Whitehaven Coal, Rio Tinto and Linc Energy: What you need to know about coal

Watch for stock opportunities in the coal industry as it weathers change.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published October 16, 2013 1:54 pm AEDT

Coal mining currently is going through a phase of restructuring and consolidation, reacting to low spot prices. Coking coal, used in the production of steel, may see a rise as China data shows increased steel exports. Thermal coal is following its downtrend, and although energy usage amongst the world's largest importers will increase, moves to cleaner energy resources like natural gas may keep price trends sedate.

Here's what you need to know about the news on three energy producers.

Whitehaven Coal (ASX: WHC) is starting up its new Maules Creek mine in Narrabri, New South Wales, which is projected to produce annually 13 million tonnes for its 30-year estimated lifespan. Production should begin early 2015, and the company has just signed an agreement with a Leighton Holdings (ASX: LEI) subsidiary to construct a new $767 million rail line to link up with existing track for delivery to the Port of Newcastle.

The Kestrel South mine, owned by Rio Tinto (ASX: RIO), was officially opened this month, and is projected to increase the total Kestrel mine production of coking coal to 6 million tonnes per year. The lifespan of the total Kestrel mine site is estimated by this new addition to be extended by 20 years.

Separately, the company has sold off its Blair Athol mine to Linc Energy (ASX: LNC) for what was reported to be a $2 upfront cost, but Linc Energy will be taking on other costs such as restarting the mine and obligations for a $84 million bond to held by the Queensland government for site rehabilitation when the mine is expected to finally be depleted in about 10 years.

It's estimated that it could produce 3 million tonnes of coal annually for up to 10 years. The company's subsidiary New Emerald Coal will oversee the restart of the currently closed down mine, and it is planned to be back in production in six months. The parent company is planning to spin off its coal assets soon into the New Year in conjunction with its plans of delisting from the ASX, and listing on the Singapore stock exchange.

Foolish takeaway

With all this activity of cost-cutting, selling and buying of mine assets, and the general market concern for the short-term and mid-term coal industry, astute investors will be running the ruler over the industry participants to look for when share prices move towards companies' intrinsic values.

If a bottoming out of the low coal prices occurs, and demand increases by more than expectations, share prices can improve, and the leaner, more cost competitive stocks will have better rates of return.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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