Author Topic: NC - Nacco  (Read 3973 times)

flesh

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Re: NC - Nacco
« Reply #10 on: September 14, 2018, 10:07:21 AM »
https://www.scientificamerican.com/article/where-will-the-us-get-its-electricity-in-future/

https://www.eia.gov/tools/faqs/faq.php?id=427&t=3

No doubt over time some coal mines will deliver fewer tons, some closed down, is this offset by new contract wins in coal? I don't know. If the current mines only decline on average by 1/3 by 2034, a few contract wins happen between now and then, and aggregates/minerals at NAM continue anywhere near the current pace, this will work out quite well.

On another note, bisti delivered 3.7m tons in 2017. Delivered 1.2 m tons first half 18' and is expected to deliver a similar number for all of 18' vs 17'. Therefore, bisti should deliver around 2.5m tons 2h 18'. Also, per mgmt, should ramp to 5-6 m tons/year in 2019.

Coal/diesel/salaries/inflation are all accelerating of late and affect the contract escalations. This should cause slight margin expansion.

FCF/ev or eps/ev is simply too cheap. Hard to permanently lose capital here and many upside options.





Spos

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Re: NC - Nacco
« Reply #11 on: September 17, 2018, 10:43:08 AM »
I agree that this is cheap and like the risk/reward here, I probably just think that the downside is bigger and the upside smaller.  In lignite, losing contracts is painful and I am just not sure how much scope there is for new contract wins in the space.  Lignite production is 65M-70M tons and NC is doing 37M of that, so how many more contracts can they realistically go get.  I think growth has to come from limestone (and any other materials they can expand into). It's just going to be slow as these operations are more limited and provide smaller fees.

flesh

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Re: NC - Nacco
« Reply #12 on: September 18, 2018, 04:40:26 PM »
Fair enough spos. Absent aggressive capital return, I see this doing well, not fantastic. That said, they are going to have a ton of cash relative to ev burning holes. The debt's almost gone and irrelevant at these levels. Assuming next year is a normal capex year vs this year's ultra high level ... what to do with excess cash should be top of mind. They claim in their docs to have the shareholder returns for taxable investors in mind.

If NC mgmt is paying attn it's painfully obvious they should be loading up on buybacks at these prices.

Absent any extraneous costs from centennial or otherwise not compensated by reclamation activities at Liberty, second half earnings should be indicative of what 19' will bring. We have MLMC and bisti ramping to normal. We have new limestone contracts increasing in pace. Capital allocation decisions becoming acute, virtually no debt.

In case anyone missed it from last q's print:

"At the consolidated operations, Mississippi Lignite Mining Company's pre-tax income in the second half of 2018 is expected to increase substantially over the second half of 2017 and the first half of 2018, primarily as a result of a reduction in the cost per ton of coal delivered during the second half of 2018.  In general, cost per ton delivered is lowest when the power plant requires a consistently high level of coal deliveries, primarily because costs are spread over more tons.  Historically, periods of reduced or fluctuating deliveries, such as during planned or unplanned power plant outages or periods of fluctuating demand for electricity generated by the plant, have adversely affected Mississippi Lignite Mining Company's tons delivered, resulting in an increase in cost per ton delivered and reduced profitability.  Customer demand in the second half of 2018 is expected to return to higher levels because fewer plant outage days are expected compared with the prior year.  Improved income in the second half of the year, primarily in the third quarter, is expected to offset the lower income in the first half of 2018 resulting in full-year 2018 income at Mississippi Lignite Mining Company that is comparable to 2017.  If customer demand does not improve as expected at Mississippi Lignite Mining Company, it could unfavorably affect North American Coal's 2018 earnings significantly."

Foreign Tuffett

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Re: NC - Nacco
« Reply #13 on: September 18, 2018, 06:05:06 PM »
I agree that this is cheap and like the risk/reward here, I probably just think that the downside is bigger and the upside smaller. In lignite, losing contracts is painful and I am just not sure how much scope there is for new contract wins in the space.  Lignite production is 65M-70M tons and NC is doing 37M of that, so how many more contracts can they realistically go get.  I think growth has to come from limestone (and any other materials they can expand into). It's just going to be slow as these operations are more limited and provide smaller fees.

IMO these are really smart thoughts. Thanks.

Anything is a buy at the right price, but a US lignite coal producer needs to be very cheap. I think there's a real risk of $0 terminal value within a decade.

flesh

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Re: NC - Nacco
« Reply #14 on: Today at 09:51:46 AM »
I agree that this is cheap and like the risk/reward here, I probably just think that the downside is bigger and the upside smaller. In lignite, losing contracts is painful and I am just not sure how much scope there is for new contract wins in the space.  Lignite production is 65M-70M tons and NC is doing 37M of that, so how many more contracts can they realistically go get.  I think growth has to come from limestone (and any other materials they can expand into). It's just going to be slow as these operations are more limited and provide smaller fees.

IMO these are really smart thoughts. Thanks.

Anything is a buy at the right price, but a US lignite coal producer needs to be very cheap. I think there's a real risk of $0 terminal value within a decade.

Excluding centennial,NC is trading at 6x ntm eps ish and less than that on a eps/ev fcf/ev for cy 19'.

Curious why you believe lignite (or all?) coal may be a zero in ten years? We've had around a 35% drop in the last ten. In the attached the prediction suggests 20% drop from 16-50', which seems too small. I've seen other predictions in the -20 to -50% range next twenty years.

Personally, I don't see how we can get to a zero on coal within ten years without a federal mandate and I don't see that happening in ten years.

Two other questions.

1. How long will mine mouth lignite coal (all of nacco's current production) be around vs coal in general, the utility will be shut down concurrently? I certainly see reduced power needs on the assets over ten years and some % shut down completely. If the power needs for the area have a high availability of renewables for example.

2. Is coal a national security issue at some point? If coal use was reduced by 2/3 from here... would we need those remaining facilities in good shape maintained considering none are being built? Would we expect a higher or lower % of these remaining to be mine mouth?

From attached:
"IEEFAís long-term outlook, through 2050, is for a steady, downward decline in coal production as demand from utilities decreases. The EIA is in general agreement. Its long-term outlook has overall U.S. coal production declining to 583 million tons by 2050, a 20% drop from 2016, a projection that would mean a 50 percent decline from a 2006 peak of 1.2 billion tons. Over the long term, IEEFA also sees the U.S. coal industry becoming even smaller than these
projections suggest, because coal-fired power plants could be retired at a more rapid pace than the EIA assumes."