From the title of the book Big Coal – The Dirty Secret Behind America’s Energy Future, by Jeff Goodell, Houghton Mifflin Company, New York, 2006; it might seem to be an unfavourable book about the coal industry. The book focuses more on the human side of the coal industry and there are a vast amount of stories to be told. Within the book are some very interesting facts for dividend producing investments. The US has a vast amount of coal resources and it is concentrated around  the states of Wyoming, West Virgina and a few others. Most of the easy to mine coal has been mined. This leads to areas where there is plenty of coal but it expensive to reach or the barrier to gain access to the coal is high. The field of companies is concentrated in a number of larger companies such as Arch Energy, Peabody Energy, Rio Tinto, Consol, Kiewit, Foundation and BHP.

After being mined, coal is shipped on the railways. The two biggest names are Burlington Northern Santa Fe (BNSF) and the Union Pacific (UP) and they receive about 20% of their revenues from this resource. Coal is a high volume, low hassle business with guaranteed payments by the regulated utilities. The coal goes very efficiently between the mines and the power plants (utilities) which burn the coal to turn the turbines to make electricity. The railways have 3 important things going for them: they more or less determine the price and availability of the coal. Two, large organizations tend to deal with large organizations which makes it harder for small mines and power plants. Third, problems with the railways have a serious effect on shipments or there are few alternatives to the major routes. A great example is the Rodemacher power plant in Louisiana. The coal comes from either of the two railways, except the last 19 miles the spur has only one railway UP. UP’s prices according to the utility are not as competitive as they could be.

Coal companies have a host of problems with black lung disease, clean air, clean water, labour relations to ensure the lobbyists in Washington are well funded. However as a business providing regular dividends, there are a number of companies to look at in the area of coal, railways and utilities.

There are more questions than answers, till the next time – to raising questions