Monday, January 6, 2014

Seeking Alpha: Cold Weather, Low Costs, And Higher Gas Helping Cloud Peak Energy

Powder River Basin coal specialist Cloud Peak Energy (CLD) is a fairly simple coal play. Unlike Peabody Coal (BTU), Alpha Natural (ANR), or Arch Coal (ACI) that rely to varying degrees on metallurgical coal, exports, and/or thermal coal mined in Appalachia, Cloud Peak is a US-focused play on the lower-sulfur coal mined in the PRB region. If natural gas prices remain above $3.50/mmBTU, Cloud Peak should be able to log solid margins and generate good cash flow and if the U.S. gets even more stringent with rules concerning sulfur emissions, it will only help Cloud Peak.

Cloud Peak's leverage to gas prices is not lost on the Street. As PRB coal prices have marched from around $8/ton at the start of the fall to around $12/ton, so too have the shares moved up around 20%. It remains to be seen if natural gas prices will prove sticky enough to maintain good PRB coal pricing (and/or whether companies like Arch Coal will expand production), but it looks like Cloud Peak is still priced to offer a better return than normal market averages if you believe that PRB coal prices can stay at $14/ton or higher for the long term.

Continue reading here:
Cold Weather, Low Costs, And Higher Gas Helping Cloud Peak Energy

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