Cloud Peak Energy Inc. (CLD), Peabody Energy Corporation (BTU): Headwinds are Impeding Growth for this Coal Miner

Peabody is projecting full year 2013 sales volumes to be flat to lower than 2012 volumes. And pricing has been weak so far this year. So, 2013 should be a bad one for Peabody. That said, the company is in solid position to benefit as coal markets improve, and year-over-year comparisons should be a lot easier in 2014.

Although Cloud Peak benefits from its relatively low-cost PRB coal, its fortunes are tied to that mining region. On the plus side, coal stockpiles at U.S. electric plants are dwindling, so domestic demand could pick up over the next year or so. The company is also working on access to new export ports that should come on line over the next few years, assuming permits come through. Both would be a big boost for Cloud Peak, but there’s more risk here than at Peabody.

A double check?
One company to keep an eye on is Kinder Morgan Energy Partners LP (NYSE:KMP), which has become increasingly interested in the coal industry. Although best known for its massive oil and gas infrastructure, it has about $450 million worth of coal terminal expansion projects under way. So, Kinder Morgan Energy Partners LP (NYSE:KMP) is helping to get more U.S. coal into foreign markets. Watch for its progress on these efforts.

With its size and scale, Kinder should have no problem executing on these projects. As companies look to tap growing demand abroad, Kinder will not only help spur the process, but it will also benefit from the industry shift. Note, too, that Kinder recently announced plans to create a coal leasing arm. As an opportunistic buyer, this move suggests that coal prices may be nearing a bottom. Midstream oil and gas infrastructure will still be the driving force here, but coal could become an increasingly important business to watch.

Headwinds
Cloud Peak offers investors a growing international profile and focused exposure to cheap PRB coal. These are intriguing attributes that should lead to improved performance in 2014. However, shipping costs and infrastructure are two big issues to watch. Peabody, with direct access to China, India, and mines in the PRB region, is a more diversified option that should interest conservative investors. Kinder Morgan, meanwhile, is providing the infrastructure to move the increasing flow of U.S. coal toward Asia. That’s a way to benefit from the trend without having to take on as much direct coal exposure.

The article Headwinds are Impeding Growth for this Coal Miner originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has a position in Kinder Morgan Energy Partners. The Motley Fool has no position in any of the stocks mentioned.

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