I am trying to hand you a gift here, so that you make enough money so that EVERY reader can invest in my mutual fund when we launch in 2009 (right?) - remember, coal is going to be next year's fertilizer... with CNBC anchors aghast at coal and wondering "where did this all come action come from, I thought the bubble ended last year with that stupid potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] I did a full analysis in that entry comparing the 2 names and potential profits/upside.And....Missed fertilizer? Get coal. So you can tell your friends next year you were there first. Come back in 1 year, book some profits, send check to my fund and we are all happy. In the meantime, you can sort of laugh quietly to self when CNBC tells you it's time to get out because the dollar will be going up 7% vs the Euro in the next 2 months.Rarely do I pound the table or use that sort of language (above) but this was just a totally missed opportunity by the Street.... further, in this piece [May 5: Alpha Natural Resources Booming Earnings - Just the Start] I wrote
As I keep saying, metallurgical coal is about where fertilizer was 15 months ago - we have a long wave of earnings estimates upwards coming in the year+ ahead, with the biggest pushes up in earnings coming in about a year. Alpha Natural Resources (ANR) is up about 7% premarket as I check off a fabulous earnings report.... just getting started in a long and winding road up over the next year I believe.So the "wisdom" spouted from every corner at the time was buy retailers, financials as this is the early cycle bottom and the strong dollar will hurt commodities... I was saying there was no strong dollar - we are in major danger here and no one wants our dollar. But the hedge fund computers were buying that junk for about 7-10 days before selling it all off to suckers who listened to the conventional wisdom.
I wrote a piece on fertilizer in October 2007 about just how wrong these analysts (who are supposed to be industry experts and just follow one sector) were... when a no name like me could see the coming earnings explosion [Oct 23: Analysts Still Doubting the Fertilizer Stocks] - since then estimates for many of these companies have gone up 2-3x in the out years. Replace the word fertilizer with metallurgical coal and check back in 15 months; once again analysts are so... so... so... wrong. And this creates opportunities for us, before CNBC jumps on the bandwagon next Valentine's Day proclaiming the bubble that is coal.
As for the thesis that coal was the next fertilizer - well it was a major hit - but it appears it has come to fruition much earlier than I anticipated. But anyone doing their homework ahead of time could see that large moves were coming - while I wrote those 2 entries in May - in April I was commenting about the huge contracts being signed/discussed [April 8: Posco Agrees to 200% Coal Price Increase] and [April 8: ArcelorMittal Sees Metallurgical Coal Prices Rising 150-200%] And this folks, is how by doing homework, you can (a) get in ahead of the crowd and (b) have conviction to hold / buy more - when the stocks are selling off and the talking heads are promising you the commodity play is over due to the "strong dollar". (people always email me asking "where" I get my ideas - here is a case example - just read, investigate, read, read, read, think, and read more. Then proceed to ignore almost everything coming from "pundits" aka used car salesmen with nicer ties, and top 20 business school degrees.)
With that said, while I was expecting big moves in the coming year, I did not think it would come in such a compressed manner. These moves are breathtaking - these are 1 month charts of the 3 main names in the metallurgical coal area that I follow; the gains are from the beginning of May when I wrote these 2 piecesAlpha Natural Resources (ANR) +50% in 3 weeks
Massey Energy (MEE) +40% in 3 weeks
Walter Industries (WLT) +40% in 3 weeks
Now, I've been cutting layers out of the 2 positions I've held, Massey Energy and Alpha Natural Resources along the way, and we are (much like everything in the sector) approaching parabolic status. But just remember the conversation 3 weeks ago when everyone was saying, the run is over because the dollar is strengthening. The next time the Federal Reserve meets the same "run" will happen because "they" will say the Federal Reserve is fighting inflation. How? By putting "strong language" into their statement.
I don't know about you, but I have never seen "words" bring down the prices of groceries or fuel. Only in Wall Street logic does it work. And when that happens, commodities go down - and banks, retailers, and assorted junk goes up. On the hedge fund computers saying "this is what must happen". Until it reverses a week or two later.The perfect storm is developing for US coal, especially metallurgical - until/unless China stops buying steel as if it is nobody's business.
Just yesterday steel giant Mittal (MT) bought a 14.9% stake in another metallurgical coal producer overseas - with the prices for iron ore and metallurgical coal going through the roof, it behooves the steel companies to secure their own supplies. So on top of ALL the other positives in this group, we now have potential takeover bids coming in the next year.
- ArcelorMittal, the world's biggest steelmaker, may offer at least A$4.2 billion ($4 billion) for Australia's Macarthur Coal Ltd. to secure supplies as prices for raw materials surge.
- ArcelorMittal may acquire Brisbane-based Macarthur, the world's biggest maker of pulverized coal used by steelmakers, to increase its self-sufficiency in coal beyond 15 percent after prices of the steelmaking raw material tripled this year.
- ``I would assume they will go for full control,'' Andrew Keen, an analyst at Sanford C. Bernstein in London who has an ``outperform'' recommendation on ArcelorMittal, said today by phone. ``This could become a hotly contested situation because a lot of people have very deep pockets at the moment.''
