"Thanks for the post, excellent! You buying any other coal...

"Thanks for the post, excellent! You buying any other coal stocks?"

@Backdraft ,

No, NHC is the only coal stock I've been buying [*].

This sector is notorious for destroying the value of shareholder capital because board of mining companies have a long-demonstrated tendency to invest shareholder capital poorly.

This is largely a function of the inherent risks in the business of mining - technical, geological, opex, capex, logistical, pricing, market cycle.

Capital-intensive businesses with zero pricing power and finite asset lives - that's the mining business model. Not at all very attractive as long-term investments.

Which is why I hardly ever own interests in mining companies.

The only rare exceptions are like now, when I can identify some very obvious market dislocations which offer highly asymmetric upside-vs-downside investment opportunities.


The reason I own NHC and no other coal stock is because NHC represents the least risky proposition to me.

It has:

1. an established, efficient, simple-to-operate, open-cut operation close to infrastructure, and which is not cum- any major calls on capital for development or expansion;

and

2. a board of directors which is expressly mandated to harvest the surplus capital that gets generated, instead of re-deploying it into value-destroying "empire building".


In summary, investing in this space comes with layers of risk no matter how it is approached; I have no desire to dial up that risk even higher by investing in companies that are still busy exploring for coal, or whose mines have limited remaining life, or are about to commission new infrastructure, or whose managers feel the need to embark on other major growth initiatives using shareholder funds to do so.


[*] I have also been buying AZJ in recent days, but that's more a fixed-income security than a direct coal pricing leverage investment, which is what NHC is. AZJ offers far lower investment return opportunity than NHC, but then again it is less risky, so based on risk-adjusted investment return potential, I see these two stocks as being not overly dissimilar.

.