the world. The stock is up nearly 30% this morning on news of a potential bid from Anglo American at $120 share. While yesterdays closing price of $75 does make a $120 bid appear attractive one needs to step back and realize that the stock traded over $130 as recent as the end of July. Not many long term investors would be willing to take such a low price. This stock along with our favorite met stock, Alpha Natural Resources (ANR), and the sector have just been crushed with the fear of a global recession. Ironically the main growth drivers of China and India don't appear to be weakening much at all. The assets of ANR and WLT remain just as attractive as it did back in July. WLT has a 52 week high of $143.76 and I'd expect any accepted offer to exceed that price. ANR appears more attractive with a much larger met coal reserve base. The stock also remains over 50% below its 52 week high of $68.0...

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 . 

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...

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...

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...

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...