Goldman Positive on Select Coal Names (ANR, CNX, BTU)

Goldman Sachs is out with an analyst note this morning that is positive on selective coal names. Their two primary concerns are: (1) The pollution of streams due to the mining of mountaintops in Central Appalachia (2) Underground mine safety and ventilation following the explosion at Massey Energy’s Upper Big Branch mine are likely to at a minimum lead to higher costs for Appalachia coal mining. They assume Central Appalachia unit costs “rise about $2/ton in 2011 to levels about $5/ton above 2008, believing concerns over higher costs at surface/underground mines are already reflected in coal stocks.” They also believe the combination of the Upper Big Branch and Macondo incidents could help push policymakers to enact additional Americas: Energy: Coal regulations hoping to stimulate the use of alternative fuels for power generation and vehicles than coal and refined oil products. They see two factors that have the potential to hurt coal demand and help gas demand longer term: “1. Existing laws mandating lower future emissions of nitrous oxide, sulfur dioxide and mercury at power plants are likely to lead many small coal plants to shut down in lieu of building scrubbers. This could lead to lower demand for Central Appalachia coal to match the lower production that would result from increased regulatory costs. Reduced demand for coal on account of plant shutdowns would likely lead to greater demand for natural gas, which we view as on the margin. 2. We expect greater calls for a price on carbon dioxide that could over time lead to a shift in power plant usage of coal to natural gas, nuclear and renewables. However, in part because of the proximity to November elections and because increased offshore drilling was previously thought (now rendered unlikely) to be one way to gain consensus, we are remain skeptical we will see stringent legislation signed into law in 2010.” Their favorite longs in the space are Alpha Natural Resources ANR, Consol Energy CNX and Peabody Energy BTU.