Tags: gil | Shidlo | Better | Contrarian | Play | Oil

Shidlo: A Better Contrarian Play Than Oil

By    |   Tuesday, 30 Nov 2010 08:33 AM

Nathan Rothschild, a financier, global investor and heir to a prominent family, decided to invest big time in coal.

Vallar PLC, a London listed company, raised around $1 billion in a July IPO with the objective to invest in the mining of metals, coal and iron ore.

Nathan Rothschild and James Campbell, former chief of Anglo American, are the leaders of Vallar PLC.

Vallar said it will invest $3 billion in two Indonesian coal-mining firms (PT Berau Coal Energy and PT Bakrie Brothers PT Bumi Resources), with the aim of combining them to create the largest exporter of thermal coal to China.

Both China and India are very large consumers of coal, both for power and iron plants. Prices of coal have risen from $40 to $60 a ton five years ago to a high of $200 in 2008.

Currently, coal delivered to southern China sells for $114 a ton. India’s hunger for coal to fuel its power plants is already having a key impact on price of coal. The fact that China has recently become a net coal importer from a net exporter is also pushing up coal prices.

While in 2009 the U.S. exported only a few thousand tons of coal to China, in the first six months of 2010 it exported nearly three million tons to China.

Another interesting trend is private Indian companies buying coal mines overseas to secure supply. In the future, Chinese companies will possibly follow.

Meanwhile, Vallar said the new Indonesian coal company will be listed on the London Stock Exchange and will start trading in April 2011. Vallar will change its name to Bumi PLC.

That's quite a ways off, and individual investors should do their own due diligence.

However, if a coal-energy strategy interests you, there are a number of ETFs today with holdings across the industry, among them Market Vectors Coal ETF (NYSE: KOL), with an expense ratio of 0.62, and Powershares Global Coal Portfolio (Nasdaq: PKOL), with an expense ratio of 0.75.

KOL’s top holdings include Peabody Energy, Jay Global, Alpha Natural Resources, Consul Energy Walter Energy and Bucyrus International with an average P/E of 13.60. Bucyrus International, a mining-equipment manufacturer, recently was taken over by Caterpillar in a deal worth $8.6 billion, which indicates a strong belief in the growth of the coal industry. KOL seeks investments that correspond to the Stowe Coal Index. The Stowe Global Coal Index has had a performance of 19.60 percent year to date.

PKOL seeks to replicate the Nasdaq OMX Global Coal index and invests at least 80 percent of its total assets in securities of companies involved in the coal industry.

Top holdings include China Shenhua Energy, Cameco, Coal and Alliance Industries, Consul Energy, Banpu Public Company, China Coal Energy, PT Indo Tambangraya, Megah, Adaro Energy, PT Tambang Baturbara Bukit Asam. PKOL is a more international ETF with 27 percent invested in the U.S. and 72 percent elsewhere, mostly in Asia.

KOL has 47 percent of its investments in the U.S. with the rest in China (20 percent), Indonesia (12.70 percent), Australia (10 percent) and South Africa (3 percent) as well as some other smaller international holdings.

Year to date, KOL has had a performance of 21.54 percent whereas PKOL has had quite a similar performance of 20.90 percent.

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Nathan Rothschild, a financier, global investor and heir to a prominent family, decided to invest big time in coal. Vallar PLC, a London listed company, raised around $1 billion in a July IPO with the objective to invest in the mining of metals, coal and iron ore....
gil,Shidlo,Better,Contrarian,Play,Oil
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2010-33-30
Tuesday, 30 Nov 2010 08:33 AM
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