We have been watching the coal sector for some time. We have noticed how a “textbook” bottom formation and subsequent breakout has occurred over the last 7-8 months. In addition to the fantastic technical setups, the fundamental valuations of coal stocks are very attractive relative to the market in general. Coal may not sound that exciting given the poor outlook for energy. However, remember coal is no different than copper, bauxite, tin, crude, or even silver. It is a commodity and a currency. We have a very bearish outlook for paper currencies given the reflation efforts of world central bankers. To be honest over the next few years (perhaps a few more than we anticipate) we would rather own an ore body of a finite resource than hold cash in a bank (as it has been proved cash is infinite – central banks can print as much as they like). We also expect a weakening of the USD over the coming weeks as well, this will be beneficial to the earnings stream of US coal companies.
