HardAssetsInvestor

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hi everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. We’re here for the second part of my interview with George Jarkesy, who is the director of America West Resources. We’re talking about coal.

Now, in our last discussion, I think you painted a pretty bullish outlook, George, for coal prices and coal demand; China, India you mentioned. The United States is the world’s biggest producer of coal. It’s a great export commodity for us.

What’s the best way for an investor to take advantage of the bullish trend that you see developing?

George Jarkesy Jr., director, America West Resources (Jarkesy): Well, I think as investors look across the coal companies, on a long-term investment looking from a fundamental perspective, you’ve got to look at what are the reserves? You’ve got to look at who is going to control and own the asset for the long term? Because the contracts that are coming up from India, from China, and even from the U.S. producers today, there’s a global shortage, but it hasn’t hit that, where prices are going to increase drastically.

In about two to three years you’re going to see a drastic increase — triple, quadruple in coal pricing. And at that point, those who have the reserves will be able to expand production and increase production and increase profits for the shareholders. So you want to look at companies, not only for what their profits are today, and not really so much for how profitable they are today, or how much they can produce a ton for. Because if you’re going to be getting two or three times as much for your coal over the next three to five years, then what’s more important is, can they mine the coal? And do they have the reserves?

Norman: Now, getting back to the environmental discussion again, what I’m getting from you is that in the United States, while there might be resistance to expanding the use of coal, the generation of electricity, for other countries, that’s an inapplicable argument. They need electricity. They’re not going to be pressured by environmental issues, greenhouse gases. The demand is going to be there. Is that correct?

Jarkesy: That’s correct. Mexico, for instance, doesn’t have a tremendous amount of coal. But all of Mexico’s current expansion is in coal-fired power plants, all their new power. Almost 85 percent of China’s expansion today is all coal fired. And China’s producing almost 3 billion tons of coal. And they’re consuming every bit of it. And they’re importing. So I don’t see any slowdown in that.

Norman: Where is the coal in this country? I mean, is it in West Virginia? Is it out West? Where are the major reserves?

Jarkesy: The reserves are limited to the Appalachian area. You have coal out in Utah, Colorado, Wyoming, Montana. And that’s the large coal. You have some in Illinois. And so the coal infrastructure is there for us to be able to produce and export coal.

Norman: Now, in terms of the actual mining of the coal, is it one of these open-pit-type of … I know there are deep coal mines, that’s for sure. But, the new coal, is that the kind of thing that they’re going to have to go and strip away vast open areas of landscape?

Jarkesy: No, no, less than 15 percent; I think around 13 percent of the nation’s production is mountaintop mining. So even with the new regulations under this administration, you’re not looking at a significant amount of coal that would come off the market if they were to stop that altogether. And so I don’t see that affecting the coal supply significantly over the next five years.