Supply Side Shock in the Making, page-43

Morning Guys,

I thought I'd share this to add to the discussion. The below cut-and-paste was from the most recent ARCH (US) Quarterly CC, in answer to an analyst question.

This is the second part of an answer which, to give it context, explains what ARCH Management / BoD will do if things get "too hard" in terms of growth projects (capital / regulation / litigation):



The relevance for NHC, and the sector, is that these long life, fully permitted and producing mines have a very profitable alternative if ESG idealism gets too punitive to run a "continuing operations" business model - transition to a "run off" business model, returning huge amounts of FCF to shareholders.

The perverse outcome will be that if enough companies do this (voluntarily or forced) then the price of the underlying commodity is going to continue to rise as demand > supply, further enhancing the returns for all shareholders within the sector - those investing in the "run-off" companies and those investing in the diminishing number of "continuing operations" companies.

This is also happening in another large chunk of my portfolio - North American midstream pipelines.

I am starting to view ESG activism as the greatest thing to have happened to the O&G and Coal sectors from an investor perspective.

Kuppy has put out a quick piece on his "Adventures in Capitalism" blog as this pertains to the Oil sector. However, you can equally apply his logic to coal, and possibly more so. The basic premise is that due to misplaced ESG restrictions vs. LT global demand, the sector (and commodity) will do extremely well over the LT.

Rick Rule's long standing mantra of "The cure to high prices is high prices" may no longer hold in this new ESG restricted world.

Cheers
John