Monday, January 9

Today was a generally brutal day for energy in general – the NYSE Energy index was down 1.54% at market close as the US rig count rose (up 4) for the third week in a row. Rapid growth in US production capacity has continued to dull the effect of worldwide production cuts on the price of oil, and forward month Oil contracts fell 4.07% in today’s US session.

Today marks the 3rd consecutive week of losses for Cloud Peak Energy (CLD). Today the price manage to pass the lower bands, falling $0.24 in a day (-4.34%). This, alongside continuing bearish indicators is causing us to strongly reconsider our position in this stock. Over the last few days (beginning Thursday) there has been a spat of insider activity – all acquisitions so far, but all listed as having been executed at $0.00. This indicates either the calling of stock options, or some other form of common stock based compensation. Regardless, there haven’t been any insider sales recently so we’re not sure what to make of this activity.

Cloud Peak continues to produce the cheapest coal in the world (it really does, at $10.07 per ton), but we are growing increasingly unconfident in the outlook for this company. Cloud Peak needs domestic volume to rise – that is the bulk of their business. That said, Cloud Peak derives a much larger margin of profit from overseas sales (primarily Indonesia) where US coal is priced at a premium due to more reliable quality control.

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Our outlook for coal (price) remains positive – Natural Gas prices are up, emissions regulations are looking much less likely for the next four years, and coal supply has fallen every year since 2008. However, if regulations remain unchanged it will become increasingly unappealing for coal plants to continue operation and since some of these regulations are local ordinances it remains to be seen what sort of impact the incoming administration will be able to have.

UPDATE – After hours volume is a-typically high with prices reliably gaining back $0.10 within a few moments of market close for a reduced loss of 2.8%.

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