As of quite recently I am long EXP, AMR, and HCC (still building up that position). Really enjoyed your write up on NRP, but didn't feel like dealing with the K-1 form as my tax situation is already somewhat complicated. I think the long term case for Met-Coal appeals to me more than that of thermal coal.
While thermal coal has some unique physical properties that have made it a fundamentally important source of energy in the world, the net product of thermal coal is still just that; energy. For me anyway, building a viewpoint on thermal coal vs natural gas or nuclear energy as a source of base load power was too difficult.
Met-coal, on the other hand, is the only real game in town when it comes to virgin steel production. Hydrogen steel production is a WAYS away from feasible in the West and that is even truer in markets like China and India where steel production (therefore met coal supply) is intrinsically linked to growth and development. The recycling of steel in EAF's (electric arc furnaces) has been a major disruptor for domestic virgin steel production in the US. There is one core issue here, however, which is that much of that recycled steel has been employed in long lasting infrastructure projects which will keep that steel buried in concrete (shout out Eagle Materials) for half a century or more. There are also some real limitations on the use cases for recycled steel. If you want to build a bridge, tunnel, or high-rise building you need a lot virgin steel for structural support. Re-enforcing concrete with re-bar, however, can be done with recycled steel. I think the real case for AMR and HCC comes from Indian demand for virgin steel. China may re-bound, but an over built housing sector is a structural (pun intended) problem for steel demand (imho). I took my position within the last 2 weeks as stock prices for AMR and HCC (those two pure play met coal companies i mentioned earlier) continue to plummet from their highs. No idea if the bottom is in on met coal. Might be a bumpy ride. Anyway, i would LOVE a deeper dive and your view on these two companies. I have a lot of my own research, but its largely un-audited and my capacity to be wrong is vast.
Pete, thanks for your thoughts. We agree that coal likely has a long runway ahead of it. Whether an in vestment in thermal or metallurgical is the better way to play it at this point, we don't know. We did a piece on AMR a while back looking at its then new buybacks. We haven't dug into HCC yet.
HCC (Warrior Met Coal) is also a pure play Met Coal producer. The big differences are:
1) Warrior is the lower cost producer, but produce less coal in total. They operate fewer mines than AMR and have lower production volumes than AMR (a little more than half the tonnage in 2023). Basically, Warrior operates fewer mines, but larger mines. This results in scaling efficiencies within the mines they do operate, allowing for lower production costs. On top of that they focus on "premium hard coking coal" which - as the name suggests - sells for a premium. They also use a "longwall mining method" which supposedly enables high coal recovery rates and low labor costs. All of this means that when prices get low, Warrior can keep their head above water better than other producers. That said, when prices rise, AMR's high production volumes create huge operating leverage and a provide a much bigger boost to bottom line. AMR is also further along on their buyback crusade than Warrior. Which leads me to difference number...
2) Warrior has capex requirements for their re-start of the Blue Creek Mine. Frankly this is the primary reason i've moved slower with Warrior. Supposedly the mine should be production ready by Q2 of 2026, and $716m of the ~1b in expected capex is behind us. So we're in the later innings of this project. That said a lot can happen in a year and for me Capex is exactly what i'm trying to avoid in a coal mining company. I still own some HCC and i'm buying a little every week.
Hi Six Bravo, thanks for a pair of new interesting ideas!
I was checking the cement industry last week and MLM was the one which caught my attention apart from EXP (which I knew from your other article) due to their solid financials and track record.
Two big differences is that:
1. MLM is mostly in heavy materials (aggregate), while EXP is 50% in light (wallboard), which is more exposed to the residential construction cycle and more sensitive to interest rate. This is where I like MLM more.
2. But MLM allocates capital mostly to acquisitions and grew debt ~2x faster than EXP, while achieving roughly the same EPS growth. I wonder if they can continue their track record without growing debt even more. While EXP is mostly focused on share repurchases.
Hard to be sure without deep knowledge of the cement sector. Could you tell why your friend said he would prefer MLM?
Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one - they think the price will rise."
Is Lynch correct?
The word ‘think’ is the operative word.
How many insiders do a side by side comparison of multiple investment opportunities? Most wouldn't know how to properly value a company. They stick to what they know - the company that they work for. Many insider buys are at preferential rates through stock options and the like. An insider may have been buoyed by exuberance in a meeting about the future prospects of the company, which may have been vastly exaggerated.
In short, insiders can buy for any number of reasons, but it isn't always a great signal for investors. Many companies have seen their share price collapse following insider buying.
I am writing a very deep analysis on this topic which ought to be out in the next couple of weeks, so if you are interested, look out for it.
