2 Plays on Ole King Coal

The U.S. coal industrys long-term prospects look increasingly attractive. Coal
is, of course, an essential commodity in the U.S., where it accounts for half of
all electricity generation. But its also an essential in Asia. According to the
2011 BP Statistical Review of World Energy, the Asia-Pacific region consumed
more than two-thirds of the worlds coal last year. Much of Asias coal demand
comes from China, which consumes almost half of the worlds annual coal output
more than the Americas, Europe, the Middle East and Africa combined. Since 2002,
Chinese coal use has more than doubled, while coal demand in industrialized
economies has flat-lined. On the surface, Chinas large and rising share of the
coal market doesnt appear to create an opportunity for U.S. coal companies.
According to the BP statistical review, China is self-sufficient in coal. In
2010, it produced 1.8 billion tonnes of coal and consumed about 1.7 billion
tonnes (both on an oil-equivalent basis). But in reality, China must import coal
because much of its own reserves are lower-quality coal. Whats more, Chinas 48%
share of global production isnt commensurate with the countrys 13% share of
global reserves. At current production rates, China will deplete its remaining
reserves in 35 years 83 years before the world runs out of coal. With limited
domestic supplies of higher-quality coal and rising demand, China is likely to
become increasingly dependent on imported coal. The U.S. should be a big winner
here. With 28% of the worlds known reserves, or 241 years worth of domestic
demand, the U.S. is the Saudi Arabia of coal. My favored coal plays for you are
two high-yielding coal master limited partnerships (MLP), Alliance Resource
Partners (NASDAQ: ARLP ) and Natural Resource Partners (NYSE: NRP ). Im adding
both stocks to my Common Stock Monster Master List. I have followed and advised
both ARLP and NRP in the past. Alliance Resource Partners is the fourth-largest
coal producer in the Eastern U.S. and the 10th-largest in the nation. As of
year-end 2010, the company owned almost 700 million tons of coal, or 24 years of
reserves at current production rates. Alliance was the coal industrys first
publicly traded MLP. Since the IPO, the stock has delivered a compounded annual
return of 28%. Alliance shares yield 5.2%. Whereas Alliance Resource Partners
owns and mines coal, Natural Resource Partners is in the coal royalty business.
Coal miners pay Natural Resource Partners a fee to mine coal from the companys
properties. NRP owns, manages and leases 2.3 billion tons of proven and probable
coal reserves in three major regions of the U.S. The coal royalty business is a
more conservative way to gain exposure to coal than investing in coal miners.
This article first appeared on MoneyShow.