Undisputable @Rocket6 however what is the mix going to look like in 5 and 10 years time? 15 years? 20 years? Investing depends a fair bit on your investment time horizon, and those people investing for 20 years might not find that chart as comforting as those investing for 5 years, or 3 years, or 1 year.

Thermal coal is going to have a long tail, because of various factors, including economic ones. While coal burning power stations remain cheaper to build than alternatives, developing countries like India and Indonesia are almost certainly going to keep building more coal-fired power stations because their imperative to raise the standard of living for their citizens and provide the necessary infrastructure for their growing economies trumps the environmental and other concerns, but as alternatives get cheaper that equation will change,

It gets back to how long that change will take, and therefore how long the thermal coal tail will last. Nobody knows. We can all guess, or estimate, but nobody knows, because the future is inherently unknowable. And so thermal coal investments might pay off well for those with either relatively short timeframes or those who are convinced that the tail will be very long, if they are right, but it's not without risk. And the main risks are technological advancements in alternatives making them cheaper and quicker to build and much cheaper to maintain (many alternatives are already much cheaper to maintain, but they will get even cheaper). And the risk of the "dirty coal discount" (whether you agree with the sentiment or not) increasing at some point rather than decreasing, so the risk of the share price going even lower and further away from your estimate of intrinsic value, which may affect your ability to exit the investment at a reasonable profit - or at a profit at all.

So, as I said, risks. But all investments tend to have risks, often very different risks, but still risks. Certainly the companies I choose to invest in have risks; I just choose to take on those risks, and people who invest in thermal coal companies do the same thing. Nothing wrong with that. As long as we acknowledge the risks.

Nice graph @Rocket6 . I'd be interested to see what it looked like 10 and 20 years ago.

@Bear77 i was in Central India for business mid last year and drove literally through a forest of wind turbines. China is dramatically investing in solar. There are several solar and biomass plants in the Philippines. It's out there and happening already. The tail exists but only in so far as a mix of technologies is prudent, existing plants were capital expensive to build and momentum has taken time to build.

Interesting @Scot1963 - I'd be interested to see what the graph looks like in 10 and 20 years from today.

For the record, I'm not currently invested directly in any thermal coal companies. My point is that companies can look cheap for a reason and they can continue to look cheap, and get even cheaper, often because of underlying fundamentals but also sometimes because of deteriorating sentiment in relation to the industry they operate in and/or the company specifically. I see risk in thermal coal companies that I'm not personally happy with however I tend to avoid such companies for my own ethical reasons (my personal rules about which industries I'm prepared to invest in) which I won't push onto anyone else, but even if I didn't have that personal barrier, I still wouldn't be happy with the risk.

Thanks @Rocket6

Really good article from Wood Mackenzie, available if you place your details down... In short Coal is likely strong for some time..

https://www.woodmac.com/horizons/new-energy-realities-risk-extending-coal-sunset/?__FormGuid=1bc611e7-09c8-4d1a-8216-14b5af1b8508&__FormLanguage=en&__FormSubmissionId=c6cc32fb-3960-465f-97af-4c6242cc65ce

I saw that $60/ton prediction and just assumed that at least one person in the Treasury was smoking illegal substances :)

Those assumptions do make a bit of a mockery of the budget. The assumptions baked in are for the following prices by Mar 2023:

Iron Ore US$55/t FOB

Met Coal US$130/t FOB

Thermal Coal US$60/t FOB

The budget paper assumes the price will "glide down" to those levels over the next two quarters. If you were a passenger on the coal descent I'm not sure you'd be using such benign language. They include a sensitivity analysis which allows for the possibility that the decline might take an extra quarter to complete (so June 2023).

They say they do it because those prices represent "long term fundamental price-levels". The iron ore one is possible (if unlikely), the met coal one is extremely unlikely, but the thermal coal one is fanciful - it's below the cost of production for most of the companies I've looked at. If you are a cynic you might say they do it to give the budget a buffer. When I was a FC half the job during budget time was figuring out where the finance business partners were trying to stuff the hollow logs to make it easier for themselves to hit their numbers.

@Chagsy like you I did buy a bit of coal (WHC and NHC) in my real life portfolio earlier this year. At the time I thought I was late but it's doubled since then. It's one of my very few wins this year but you're right about feeling like you need to hold your nose when you do it. I'm not sure watching it go up makes me feel any better about the trade either. At the end of the day I think most of us want to see coal gone as soon as possible but in the interim it has a role and if we can minimise the damage by burning less dirty coal (I hate the term clean coal) then that's not so bad, is it?...It is isn't it?

The good news about the current coal price is it will accelerate the move to more sustainable options.

Full disclosure I've taken the profits out of WHC recently but kept my original investment running.

Budget price assumptions are conservative, simply because its nice to take credit for "outperforming" but difficult to have to explain a shortfall which leads to painful consequences: services expenditure cuts, tax rises or more national debt to balance the books.

You do the same in investment planning in long life assets, running a range of price screening values and sensivities, and making sure your balance sheet can withstand the low case scenario for a few years.

I have not invested in coal, not for any ethical reason. Whether you hold the shares or someone else, makes no difference to the coal that will be produced. If investors shun the stocks, they'll eventually become attractive to private investors. You are right in that sustained hgh prices will speed the demise of coal. Divesting coal. oil and gas. assets is not a solution to climate change. It just hands the problem to someone else. So, I would sleep perfectly well at night holding a coal stock, even though I believe we need to do more to address the climate crisis. In fact, I 'd rather they were held by best in class operators, with publicly transparent accountability to shareholders, than a dodgey private operator.... not saying private operators are dodgey, but I know from experience in oil and gas that some of the private players operate to lower standards and I assume it to be the same elsewhere.

imo I think making the comparison between coal and tobacco is a long long long bow! in terms of coal forecasts as with any commodity the usual way to estimate price is establish teh marginal cost of production add a cost of capital and estimate the shorter term S/d dynamics that would fluctaute the price around the marginal cost of produciotn. i suspect that is where treasury is coming from. however it can sometimes take years for that price to reassert itself but with commodities it usually does. on a 5 year view Treasury are probably right. "the best cure for high prices are high prices" has been the mantra since time began on commodities.

Point taken. It was more an observation regarding the stigma. Both are industries that operate in fields that are deeply unpopular and have almost lost their social licence. The pool of investors is hence reduced so shares may trade at a discount

The similarities probably begin and end there. Other than the fact that 1/2 the world will be deeply reluctant to approve new mines. And even if they do, activists will manage to delay the start of operations through fair means or foul. So the usual cure for high prices perhaps isn’t as freely available.

lastly, the lag time to new coal mines coming on line is likely significant.

if ASX listed oak producers generate free cash ~10% of MC every month at current coal prices, and coal prices don’t moderate for a few years…..

Just gotta hope they return all that cash to shareholders. Like tobacco companies have done.

Not enough “oak producers” these days!

After this year's huge coal boom, I think the more important question is, which commodity is likely to boom next? As Mathan explains well on The Call here, he thinks we're in the early stages of a uranium boom: https://www.ausbiz.com.au/media/the-call-thursday-13-october?videoId=24712 (see the BOE discussion.)

I've personally taken a big position in BOE (Mathan's uranium fave, owns the Honeymoon uranium project in South Australia) as well as a smaller one in PDN (biggest producer, more liquidity.)