The greatest investor of the past forty years recently bought the remaining 77.4% of Burlington Northern Santa Fe (BNSF) for $44 billion in cash, stock and debt.
Warren Buffett likes to say this is a bet on the United States because "railroad operators cannot do well unless American businesses were producing goods and customers were buying them.”
What he isn't telling you is that it's also a bet on China importing coal.
Burn, baby, burn
The United States now ships coal to China all the way from West Virginia using BNSF — one of only four transcontinental railroads left in North America.
And it's not just the high-end coal — or coke for making steel; the U.S. companies are shipping regular thermal coal halfway around the world.
In the past, coal was burned where you found it. It was used for heat and electricity. But due to tougher environmental regulations in places like the United States, Canada, and Australia — coupled with an insatiable desire for electricity in China — it now makes fiscal sense to ship it.
So, not only is the coal burned, leaving a dark and sooty carbon footprint; but it's also being shipped around the globe — burning even more fuel along the way.
China currently burns half of the six billion tons of coal used every year on earth.
And the price has doubled over the past five years. It's up 43 percent since 2008.
David Graham-Caso, spokesman for the Sierra Club, says, “This is a worst-case scenario. We don’t want this coal burned here, but we don’t want it burned at all. This is undermining everything we’ve accomplished.”
Choke on this
Our own mining expert and founder of Underground Profits Luke Burgess says, “There is an insatiable demand for energy in China. Seventy percent of its electricity is supplied by coal-fired power plants. There's a coal bubble forming. You should own some.”
A few months ago, Australian mining multi-millionaire Clive Palmer struck a $60 billion deal to sell coal to Chinese power stations for the next 20 years. This is the largest Australian contract ever.
And though environmentalists are up in arms over the deal, mining creates jobs and exports pay the bills.
The fastest growing energy source
It is little wonder that new mining projects are popping up all over.
Peabody Energy (BTU), for example, is expanding to meet the new demand.
The company sited China's new $30 billion investment to continue expansion of its power grid.
CEO Gregory Boyce explained, “Coal is the fastest-growing fuel in the world and will continue to be largely driven by the enormous appetite for energy in Asia.”
According to The BBC, China is building two new power plants a week.
The New York Times says U.S. coal exports are off the hook:
Last year, the United States exported only 2,714 tons of coal to China, according to the United States Energy Information Administration. Yet that figure soared to 2.9 million tons in the first six months of this year alone — huge growth, though still a minuscule fraction of China’s coal imports.
There is so much growth that companies like Arch Coal (NYSE: ACI) have tripled in the last two years:
Arch has a trailing P/E of 43 and a forward one of 11! Year-over-year earnings growth is up 85.3%.
This is a coal company we are talking about. No wonder funds like T. Rowe Price own 16 million shares...
A small coal company I recommended a few months ago to readers of my Crisis and Opportunity service has already seen delivered gains of 275%.
But this thing is just getting started. We are only in the second inning of the new coal boom.
Companies from Brighton, New Zealand, to Bramwell, West Virginia, are dusting off their mining plans.
As I've said before, I've found the cheapest coal stock in the world, and it's already nearly tripled in just a few months.
Members of Crisis and Opportunity had access to this stock weeks ago, and are currently enjoying its success. Join us and profit.
Editor, Energy and Capital