Billionaire investor George Soros just loaded up on two coal companies.
According to his hedge fund’s most recent filing to the Securities and Exchange Commission (SEC), Soros bought shares of Arch Coal Inc. (NYSE:ACI) and Peabody Energy Corporation (NYSE:BTU). (Source: The Securities and Exchange Commission, last accessed August 20, 2015.)
The shares that the billionaire investor bought of Arch Coal Inc. (553,200) are worth approximately $1.3 million at today’s prices. And the one million shares of Peabody Energy Corporation are worth around $1.4 million today.
Although Soros’s stakes in these two coal companies are nothing substantial compared to the size of his portfolio, his buying activity at this time is rather surprising.
Struggling Coal Industry
Coal companies have been struggling under the Obama administration. With a myriad of mandates and regulations, many coal companies have been crushed. And those remaining are hurting badly.
With power plants switching to cheap natural gas, slowing down exports, and tighter regulations, the outlook for coal companies is rather gloomy. According to Macquarie Research, the future for U.S. coal producers looks “increasingly bleak.” Moreover, the sector is about to undergo “a wave of bankruptcies”. (Source: Mining.com, last accessed August 20, 2015.)
When debt is piling up and markets are shrinking, share prices of coal companies plunge. Arch Coal Inc. saw its stock price drop a whopping 99.3% from $340.00 in April 2011 to $2.28 yesterday. Things have been just as bad for Peabody Energy Corporation; its share price tanked 98.0% from $69.00 in April 2011 to yesterday’s measly $1.40.
Is Coal About to Make a Comeback?
Soros’s investment in these two coal companies makes people wonder if coal is about to make a comeback. Despite having a shrinking market, coal is still a big energy source for the U.S. In 2014, coal power accounted for nearly 40% of the country’s electricity production. Many coal companies have gone out of business, and those that remain would have to streamline their operations and improve efficiency. If there is a change in the regulatory environment, the coal companies who look dirt cheap today might get a huge rally.