Peabody Energy Corporation (BTU), Arch Coal Inc (ACI): Coal Is Screaming Value

The vast majority of Alpha Natural Resources, Inc. (NYSE:ANR)’ mines are found in older areas, and its gross margin of 15.6% is significantly lower than Peabody Energy Corporation (NYSE:BTU)’s. Alpha Natural Resources’ older mines can be a pain to run, and recently, the company was forced to temporarily halt production at its Cumberland Mine due to geological difficulties. Older mines face falling yields and rising costs. Political and environmental constraints mean that it would be very difficult for the firm to sell its current mines and develop new ones in more cost effective regions.

Conclusion

Coal miners like Alpha Natural Resources, Inc. (NYSE:ANR) and Arch Coal Inc (NYSE:ACI) are trading in deep value territory with P/B ratios far below 1. The problem is that these companies are stuck with high cost mines and are expected to lose money for the next couple of years. Peabody Energy Corporation (NYSE:BTU)isn’t a deep value play as its P/B ratio is around 1, but it is much closer to profitability and a better play on growing Asian energy demand.

The article Coal Is Screaming Value originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.