094: What’s going on with Alpha Metallurgical Resources stock?
Aug 12, 2023
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This podcast discusses the recent appearance of Alpha Metallurgical Resources in Mohnish Pabrai's portfolio. The host dives into the business, its focus on metallurgical coal, and its approach to vertical integration mergers. They analyze the pros and cons of investing in a coal company and share a personal update on their weight loss journey and fitness goals.
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Quick takeaways
Alpha Metallurgical Resources is a leading metallurgical coal producer with extensive reserves and resources.
The company's impressive financial performance, strong cash position, and focus on share buybacks make it an intriguing investment opportunity.
Deep dives
Overview of Alpha Metallurgical Resources Inc
Alpha Metallurgical Resources Inc is a business focused on metallurgical coal production. While primarily a pure play on metallurgical coal, the company also has a small amount of thermal coal production. With a strong international customer base, including significant exports to India, Alpha Metallurgical resources owns 65% of the DTA export terminal in Virginia. The company has extensive reserves and resources, with 323 million tons of met coal reserves and 520 million tons of met coal resources. They are considered one of the largest metallurgical coal producers in the U.S., accounting for 21% of total domestic production.
Financial Performance and Buybacks
Alpha Metallurgical Resources has shown impressive financial performance, with significant cashflow and low debt levels. They have paid off their long-term debt and have a strong cash position. The company's management has focused on returning value to shareholders through massive share buybacks, reducing the share count by over 5 million shares in a year and a half. They have also canceled their small dividend and prioritized buybacks as they believe the company is undervalued.
Market Dynamics and Growth Potential
The price and demand for metallurgical coal are tied to the steel industry, with met coal being a crucial component in steel production. The company's exposure to international markets, particularly India, positions them well for future growth. Global steel demand is projected to continue growing, and India is expected to have a compounding annual growth rate of 4.4% in steel production. Alpha Metallurgical Resources also benefits from a large reserve of met coal, potentially providing over 20 years of production at their current rate. Their position as a low-cost producer in the industry and their focus on disciplined operations contribute to their strong market position.
Considerations and Cloning Potential
While Alpha Metallurgical Resources presents an intriguing investment opportunity, it is important to note that investing in the coal industry comes with inherent risks and cyclical dynamics. Understanding the global supply and demand dynamics of metallurgical coal is essential for accurate assessment. Despite being outside the summarizer's circle of competence, the company's financial performance, strong cash position, massive share buybacks, and potential growth prospects make it an interesting candidate for cloning. However, further research and answers to key questions are needed to assess long-term sustainability and potential outcomes.
Alpha Metallurgical Resources recently showed up in Mohnish Pabrai's 13F. I looked into the business, and on today's episode I share what I learned about Alpha Metallurgical Resources and the questions I still have. I also share an update about the podcast, and we close the episode with an update on my weight loss.