Cloud Peak Energy: One of the Largest Coal Producers in the United States

Arvind Mallik and Jonathon Fite presented their in-depth investment thesis on Cloud Peak Energy (CLD) at Wide-Moat Investing Summit 2015.

Cloud Peak Energy is one of the largest coal producers in the United States. As a “pure-play” focused on thermal coal in the prolific Powder River Basin in Wyoming and Montana, CLD is the lowest-cost producer of thermal coal. In addition to this low-cost producer “moat”, CLD also possesses the strongest, most liquid balance sheet in its industry. With cash in excess of 60% of its market cap, no near-term debt maturities, and a large, untapped credit line, CLD is positioned to manage through the current, severe downturn in the coal market. Priced at 0.3x book value and 3x earnings, CLD is a wide-moat company in deep value territory. As CLD’s earnings recover to conservative (not peak) levels, shares could rise from $5 to its book value of $18. Potential catalysts could include a recovery in US natural gas prices, a weakening of the US dollar to help penetrate the large Asian export market, and astute capital allocation including share buybacks or acquisitions of distressed assets.

About the instructor:

Arvind Mallik is a Managing Partner of KMF Investments, a pure Pay-for-Performance Private Investment Partnership based in Denton, Texas. Prior to founding KMF Investments, Mr. Mallik was a Senior Manager in the Strategy practice of Accenture. At Accenture, he helped global companies formulate and execute strategies to enter new markets, develop innovative new services and solutions, and reduce their operating costs to improve shareholder returns. Mr. Mallik obtained a BS in Chemical Engineering and BS in Bioengineering from UC Berkeley, and an MS in Chemical Engineering from MIT. He graduated with highest honors from both institutions.

Jonathon Fite is a Managing Partner of KMF Investments, a pure Pay-for-Performance Private Investment Partnership based in Denton, Texas. Prior to founding KMF Investments, Mr. Fite was a Senior Manager in the Strategy practice of Accenture, where he helped companies improve shareholders returns. He is also an Adjunct Professor for the College of Business at the University of North Texas. Mr. Fite graduated with honors from the University of Arkansas with a BS and MS in Industrial Engineering.

KMF seeks long-term capital appreciation by investing in companies whose intrinsic value is significantly higher than the market price. Over its 8 years of operations, KMF has found opportunities in world dominating franchises, hard assets below replacement costs, businesses at large discounts to liquidation value, and firms with beneficial exposure to rising interest rates.

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