There’s a really dirty four-letter word that starts with a “C”.
No, not that one. This is a word you simply cannot say around Greta Thunberg, otherwise her ears will melt off of her face.
I’m talking about coal. And it’s about to have its moment.
One reason is that global population grows each year, and every one of them needs energy in some way or another—to keep the lights on, to fuel the machines that harvest their food, to power virtually everything that keeps life going.
Second, the world population generally becomes wealthier each year. Billions of people in China, India, and Southeast Asia are better off now than they were ten years ago. As economies develop, they consume more food, more goods, more electricity— and all of that requires more energy.
More efficient technology offsets some energy use, like switching from old-school incandescent light bulbs to LEDs.
But the general rule is that as energy becomes cheaper, people tend to use more of it, i.e. the world always finds a way to use that energy savings somewhere else.
Plus there are some technologies (AI, crypto mining) which, in aggregate, consume a ton of energy.
So overall global energy demand keeps rising.
Energy supply, on the other hand, is REALLY hard to come by. Exploring for oil, drilling, constructing power plants, building hydroelectric dams, wind turbines, etc. is capital-intensive, labor-intensive, resource-intensive, and very time-consuming.
Meanwhile, many sources of energy supply are dwindling.
Some major shale fields in the US, which were once the biggest source of growth in energy supply, have peaked.
But perhaps an even more significant obstacle to supply is how the government and hyperventilating, pearl-clutching leftists do everything they can to reduce supply.
These people who stop traffic, throw glitter bombs on priceless works of art, and deface public property, in their efforts to “Just Stop Oil” want to turn the clock back to 1750 on human civilization.
Plus there are fanatics with real political power— like California Governor Gavin Newsom— who insist on replacing conventional electrical plants with extremely inefficient wind and solar.
I like clean air and water as much as anyone, but wind and solar aren’t anywhere near as environmentally friendly as people claim. They require tons of dirty minerals and chemicals, and barely produce enough energy yield to offset the inputs.
This is why big technology companies (who are looking to power their massive AI electricity needs) are going all-in on nuclear power.
Nuclear is absolutely the power of the future. It’s clean. It’s safe. It’s absurdly efficient.
By comparison, a single kilogram of Uranium can produce as much electricity as an entire square kilometer of solar panels. The difference in energy yield is not even close.
Tech companies understand this… hence why Google, Amazon, Microsoft, etc. are investing billions in nuclear energy as the ultimate solution to power their electricity-hungry AI data centers.
But it takes time to build nuclear power plants. And the most advanced “small scale” nuclear reactors are still in development.
In the meantime, tech companies still need power. The world still needs power. Lots of it. And more every year.
We’ve already talked about how natural gas (especially US natural gas) is THE cheapest energy source on earth right now. In fact, at its current price of roughly $2.40, US natural gas is priced at the energy-equivalent of oil selling for $15 per barrel. That’s cheap.
But there’s another cheap, abundant energy source that is going to be extremely relevant in powering the world’s energy needs for the foreseeable future: coal.
Yes, it’s a very, very dirty word. Climate fanatics don’t want to hear it. But until the world builds sufficient nuclear energy infrastructure, there’s still a critical need for conventional fossil fuels. And that includes coal.
Like it or not, coal is still vital to energy infrastructure, accounting for more than a third of global electricity production. In fact, global coal consumption has consistently INCREASED over the past few decades despite the environmental backlash against it.
Coal is still an extremely efficient source of energy, compared to wind and solar. On an energy return basis, it’s about 6x more efficient than wind and solar— i.e. less energy input required per unit of output.
And if you think coal is dirty, then you should check out how environmentally damaging cobalt mines are (a key ingredient in solar batteries). Not to mention, most cobalt mines in Africa are teeming with child labor.
Coal power plants have the added benefit of being very quick any easy to build. That’s why China— in addition to investing heavily in nuclear power— is also still buying a lot of coal.
It’s also worth pointing out that coal is an essential ingredient in iron and steel production. So even though the leftists hate it, coal will likely remain a key resource in human civilization for the next few decades.
However, from an investment perspective, hardly anyone wants to touch coal. Investment funds are afraid of government blow-back and the wrath of the left… so they don’t invest in coal.
And for individual investors, coal is uncool and unpopular. Thanks Greta.
As a result, there are some coal companies out there making money hand over fist. They have a bright future with plenty of demand down the road. Yet their valuations are a total joke.
We’ve highlighted two such companies for subscribers of our investment research newsletter, The 4th Pillar.
Both have still been bringing in solid free cash flow, and paying dividends up to 15%. They have very little debt, and large cash reserves.
And if the price of coal goes up (which we expect it will, thanks in large part to fanatical environmental policy), these companies will be in for a profit bonanza.
You can buy these companies for as little as 5x or 6x free cash flow; again, they’re profitable and already paying dividends.
And in a world where there’s more conflict, less global cooperation, more trade disputes, more debt, more inflation, more scarcity, etc., a commodity as critical as energy is going to become extremely valuable.
We talk a lot about why it makes sense to invest in real assets; coal is just another example of a critical real asset whose producers are almost universally cheap right now. It probably won’t last.
