Friday, 7 March 2014

ANR, BTU - the greatly unloved coal miners

Whilst the main US equity market continues to break new historic highs, the coal miners remain the most unloved sector in market land. The week concluded with a major snap lower, with Alpha Natural Resources (ANR) and Peabody Energy (BTU), falling by a very severe -12.5% and -5.3% respectively.

ANR, daily

BTU, daily


The above charts are interesting, but from a bigger perspective, the real horror is more clear...

ANR, monthly

BTU, monthly

*please note, the upside targets are most certainly 'on hold', with broader downside now expected across the spring/summer.

How are ANR and BTU actually doing?

First, see key stats..

ANR @ yahoo finance
BTU @ yahoo finance

ANR is still losing money - and that is in a supposedly 'recovering US/world economy'. BTU is doing less bad, but still with net margins of -7%. All things considered, the lack of profitability is a real concern. How badly might the miners fare if the economy actually slipped into recession, whether 2015, 16.. or whenever?

Commodity prices remain relatively low - despite the huge QE from many central banks, and again it should be noted, if the economy turns lower...lower output prices are going to add even more problems to the miners.

Indeed, Copper prices are now vulnerable to slipping under the key $3 threshold. If Dr Copper has a problem, then it could be a key signal of looming trouble this spring/summer.

Copper, monthly

Long term outlook

I am very bullish for just about all mining/resource stocks in the very long term. However, the immediate  trend is clearly very weak, and if the main market does see a multi-month decline this spring/summer (back to the sp'1600/1500s), then the miners are going to see further significant downside.

For me, one of the more curious questions is whether any of the big miners are going to either merge/buy out each other in the next year or two?

Many seem to think coal is a commodity/fuel that is no longer necessary, I'd most certainly disagree with that sentiment. At some point, the surviving miners are going to recover, but that is probably a very considerable time away.

Regardless, I will be closely watching the miners - Coal, Gold/Silver, Copper, across the spring and summer.