Investors who have made money from investing in coal but don't follow closely the energy space might be interested in the recent steady share price increases for Peabody Energy (NYSE:BTU). There have been a number of positive articles in Seeking Alpha, and analyst coverage involves many buy recommendations for BTU. However, there are signs of trouble ahead, not the least from BHP (BHP), another huge mining company that sells a lot of coal. It plans to withdraw from the World Coal Association, and it is reviewing its membership of the Minerals Council of Australia and the US Chamber of Commerce over their stance toward climate change. This is a huge statement about the lobbying stance of these organisations and must impact Peabody Energy as the chief lobbying company.
Here, I argue that all is not what it seems, and the positive reports about BTU are based on a rosy view that ignores hard reality for not only Peabody Energy but the whole coal industry.
Briian65 recently commented on one of my earlier articles Fun And Games At Peabody Energy: What Is Stabilizing The Share Price? (June of this year) on Peabody Energy. He made the point that the BTU share price has risen from $23.50 in June to $36.40 today. I don't do day-trading (except for some fun with cryptocurrencies!), and Briian65 has a valid short-term perspective. However, I make the point that examination of Peabody Energy's performance since exit from bankruptcy is pretty much in line with the S&P 500 and VanEck Vectors Coal ETF (NYSEARCA:KOL). True, it is better than other coal companies Cloud Peak Energy (NYSE:CLD) and Westmoreland Resource Partners (WMLP), but the confronting thing for coal investors is a comparison with solar outperformer First Solar (FSLR) which has more than doubled since BTU emerged from bankruptcy, and even somewhat troubled SunPower (SPWR) is up more than 150%.
Here, I return to familiar ground for me and address the context for future Peabody Energy share price performance. My perspective is not a day trader's, but I don't think the facts I address here are only of relevance for very long-term investors. I argue that the switch to distributed, digital, low carbon energy is gaining momentum. While Peabody Energy has had some success in staying with the past (with a favourable political environment), this success is largely illusory.
Peabody Energy tells a good story. In fact, the company has a long history of spending shareholder resources on telling good stories. Peabody Energy gave former Australian Prime Minister Tony Abbott his "coal is good for humanity" slogan, which used to be Peabody's mantra... until they were told to tell the truth. Today, Peabody's byline has a less convincing ring "Coal done right" and "The new BTU".
Coal needed for grid stability? Evidence suggests otherwise, and
Peabody Energy is having some success in pushing the Trump administration to provide substantial subsidies and remove environmental constraints, to keep open old coal plants that are uneconomic. Energy Secretary Rick Perry's actions make little sense to anyone but ideologues. Indeed it isn't clear what the FERC, which is the body with carriage of Energy Secretary Perry's proposal, is going to do as it is so controversial. Success in this area is vital to the survival of Peabody Energy as acknowledgment that coal is unreliable and expensive will accelerate the exit from coal.
This is no theoretical argument; survival of the US coal industry relies on keeping coal plants open, as no new ones are being built.