As of quite recently I am long EXP, AMR, and HCC (still building up that position). Really enjoyed your write up on NRP, but didn't feel like dealing with the K-1 form as my tax situation is already somewhat complicated. I think the long term case for Met-Coal appeals to me more than that of thermal coal.
While thermal coal has some unique physical properties that have made it a fundamentally important source of energy in the world, the net product of thermal coal is still just that; energy. For me anyway, building a viewpoint on thermal coal vs natural gas or nuclear energy as a source of base load power was too difficult.
Met-coal, on the other hand, is the only real game in town when it comes to virgin steel production. Hydrogen steel production is a WAYS away from feasible in the West and that is even truer in markets like China and India where steel production (therefore met coal supply) is intrinsically linked to growth and development. The recycling of steel in EAF's (electric arc furnaces) has been a major disruptor for domestic virgin steel production in the US. There is one core issue here, however, which is that much of that recycled steel has been employed in long lasting infrastructure projects which will keep that steel buried in concrete (shout out Eagle Materials) for half a century or more. There are also some real limitations on the use cases for recycled steel. If you want to build a bridge, tunnel, or high-rise building you need a lot virgin steel for structural support. Re-enforcing concrete with re-bar, however, can be done with recycled steel. I think the real case for AMR and HCC comes from Indian demand for virgin steel. China may re-bound, but an over built housing sector is a structural (pun intended) problem for steel demand (imho). I took my position within the last 2 weeks as stock prices for AMR and HCC (those two pure play met coal companies i mentioned earlier) continue to plummet from their highs. No idea if the bottom is in on met coal. Might be a bumpy ride. Anyway, i would LOVE a deeper dive and your view on these two companies. I have a lot of my own research, but its largely un-audited and my capacity to be wrong is vast.
Pete, thanks for your thoughts. We agree that coal likely has a long runway ahead of it. Whether an in vestment in thermal or metallurgical is the better way to play it at this point, we don't know. We did a piece on AMR a while back looking at its then new buybacks. We haven't dug into HCC yet.
HCC (Warrior Met Coal) is also a pure play Met Coal producer. The big differences are:
1) Warrior is the lower cost producer, but produce less coal in total. They operate fewer mines than AMR and have lower production volumes than AMR (a little more than half the tonnage in 2023). Basically, Warrior operates fewer mines, but larger mines. This results in scaling efficiencies within the mines they do operate, allowing for lower production costs. On top of that they focus on "premium hard coking coal" which - as the name suggests - sells for a premium. They also use a "longwall mining method" which supposedly enables high coal recovery rates and low labor costs. All of this means that when prices get low, Warrior can keep their head above water better than other producers. That said, when prices rise, AMR's high production volumes create huge operating leverage and a provide a much bigger boost to bottom line. AMR is also further along on their buyback crusade than Warrior. Which leads me to difference number...
2) Warrior has capex requirements for their re-start of the Blue Creek Mine. Frankly this is the primary reason i've moved slower with Warrior. Supposedly the mine should be production ready by Q2 of 2026, and $716m of the ~1b in expected capex is behind us. So we're in the later innings of this project. That said a lot can happen in a year and for me Capex is exactly what i'm trying to avoid in a coal mining company. I still own some HCC and i'm buying a little every week.
anyway, happy hunting!
Good stuff. Thanks Pete!
Hi Six Bravo, thanks for a pair of new interesting ideas!
I was checking the cement industry last week and MLM was the one which caught my attention apart from EXP (which I knew from your other article) due to their solid financials and track record.
Two big differences is that:
1. MLM is mostly in heavy materials (aggregate), while EXP is 50% in light (wallboard), which is more exposed to the residential construction cycle and more sensitive to interest rate. This is where I like MLM more.
2. But MLM allocates capital mostly to acquisitions and grew debt ~2x faster than EXP, while achieving roughly the same EPS growth. I wonder if they can continue their track record without growing debt even more. While EXP is mostly focused on share repurchases.
Hard to be sure without deep knowledge of the cement sector. Could you tell why your friend said he would prefer MLM?
Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one - they think the price will rise."
Is Lynch correct?
The word ‘think’ is the operative word.
How many insiders do a side by side comparison of multiple investment opportunities? Most wouldn't know how to properly value a company. They stick to what they know - the company that they work for. Many insider buys are at preferential rates through stock options and the like. An insider may have been buoyed by exuberance in a meeting about the future prospects of the company, which may have been vastly exaggerated.
In short, insiders can buy for any number of reasons, but it isn't always a great signal for investors. Many companies have seen their share price collapse following insider buying.
I am writing a very deep analysis on this topic which ought to be out in the next couple of weeks, so if you are interested, look out for it.
Interesting. Thank you.
Do you have suggestions for other good substack writers?