Seeking Alpha: Bukit Asam Looking To Power Through Weak Coal Prices

It's a rough world if you're a coal company. While there has been plenty of coverage regarding the fall of met coal prices and the impact of natural gas on U.S. Appalachian coal prices, the weakness really is a global phenomenon as Newcastle thermal coal prices have been sliding for about four years and now sit less than 50% below their former peak.

I have liked Indonesia's PT Tambang Batubara Bukit Asam ("Bukit Asam") (OTCPK:TBNGY) as a company for a long time now, but I was less bullish on the stock back in August after it had enjoyed a good run of outperformance. Since then, the ADRs have fallen about 25% while the local shares have dropped more than 30% in value - a bad performance, no doubt, but not so bad compared to Bumi Resources or ITMG, and still quite a bit better than American coal companies like Arch Coal (NYSE:ACI), Cloud Peak (NYSE:CLD), and Peabody (NYSE:BTU).

Is it time to sound the all-clear? While the shares do seem about 20% undervalued on a long-term basis, the share price is still very vulnerable to further weakness in Newcastle spot prices. I like the clean balance sheet and low cash operating costs, and I think the company's efforts to diversify into power generation will offer good shareholder value down the road. The real question, then, may be whether investors have the patience to see the shares dig out a new low before heading up and whether the industry will show discipline with respect to production.

Before going further, it's well worth noting that Bukit Asam's ADRs are not very liquid. Buying the Indonesian shares may or may not be an option for you, but the weak volume of the ADRs is a definite risk factor that investors must consider. While I would expect to see volume pick up if/when coal stages a recovery, illiquid stocks can be painfully difficult to exit from when things get rough.

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Bukit Asam Looking To Power Through Weak Coal Prices