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Historic Reports
Larry Myles Reports
February, 2011
The
Penultimate Reality-Based Investment...
Power to Prosperity through Coal
For two years we have followed the
instinctive and rational path of
reality-based investing by
subscribing to the now intimate and familiar
precepts supporting the business of
gold. When it comes to gold, time is
the great narrator, proven out once again as
many of us have attained the brilliance of
prosperity, while others sat vexing
in the shadows awaiting government to
provide a climate for recovery.
Upon
closer inspection, we have been able to
manifest prosperity; which is nothing more
than finding reward through the exercise of
individual effort and action. Whether you
know it or not, immersing yourself in the
business of gold has allowed you to
prosper by coming to terms with reality and
extending that reality to your
investment portfolio. It is now time to
extend the proven reality behind the
business of gold to an investment
sector that should be considered as robust
as the currency metals: Coal.
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Reality-based
investing:
The irrepressible and insistent
principle that allows the investor
to create a realistic investment
environment resulting in rational
decisions based on reason,
hard fact and solid market data.
The alternative of course is a
belief in faith-and-hope-based
investing. Dare I use the U.S.
sub-prime mortgage debacle as an
obvious and negative example? |
Hard Fact and Solid Data: Invest in Coal
I could easily go off on a tangent here,
comparing the final days of the presumptuous
and futile Keynesian Economic Theory to the
final (and hideous) days of the Windows
Vista operating system. But I have much
ground to cover, so allow me to simply say
that Microsoft could no longer avoid the
years of compound errors, and were finally
forced to come up with a stable and
steadfast operating system (Windows 7). The
western economies on the other hand,
continue to practice faith-and-hope
while relying on a system of ‘patch and
pray’ as they tinker with an unworkable and
deeply flawed economic model. To compound
their woes, western governments continue to
flirt incessantly with anyone that has a
windmill or solar panel, while wilfully
ignoring the reality of other global
economies that base their prosperity on the
legitimate and logical use of coal.
If my disdain is showing, pardon me. How can
anyone who subscribes to reality based
investing ignore the high levels of wealth
and distinction being enjoyed by India and
China? The confident roar and ring of their
economies are noteworthy to say the least.
It is no coincidence that India and China
are heavily invested in the transition back
to coal. And I am sure there are namby-pamby
investors out there who rather this was not
the case; but an increase in coal powered
energy is not only inevitable, it is
happening right now. In addition, it is
expected to grow by leaps and bounds!
Reality-based investors are well advised to
not dally, and either enter the sector now,
or increase their exposure to coal. I base
my conclusions entirely on hard numbers and
compelling market data.
The strong upward momentum of coal prices
dictates adding coal mining stocks to
your portfolio. Borrowing from the
business of gold, consider a coal
company with both assets in the ground, and
a well-vetted management team. At this
precise moment, there is absolutely no
reason to invest in a coal exploration
company.
The demand for coal continues to surge ahead
of recent hard data put forth by the World
Coal Institute; including clear evidence
that the use of coal has risen dramatically,
and has outpaced any other fuel. Even more
compelling, the use of coal is expected to
rise by over 50% over the next fifteen
years. Worth a note: developing countries
will be responsible for over 90% of this
increase.
Rather than become bogged down discussing
America’s ridiculous and arguably draconian
efforts to remove the pride and promise
right out of their domestic coal industry;
or applaud Germany for renewing a common
sense approach to the most abundant energy
source on the planet. Let us again focus on
just two countries – China and India, and
how their rise to economic prosperity has
come about thanks mainly to the usage of
cheap and abundant energy - coal.
China Initiates Prosperity
Right off the mark, the coal market in China
is nothing short of spectacular. China is
both the world’s largest producer and
consumer of coal. China continues to derive
nearly 80% of their electricity from coal.
Over the last decade, coal has allowed the
country to double energy output. A nice
stat, but look closer and consider the
ramifications: Coal generated power has
literally turned on the lights for the first
time to more than 400 million people in the
country. Besides first-time personal
consumption, think about what this means for
the ability to expand China’s already
impressive manufacturing capabilities.
Coal production surged in China last year by
over 250 million tonnes; and as impressive
as that is – according to the country’s
National Coal Association, coal demand
is on track to increase by nearly 4 billion
tonnes by 2015! Note: If the global economy
returns to health, expect China to up the
ante, resulting in an increase in both
domestic coal production and coal imports –
especially the
demand for anthracite.
Regarding coal in China, I have only touched
lightly upon the available data. Rather than
subject you to the reams of readily
available information, I would like you to
consider the implications of just those
400,000,000 people in China who have
recently been introduced to electricity in
their homes. Then consider what this will
mean to China’s domestic economy, as these
very same people strive to increase their
personal worth, allowing them to make
first-time purchases of products that plug
into the wall! The market potential is
mind-boggling, and it is all thanks to coal.
Note: China’s net coal imports are
expected to increase by a whopping 63
percent to more than 200 million tonnes this
year alone.
