INVESTOR RELATIONS/FINANCIAL RELATIONS
Managing the relationship between a company and its current and potential investors is an essential component of business. All too often, investors and potential investors are forgotten between shareholder meetings. The result is often a disconnect between management and its most important public -- the owners of the business. Unfortunately, management often remembers the importance of this relationship only when confronted with a shareholder revolt.
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Coal Stocks turn higher on renewed analyst confidence
T.L. HEADLEY, MBA, MA, BA, AAMS
Principal, The Genesis Group
CHARLESTON - Coal stocks continue to trend higher 
on renewed confidence. This reverses a downward trend that began in mid-summer.
The average price of coal stocks has risen from a low of about $20 per share in earlier this year to around $35 per share today, reversing a slide from a previous high near $75 per share in late-May.
Local coal companies mirrored the trend.
Massey Energy (DOW: MEE) stock has risen over the past month to $23.72 per share, up from a mid-August low of $17 per share. In mid-May the stock had begun a slide from $31 per share.
Arch Coal (DOW: ACI) has risen to $33.14 during the past month. This is up from a mid-August low of $28 per share and corrects a slide from $42 per share in late-May.
International Coal Group (Dow: ICO) is currently trading near $4.40 per share, up from a mid-August low of $4.18 per share. The stock was trading near $6.50 per share in early June.
Jason Bostic, vice president of environmental and regulatory affairs at the West Virginia Coal Association, said he chalks the shift up to a "general acknowledgement that coal is of primary importance to the overall energy mix of this country."
The turnaround in coal stock prices follows closely on the heels of comments by several market analysts, who say they see long-term positive trends in the coal market. A Morgan Stanley analyst said late last month that in the long-term the market should expect "a structural shift toward higher profitability."
Current overstocks should self-correct through 2008 and produce a better market situation going into 2009.
That shift is also projected by the Energy Information Administration (EIA), a government agency that monitors the energy markets.
In their annual outlook report, the EIA projects that higher electricity consumption will lead to increased coal consumption by energy producers. They project a 1.7 percent increase in coal consumption in 2007 and a level market in 2008.
Production, on the other hand, is projected by EIA to fall by 2.5 percent through 2007 and then by 0.6 percent in 2008. Western coal production is expected to fall by 2.3 percent in 2007.
Inventories of coal are expected to fall by 4.7 percent in 2007 and then be flat in 2008.
Coal prices have also begun to level out and turn upward.
"Coal should be a standard investment," Bostic said. "I used to look at railroads when I was putting together a portfolio. Coal is the same way. This country's demand - and other countries for that matter - is only going to go up. There simply is no other affordable, stable and secure energy source."
According to the EIA, the average price for Central Appalachian coal has risen to about $46 per ton, up from a January low of $40 per ton. This price if off from the high of December 2003 high of $67 per ton.
Northern Appalachian coal has also risen to about $46 per ton, up from a July low of $37 per ton.
Powder River (Western) coal is remaining steady at about $10 per ton.
Bostic said he sees the same market factors in play as forecast by the EIA. Locally, there is also increased demand for metallurgical coal and some coal that had been going to fire electric generation has been diverted to the metallurgical market. Eastern coal can easily be used for either purpose. Western coal, such as in the Powder River Basin, is not of sufficient quality for metallurgical use.
He agrees that the stockpiles of coal will be used up over the next six to eight months and that there should be a much improved demand for coal going into 2009. Bostic chalks that up to better planning on the part of producers.
"We don't flood the market with cheap coal like we used to," Bostic said. "We have gotten pretty good at controlling production."
The biggest fear is the continued threat from the environmentalists who want to stop most uses of coal in power plants and other applications, arguing that it is a threat to the global environment and contributes to global warming.
Bostic said he believes common sense will win out in the end.
"People are going to realize that rather than see their electric bills go up by 50 percent with a switch to natural gas or even nuclear, they will want to keep coal as the primary fuel source," Bostic said. "There really is no alternative."
As you can see through the article above, managing the relationship between a company and its current and potential investors is an essential component of business. All too often, investors and potential investors are forgotten between shareholder meetings. The result is often a disconnect between management and its most important public -- the owners of the business. Unfortunately, management often remembers the importance of this relationship only when confronted with a shareholder revolt.
The Genesis Group is there to help companies turn shareholders into partners. Our staff has experience in working with top financial services companies, with venture capital investors, angels and traditional lenders.
Let us help you manage these key relationships.
TLH