- Buying Macarthur would take ArcelorMittal's coal self sufficiency to about 20 percent, compared with the 45 percent coverage it has in iron ore, another key raw material, Bernstein's Keen said.
Again, this all works out... until energy prices get so high, and commodity prices so high it no longer makes sense to buy steel. [May 17: Fast Rising Steel Prices Set Back Big Projects].
Our "World of Shortages" theme continues to deliver big benefits for the fund. [Dec 6: Coal Stocks Quietly in a Bull Market] When the rest of the herd gets on the coal train over the coming year, we'll already have been sitting in it since September 2007. With that said, this group is due for a correction....
Disclosure: Long Massey Energy, Alpha Natural Resources in fund; long Alpha Natural Resources in personal account
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This article has 12 comments:
climber
climber
The $100+ dollar/barrel oil prices are a blessing in disguise, because they make alternatives economically possible. But they will kill us (potentially literally) if there is no organization around developing the alternatives.
This is coupled with a collapse of our financial system. That is the 1, 2 double punch and you are out.
We need, in addition to the above energy scenarios, to TakeBackTheFed.com
If we do not get off our duffs, we will truly be in trouble. NOW IS THE TIME TO ACT.
Even with that said, I think it's clear that the coal stocks with the most "multi-bag" potential are by far and away WTN and GCE (Grande Cache Coal). They are the only PRODUCING met coal pure plays that US investors can easily access. GCE has less production (approx. 2 mil tons) and a little less growth potential than WTN, but they are low cost producers and have far fewer shares outstanding (less than 100 mil) fully dilluted. I'd personally own them both!
Hudlow
P.O. Box 2629, 4161 Mary Lou Street, Pahrump, Nevada 89041
alliedscience.org Telephone: 775-727-0866 E-mail: grhudlow@yahoo.com
Form Project Summary
Project Name:
General Introduction:
Grant Hudlow FOUNDER,CEO
One person can make a difference, has been the driving philosophy for the life of Grant Hudlow. It was this mind set that led to the birth of Allied Science, Incorporated in 1989. Now, nearly two decades later, with a financial commitments base exceeding $7.5 billion, Allied Science, Incorporated carries it’s message of wholesome, values- oriented products across the United States, Canada, and Europe.
“When we reach people, if we can sell a product, great, but we are first and foremost about spreading our message, “ says Mr. Hudlow. “We want people to know that their is an alternative to the sex, violence and profanity that is in so many homes today.”
Mr. Hudlow attended California Institute of Technology and the University of Nevada at Reno
Before spending 13 months on the Korean DMZ, then an industrial turn around expert with Procter & Gamble, Stewart Warner, Fuller Paint and Fairchild Semiconductor.
Mr. Hudlow left big business to create Allied Science, Incorporated after realizing the need for uplifting, wholesome discussions that carry a positive messages. “I knew this was something I had to do,” Mr. Hudlow says. Creating Allied Science, Incorporated was more of an important work decision than a business one.”
Mr. Hudlow has since named the chemistry to make this new industry possible, led the design engineering, sold $7,500,000,000 in orders for factories and sold $7,000,000 in orders for the products from the factories around the world. Armed with the belief of his convictions, he has grown Allied Science, Incorporated from a dream to a major international corporation with more than 200 alliances.
Mr. Hudlow enjoys assisting young people in ther entrepreneurial aspirations as well as working with and training school teachers and other professionals. His professional accomplishments and community service have been recognized by local churches and local civic organizations.
Mr. Hudlow has two children and one grandchild.
A little know fact about Mr. Hudlow is his love numbers and statistics. Retired CEO S.B. Devlin says, “No one sees through a problem faster than Grant. He’s a true statistical genius.”
Terry Ellis, Sr.
has valuable engineering and construction contacts. He has hands on management and business experience with Fluor Daniels, Brown & Root and others
Dr. Chuck Baroch,PhD Chemical Engineering, is a retired CEO with Babcock and Wilcox.
Dr. Davis Clements, PhD, is a Chemical engineering Professor at the University of Nebraska in Lincoln, Nebraska.
Gary Smith is a highly regarded Chemical and Petrochemical Engineer with quality contacts and broad work experience. His experience ranges from blending his own gasoline for resale to employment with major chemical companies such as Dow, Dupont and Union Carbide. Mr. Smith has a BS and MS in Chemical Engineering from the Georgia Institute of Technology. Mr. Smith assists with the engineering and construction of the total project and with the management of the complex.
Lawrence G. Erskine, President Bionomics International,Inc., enjoys a solid management and marketing reputation in the USA, China, Japan, Singapore, New Zealand and Australia. Mr. Erskine owns and operates a Hazelnut business in the state of Oregon and ships finished (value added) Hazelnut products around the world. He imports and exports equipment. Mr. Erskine spent 10 years in management with General Foods Corp. He attended the University of Oregon, obtained a BA in marketing from Northeastern University and attended an accelerated MBA (equivalent) course from Harvard University, via General Foods Corp.
