Mining for Coal's +267% Returns

Mining for Coal 's +267% Returns

Published: June 16, 2008

Oil prices have been grabbing the majority of the headlines lately, but it may be a different energy sector that grabs the majority of the gains in the foreseeable future. The price of coal, or "Black Gold" as they're are now calling it on Wall Street, increased by +73% last year. And the forces driving up prices look like they will continue, making this sector attractive for new investors.

Demand For Coal is Growing Fast
As energy-hungry emerging-market nations ramp up their demand, coal has been the fastest-growing fuel source on the planet. Over the past five years, global consumption of coal has grown by 1.4 billion tons, or about +30%. That's double the +16% growth in natural gas and more than triple the +9% growth in oil.

Last year alone, the amount of coal-fueled generating capacity added in China was equivalent to the power grid of the entire United Kingdom. And worldwide, the dozens of plants currently under construction are forecast to boost global demand by more than 500 million tons per year in the near future.

Coal Supplies are Constrained
In the meantime, flooding in Australia and power outages in South Africa have put a major dent in the available supply. Production in China has been hampered by everything from blinding snowstorms to crippling earthquakes. Worse still, government officials have also been forced to close over two hundred mines for safety reasons.

The situation has become so precarious that over 30 Chinese power plants have had to shut down lately for lack of fuel -- and many regions of the country have dwindling inventories equal to a supply of seven days or less.

Analysts Project Coal's Continued Run
Against this backdrop, coal prices have actually been rising faster than crude oil lately. Last year, thermal coal futures on the New York Mercantile Exchange spiked +75%, the sharpest increase of any energy commodity. Since then, prices have climbed another +40% to reach $80 per ton -- and some forecasts have prices topping $100 in the near future. As for metallurgical coal which is used in the production of steel, at least one analyst is projecting prices to vault to as much as $250 per ton by 2010.

The coal industry remains in a cyclical upswing, and coal stocks continue to gain favor on Wall Street. The Stowe Global Coal Index has had a total return of +267% since 2005 -- that beats the S&P 500's +23% returns for the same period by more than a 10-to-1 margin.

A Diversified Play on Coal
In a recent issue of his premium newsletter, The ETF Authority, editor Nathan Slaughter shares a compelling new idea for investors looking to tap into this burgeoning sector. This brand new, cost-efficient, fund is up +34% since its debut just four months ago. How can you argue with an annualized gain of +148%?

To learn more about The ETF Authority, including how to access the profiles of this fund, please visit this link.

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