MEE, an attractive buy?

**xxyygorich** Fri Nov 11, 2005 4:43 pm

MEE, an attractive buy?
Is MEE an attractive target?

Based on the 3rd quarterly report,

In 2006 MEE expected 48-50 million tons total shipment on avg $50, avg cost will be $36-39. To simplify the calculation, I use the mid number $37.5 as the avg cost for 2006.
Currently, 44 million tons under commitment, avg price $48.
There will be 9 million tons (50 - 44 + 3(under commitment, but unpriced) or 18% of total which are unpriced.

Compared to JRCC 2006, 12-14 total million tons total, 8.2 mil tons priced at 45.82, 3.4 priced at $24.92, apparently, MEE will generate more profit for 2006!

Based on this,
Fixed General Administrative and Sales Cost (G & A): $80 million per year. (Because MEE is 4 times bigger than JRCC in terms production, I use $20 (G/A JRCC) * 4 = $80).
Operating cost of coal: $37.5 per ton
coal price: $48 per ton
Coal Production: 50 million ton a year
MEE EBITDA = Coal Production * (coal price - $37.5 cost) - $80 million G&A cost = 50 * (48 - 37.5) - 80 = 445 million
Fair Value of Enterprise Value = 8 -10 times EBITDA
= 4000 M (total share 77 million shares outstanding)
Fair price for 2006 = 4000 / 77 = $52.

at current price $39.80, it's not bad. I expect that MEE will have better performance in 2006.

For 2007,
In 2007 MEE expected 48-50 million tons total shipment on avg $52-$55, avg cost will be $36-39. To simplify the calculation, I use the mid number $37.5 as the avg cost for 2006.
Currently, 31 million tons under commitment, avg price $49.
There will be 22 million tons (50 - 31 + 3(under commitment, but unpriced) or 44% of total which are unpriced.

Compared to JRCC 2007, 12-14 total million tons total, 1.6 mil tons priced at 38.37, 1.2 mil tons priced at $24.77. (About 80% are unpriced coals!)

Based on this,
Fixed General Administrative and Sales Cost (G & A): $90 million per year. (Because MEE is 4 times bigger than JRCC in terms production, I use $20 mil (G/A JRCC) * 4 = $80 mil. I add another $10 mil).
Operating cost of coal: $37.5 per ton
coal price: $55 per ton
Coal Production: 50 million ton a year
MEE EBITDA = Coal Production * (coal price - $37.5 cost) - $90 million G&A cost = 50 * (55 - 37.5) - 90 = 785 million
Fair Value of Enterprise Value = 8 -10 times EBITDA
= 7065 M (total share 77 million shares outstanding)
Fair price for 2006 = 7065 / 77 = $91.

I will say MEE is a very attractive stock.

If $55 is avg price for MEE 2007, it has to contract the rest of their coals at ($55 * 50 - $49 * 31)/ (50- 31) = $64.8 per ton!

Can MEE reach this goal? From the current view, this high price might be hard to achieve, however the bullish coal market in the next a few year might make it happen.

What will the fair price of JRCC in 2007 be, if JRCC contracts the rest their production at $64.8?
EBITA = $38.37 * 1.6 + $24.22 * 1.2 + $64.7 * (14 - 2.8) - $37.5*14 - 20 (G/A) = 240 mil
Fair price = EBITA * 9 / shares = 240 * 9 / 16.59 M = $130

WOW! MEE is a good one, however JRCC might perform BETTER in a long run!

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**xxyygorich** Tue Nov 15, 2005 11:17 pm

Massey Energy Board OKs Restructuring Plan.

"In addition, the company approved a repurchase program for $500 million in common stock. Massey said it expects "substantially increased cash flow in the second half of next year" and may begin the buyback then."

**blast_investor** Thu Nov 24, 2005 2:20 pm

Looks like you are going to win. :D

**fred sun** Sat Dec 03, 2005 11:38 pm

America's new coal rush
Utilities' dramatic push to build new plants would boost energy security but hurt the environment.

By Mark Clayton | Staff writer of The Christian Science Monitor

After 25 years on the blacklist of America's energy sources, coal is poised to make a comeback, stoked by the demand for affordable electricity and the rising price of other fuels.

At least 94 coal-fired electric power plants - with the capacity to power 62 million American homes - are now planned across 36 states.
............

The jump in proposed coal-fired plants over the past three years - which would add 62 gigawatts or another 20 percent to the US's current coal-generating capacity - was documented in a report last month by the National Energy Technology Laboratory (NETL), an arm of the US Department of Energy. But experts caution that perhaps no more than half of all proposed plants will ever be built. It can take seven to 10 years for a coal power plant to go from planning to construction - and legal action and public protests often halt them.
..................

But the move back to coal raises environmental concerns. Mr. McIlvaine estimates that if 50 of the 94 planned projects are built, they would add roughly 30 gigawatts or 10 percent of base load generating capacity nationwide. Using industry rules of thumb, he estimates coal consumption would rise about 10 million tons, or 1 percent, from today's 1 billion tons annually.

http://www.csmonitor.com/2004/0226/p01s04-sten.html