ACI had really lousy results. Costs are really catching up to the carbon community. Suddenly, they are victims of their own inflation games. They slashed their divvy from 12 cents to 3 cents to preserve $68 million a year in liquidity. With coal spreads back near $1, they shouldn't be paying any dividends. Any time these guys try to implement a dividend, the bottom falls out.
It really brings me back to the point which is that commodities should trade at a pretty tight spread to their marginal cost of production over the long haul. Nat gas and coal are getting there. Oil prices are light years ahead of their marginal costs. Same with gold. When companies like ACI fade into oblivion, maybe there will be some good opportunities. Coal companies make for terrible investments. They had their 15 minutes of glory with peak oil a couple years ago at $148 when ACI was a $70 stock. What happened to all the stories they were circulating about China building a new coal factory every day, or was it every week?<g>
I thought that AA might be a good cross for BAC, but ACI might prove to be a better target for a pair trade. Long BAC and short ACI from here could be a good market neutral trade over the next 6 mo's. I expect the rest of the coal companies to come in with equally poor results for the rest of the year. Only thing they can do is cut production to make up for the lack of demand. ACI said they are cutting 25 million tons of production this year to match lower demand. I wonder how many other cuts are on the way.
Peak oil, peak nat gas, peak coal - all a bunch of BS. I blame Australia for all the coal and iron ore inflation rhetoric the past couple years. Their currency took a beating today with the Aussie dollar getting smacked from the 50 bp cut. They are in deep shit with basic material costs plunging this year. I think they have a lot more rate cuts on the way this year from 3.75% which was down 50 bp's today. |
