What a change a couple weeks can have on your portfolio. Two weeks ago the All In Portfolio was up over $55,000. Today the portfolio is at $37,305. Year-to-date the portfolio is still up 58%.
The All In Portfolio is invested in one single stock. Subscribers to Alpha Letter Pro can read the two original research reports on this stock here and here.
My original call on this stock was dead on. After writing the first article, the stock ended up doubling in a few short months. I ended up exiting the position as the China Evergrande risk was an uncertainty.
I entered back in the position in later October after competitors began locking in 2022 rates at a much higher price than I expected. I was estimating the 2022 contracted price to be high, but not this high. Free cash flows for 2022 were basically locked in, setting up 2022 to be a record year.
Since then met coal prices into China have plunged.
S&P Global Platts assessed Premium Low Vol coking coal down $4/mt at $366/mt FOB Australia, while CFR China plunged $50/mt at $414/mt Nov. 18, its biggest-ever one-day drop, as China continued to restrict steelmakers' output to cut pollution. At the same time it is ramping up domestic coking coal mine production which has cut demand for imports of this type of coal. The CFR China price hit its highest-ever price of $615/mt Oct. 21 on tight supplies. - Platts
It is impossible to tell what happens over the short-run. I’m guessing met prices continue to fall as China restricts steel capacity through 2021. Long-term the supply and demand imbalance for met coal is a very interesting situation, which should support higher prices for years to come.
Globally, there is little supply growth in coal and "there is almost enough supply from existing mines but from 2040 the market will be tighter," he said. Paul Flynn, CEO of Australian miner Whitehaven Coal, said "an elongation of approval lines for new projects", with potential financiers seeking "coal premiums" and fearing reputational risks from financing coal projects, leading some miners to have "given up on greenfield projects." Brownfield coal mine expansions are expected to occur in Russia, Indonesia and Australia, in metallurgical and thermal coal. - Platts
In addition, the locked in tonnage for 2022 helps me sleep well at night. Most coal companies, if not all, will have crispy clean balance sheets post-2022. Free cash flows will then be returned to investors and I doubt and expansionary capex spend will occur.
I plan to continue to hold onto this sinking ship and may average down if the price continues to dramatically fall. Currently this position represents less than 3% of my total consolidated portfolio. If I am completely wrong I will take it on the chin and go down with the ship.
We published an updated article for Alpha Pro subscribers this past weekend. You can view the article here. The stock is up 70% since we purchased it and we think it can double again. 2022 should be a record year of revenues and free cash flow. I have not sold one share since buying and plan to hold as management continues to execute.
A second newsletter will be going out exclusively to Alpha Letter Pro subscribers on Tuesday. This will be an update on a beaten down retailer that I am invested in. The market decided to tank the stock recently which I have been using as an opportunity to add to my position.
Other than that I don’t expect to publish anymore articles this week. Thanksgiving is just around the corner and I’d rather keep everyone’s inboxes empty. That being said, Mr. Market is a fickle beast. Something may happen and I may use some excess cash to acquire something. If something like this happens expect a write-up.
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