Al Avolicino coupled his education in art with his management and leadership skills to become marketing and advertising manager for some of the largest companies in the U.S. Mr. Avolicino will devote his time to establishing contracts with waste generators and creating the necessary educational campaigns. He will hire and train the marketing and sales people. Mr. Avolicino has enjoyed management positions with such companies as General Foods Corp., Servatron,Inc. and Farmer Brothers,Inc.
Frank Lopez CPA, Lopez and Company,Inc. will be handling the tax and accounting responsibilities for the projects. (Background an resumé available on request)
The Allied Sciences, Incorporated team’s strategic alliances include work with the following:
Elko City Council, Phenol brokers all around the world, Economic developers all around the world, BISNIS, USDOC, USDA, US EX-IM Bank, University of Nebraska, Lincoln, UNLV, UNR
3. Funding Request:
$70,000,000 to buy $100,000,000,000 of coal on the surface (that can be mined for $.85 a ton) plus $100,000,000 to build, debug and operate a factory that makes $2,000,000 a day by converting coal to 100,000 barrels a day of gasoline and diesel that sells for $.55 a gallon wholesale.
Term:
First tranche: $170,000,000 (to buy the coal $70,000,000; to get environmental permits $7,000,000 engineering fee: to buy the equipment $32,500,000; to build the plant $25,000,000 labor and $15,000,000 contractors fee; to debug $8,200,000; operating cost to profitability $12,300,000.
Community Impact:
Allied Science will bring 1000 new jobs initially; A $50,000,000 annual payroll; A chemical engineering lab to the local community college; Computers to local children; And money for local infrastructure as needed. In a nutshell, Allied Science, Inc. serves the community by contributing a significant portion ( which has been factored into the base product cost and does not affect returns) of the revenues generated from the factory going to support local charities, help fund community City and State Public Services, as well as supporting biotech and medical research organizations.
Environmental:
With the allied Science,Inc. facilities, there is NO burning, therefore NO smoke stacks. NO smoke stack means No air pollution. The residuals are distilled water, which is evaporated, and an ash which is stored and conditioned for one year and is used as a non-toxic powder to strengthen roads, make 19,000 lbs. concrete, and for strengthening wallboard.
Specific Performance:
From funding, Three months to buy the coal ; Two months to get environmental permits ; Three months to buy the equipment ; Six months to build the plant; Two months to debug ; Three months to profitability.
Exit Strategy:
At end of nineteen months after funding, Allied Science, Incorporated will contractually begin to return 150% of the amount funded for each project. Allied Science, Inc. expects to complete this process within two years of receiving funding.
Supporting Documents:
15 pages of supporting documents are available on request as an attachment as needed.
10. Letter of Introduction from Bank available at later date.
* Walter Industries also announced today that it has settled approximately two million metric tons of its 2008-2009 metallurgical coal tonnage in excess of $315 per metric ton FOB Port. The Company expects to settle another 1.1 million metric tons over the next few weeks in a similar price range and has an additional 0.6 million metric tons available for the second quarter 2009 that will be priced later this year.
* "Continuing supply constraints and robust demand in the international steel market have set the stage for ongoing strength in metallurgical coal pricing beyond the 2008-2009 contract year. With about one million tons of incremental production capacity scheduled to begin coming online in the second half of 2008 and approximately two million additional tons coming online in the first half of 2009, we are very well positioned to take advantage of the strong market for our coal."
So folks they are selling their met coal for $315, and taking it out of the ground for under $50. Want to see how they project margins for met coal for next year?
Q1: $8
Q2: $20-$21
Q3: $75-$81
Q4: $90-$96
So as you see the "strong dollar" is not going to do diddly unless it appreciates by say 750-900% by next year at this time... at which point I'd still be a bull on coal. As long as those Chinese want steel at any price, we are happy campers. I am trying to hand you a gift here, so that you make enough money so that EVERY reader can invest in my mutual fund when we launch in 2009 (right?) - remember, coal is going to be next year's fertilizer... with CNBC anchors aghast at coal and wondering "where did this all come action come from, I thought the bubble ended last year with that stupid potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] I did a full analysis in that entry comparing the 2 names and potential profits/upside.
So this 1 blog entry here, will pay for your yearly subscription to my website - that's how much you can make. What's that? It's a free site? Ok ok... details details. If I did charge - you'd be making it up in spades from this 1 entry.
Missed fertilizer? Get coal. So you can tell your friends next year you were there first. Come back in 1 year, book some profits, send check to my fund and we are all happy. In the meantime, you can sort of laugh quietly to self when CNBC tells you it's time to get out because the dollar will be going up 7% vs the Euro in the next 2 months. And when the stocks fall because the hedge fund computers say it's time to buy Macy's instead... you just shake head in mock horror.
(please note the above is not advice from me, telling you, what to buy because that could put me in liability - I'm just giving you a theoretical situation - if you buy coal stocks and lose 90% of your holdings that's your fault) ;)
Long Alpha Natural Resources, Massey Energy in fund and personal account