At 8.3 times 2009 EBITDA, Massey’s deal for Cumberland is not cheap. But in the energy business, depletion is a big problem — and this means buying up reserves. All in all, Massey has proven to be quite skillful at this. With the Cumberland deal, Massey will have an estimated total reserve base of 2.9 billion tonnes of coal.
The company should also be able to boost revenue yield because of its global footprint. After all, emerging-market economies have a heavy appetite for steel, which means more coal demand. China accounts for nearly half of all steel production in the world, and India is likely to ramp up purchases as it needs to build its infrastructure.
Yet, on a short-term basis, Massey will need to deal with some headwinds. First-quarter earnings are forecasted below the internal projection because of weather disruptions.
But this seems to be of little concern to investors. In today's trading, Massey's shares are up 3%.
The company should also be able to boost revenue yield because of its global footprint. After all, emerging-market economies have a heavy appetite for steel, which means more coal demand. China accounts for nearly half of all steel production in the world, and India is likely to ramp up purchases as it needs to build its infrastructure.
Yet, on a short-term basis, Massey will need to deal with some headwinds. First-quarter earnings are forecasted below the internal projection because of weather disruptions.
But this seems to be of little concern to investors. In today's trading, Massey's shares are up 3%.
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