When investigating a sector that has several unresolved regulatory issues ahead it is wise to make sure that all issues are addressed. Just because one issue appears to stand out does not mean that there are not others lurking below the surface. But this also does not mean that there aren’t profits to be made. Doing one’s diligence is key and one that could very well lead to a nice profit where others feared to look.
Westmoreland Coal Co., an energy company operating within the coal and power plant segments, operates 5 coal mining operations and 2 coal fired power plants. Its primary sites are located within North Carolina (power plants), Montana, North Dakota and Texas. The company was founded in 1854 and is headquartered in Colorado.
With estimated and probable coal reserves of 425 million tons, the company seems to be in fine supply shape for the likely outcomes of coal regulation to be decided by government. In this regard, the company has a relatively strong position as the majority of its product is derived away from the high sulphur coal fields of the south eastern US and operates as a surface mining company rather than an underground operation. Although the impact of government regulation is widely viewed as an environmental one directed at emissions, it is not what an investor should truly be concerned with as a short-term regulatory concern. The real regulatory issue to be assessing, with most companies currently unable to give guidance for a variety of issues, is the recently passed healthcare insurance reform regarding “black lung” problems. Recently enacted, the law dictates increases in limits based on a variety of factors through 2018. How this regulation plays out is unknown but if a company were to be exposed to increased costs Westmoreland Coal does look to be in a better place. The company also has solid power plant capacity to accept its coal with estimated power generating capacity of 230 megawatts.
The first quarter 2010 witnessed an increase in revenue to approximately $126 million from the same previous period of $121 million. Generally, this increase can be attributed to increased coal sales from the company’s Rosebud 1&2 units to an existing customer. It can also find attribution from increased megawatt sales and production. Although less of a significant contribution, the company can also find solid accounting gains as a contributor in the first quarter. Regulations notwithstanding Westmoreland Coal is maintaining its historical solid pace in an industry that is changing. Coal production and use has decades of useful service ahead with Westmoreland Coal Co. well placed in the pack.
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