The Foreign Coal Conundrum

 | Mar 02, 2012 | 6:45 AM EST
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There's something infuriating about the double standard when it comes to pollution in this world and it's on display gigantically with the prospects of Joy Global (JOYG).

If you don't know the company, it is largely an exporter of big mining equipment with a decent business in the United States. I put it that way because Joy's the dominant coal-mining equipment play and coal is in long-term secular decline here in the United States. But it is in long-term secular boom in India and China and as CEO Mike Sutherlin told me last night, those two countries alone this year will build as much as a third of our existing coal plant capacity.

I think Joy Global's a Buy because of that. The electricity demand soared 14% in China this year alone and the build out of the Western grid of the country's the biggest infrastructure program in the world. But it is a coal-based program, which means that it will pollute a lot..

We, on the other hand, are willing to force whole industries like the coal-fired plant industry to close because of it. We raise our power costs and we help drive business to where the action is.

I's not unlike the Transcanada Keystone pipeline issue. When we rejected Keystone we acted as if the tar sands oil won't be used by anybody and the skies will be clean.

Of course that's totally fanciful. Outfits like Transcanada and Enbridge will just pipe it to the West Coast and send it on its way to China. Meanwhile we will keep importing crude from Chavez' Venezuela as well as from frenemies in the Middle East.

Now, there are lots of niggling issues with Joy Global. They made an acquisition of a company that had quality control problems. The weather was so warm in the United States that much less coal was used, something that played a much bigger role in the decline of coal use than the switching to natural gas.

But the main issue is that Joy's basically a play on China's coal demand and Chinese mines and the Australian ones that also help service China's power plants and, like it or not, that business is getting stronger not weaker. I say like it or not because what you are doing here is betting that China will sacrifice anything, especially air quality, to put people to work. We, sadly, don't make it a high enough priority and we end up with policies that help export those jobs which, alas, is the key to Joy's long-term earnings story.


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