Peabody Energy Corporation (BTU), Alliance Resource Partners, L.P. (ARLP): Don’t Fear New Coal Rules

What Peabody Energy Corporation (NYSE:BTU) offers investors, however, is diversification. Alliance Resource Partners, L.P. (NASDAQ:ARLP)’s business is almost exclusively focused on serving utility customers in the United States. Nearly half of Peabody Energy Corporation (NYSE:BTU)’s business comes from its operations in Australia. It also has more exposure to coal used for steel production. Its Australian operations give it direct access to Asia, from which most of the growth in future demand for all types of coal is likely to emanate.

In fact, despite the recent economic slowdown in China, Peabody expects over 60 gigawatts of coal generation to come online in Asia in 2013 alone. Increased steel production is expected to up the demand for met coal, too. While prices for all types of coal are weak right now, Peabody is well positioned to benefit from increased demand. When prices pick up, results will quickly follow.

A Hedged Bet

Another option is for investors to focus on a company that is hedging its bets. Rhino Resource Partners, L.P. (NYSE:RNO) is a good option. The company has been moving aggressively into natural gas drilling, setting itself up to benefit from increased use of that fuel. However, Rhino Resource Partners, L.P. (NYSE:RNO) is still investing in new coal projects, too, so it isn’t abandoning coal and will benefit from a coal rebound.

The biggest issue at Rhino Resource Partners, L.P. (NYSE:RNO), however, was a small distribution cut that was accompanied by the limited partnership’s general partner cutting out its distributions. That would be a major sign of weakness if Rhino Resource Partners, L.P. (NYSE:RNO) weren’t continuing to invest in its future. And, a leverage level that’s about half that of Peabody’s suggests that Rhino Resource Partners, L.P. (NYSE:RNO) isn’t facing liquidity issues.

With a yield of around 13.8%, this is clearly an aggressive play. That said, it is paying investors very well to wait for a turnaround in coal while at the same time positioning itself to benefit from natural gas demand.

Fighting Fear

The news about coal is uniformly bad right now, at least according to the headlines. Digging a little deeper shows that there are some silver linings on the clouds. For aggressive investors, Peabody, Alliance Resource Partners, L.P. (NASDAQ:ARLP), and Rhino Resource Partners, L.P. (NYSE:RNO) are all interesting ways to play the potential for a coal rebound.

Reuben Brewer has a position in Rhino Resource Partners. The Motley Fool recommends Alliance Resource Partners, L.P. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Don’t Fear New Coal Rules originally appeared on Fool.com is written by Reuben Brewer.

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