India’s Blowout Demand for Coal
Asia’s third most important economy will
need 800 million tonnes of coal by 2012 and
demand is expected to rise to 1200 million
tonnes by 2016. This rivals the Chinese
appetite for coal, to the point where demand
will triple over the next 15 years. At this
rate, domestic coal in India will be
exhausted within 30 years. And as China is
already positioned to become the world’s
dominant importer of coal over the next
decade, things should become real
interesting for India. They will have to
mull over everything, from increasing
private sector involvement in the
development of both national and foreign
sources for coal, as well as boiler
conversion to accommodate the influx of
imported coal.
I am heartened by the thrust of India’s
leaders as they remain focused on economic
improvement and progress; acknowledging the
need to develop alternative energy sources,
all the while agreeing that their economic
dynamic remains rooted in coal. Reason:
India’s use of coal accounts for well over
40 percent of total electricity needs. India
expects coal to remain at the forefront of
domestic power generation for decades
to come.
Worth a note: Coal India is moving
aggressively to purchase coal mines in
Australia, South Africa and is even scouting
buying opportunities in sleepy USA. Coal
India would like to close out 2011 with an
additional 100 million tonnes of coal under
their sway, on the way to their target
number of 300 million tonnes by 2017. But
hang on! Coal India has said projected coal
demand for 2031 would approximate 2,500
million tonnes.
As stated, India’s leadership remain a
responsible and realistic lot; they
understand that coal remains an inexpensive
and abundant source of energy. India’s
economy continues to thrive and the country
leaders are acutely aware their national
prosperity is dependent upon coal.
Prospering From the Coal Boom
Investing in coal can take many forms; coal
ETF’s are a great way to gain exposure to
the coal boom, as well as hedge risk while
adding diversity to your portfolio. Not my
first choice, nor is investing in large cap
miners. I am looking for junior coal
companies that are close to full operation,
which includes mining, wholesaling, coking
and washing. But at the end of the day, the
mining of hard coal (anthracite)
should give us the maximum bang for the
buck. I have presented the hard data and the
necessary numbers to alert you to the
facts; the growing energy demand for
coal is the impetus to attract all
reality-based investors.
Along with a handful of positioned, small
and select oil and gas juniors; all
reality-based investors should seize upon
the coal story. There are more than a few
compelling opportunities in the junior coal
sector. And as we in the business of gold
lean toward high-grade gold deposits, I
highly recommend researching coal companies
that boast a sizeable anthracite
deposit. Read:
The Demand for Anthracite.
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Note: The move to coal is not to be
denied. Coal prices have more than
doubled over the last year and are
expected to trend higher. I have
only mentioned two of the BRIC
countries – China and India.
Remember: All of the BRIC
countries (Brazil, Russia, India and
China) are moving toward an era of
sustainable prosperity; all
thanks to embracing a rational
energy policy based upon the
essential and predominating
reality of coal. |
With global demand for coal on the increase,
the demand for anthracite is
at an all-time high. One company in
particular, Eastcoal Inc (TSX.V: ECX)
has recently announced their mine
construction is right on schedule and on
budget. The company has updated their
development plan and subsequent milestones
will include drifting into the coal seam,
scheduled for April 2011, and commencement
of construction of the first longwall, in
July of this year. Production from that
longwall should commence in early 2012.
Additional longwalls will be phased in
thereafter.
Eastcoal’s Verticalnaya Mine is located in
the historic Donbass region of extremely
coal-mining friendly Ukraine; a country
aiming to reanimate the roar and ring of
their industrial base, and keen to follow
the successful energy model of the BRIC
countries to fuel this growth. Obviously I
would expect you to do your own due
diligence, but an important note: be
prepared to peruse a pair of technical
documents confirming 76.2 million
tonnes of proven hard coal
(anthracite) in a past producing mine with
nearly all infrastructure intact.
Larry Myles
Larry Myles Reports
604-408-7600
1-877-405-7600
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Larry Myles is neither a
geologist nor a financial analyst. I do not
purport to offer personal investment advice
nor recommendations. While all statements of
fact are derived from reliable sources, an d
are believed to be accurate, I make no
warrant that they are so. You must do your
own research and check statements of fact
for yourself. My opinions are precisely
that, my opinions. I do not accept any
responsibility for any gains or losses you
may experience resulting from actions taken
based on my opinions. If not otherwise
qualified, you should consult with your own
personal financial advisor before engaging
in any investment activities. Larry Myles
Reports does not provide individual
investment advice, act as an investment
advisor, or individually advocate the
purchase or sale of any security or
investment. Larry Myles may actively trade
in the investments discussed in this
publication. Larry Myles may have a
substantial position in the securities
recommended and may increase or decrease
such positions without notice.
I do not know
your personal financial circumstances. I am
not your personal financial advisor. You
must do your own due diligence. By entering
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acknowledge and accept the foregoing.
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