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Zacks Analyst Interview Highlights: Alliance and Natural Resource Partners

Posted on: Wednesday, 4 April 2007, 06:00 CDT

Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Matthew Thurmond, who discusses Alliance (Nasdaq: ARLP) and Natural Resource Partners (NYSE: NRP).

A synopsis of today's Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.

Coal gasification is one environmentally friendly way of using coal as a fuel source. Is there any news on the progress of this as a useful technology?

Coal gasification is coming along, but still very slowly. For those who don't know, the main reason to "gasify" coal is to reduce the pollutants released when it is burned in power plants. If burned as a gas, the pollutants can be more easily separated and in many cases, sold as useful byproducts. Since coal-fired generators producer over 50% of domestic electricity, the widespread adoption of coal gasification plants could significantly reduce air pollution.

Another benefit that has been talked about more and more lately is carbon sequestration. When transforming coal into a combustible gas, the CO2 can be removed in a concentrated stream. This makes it more economical to store the greenhouse gas in, say, a depleted oil well or an underground aquifer.

The largest domestic R&D coal gasification project that I am aware of is known as FutureGen. This is a partnership between the government and key energy companies, mostly utilities and coal miners. From my coverage base, both Peabody and Consol are participating. The goal is to construct a $1 billion power plant that utilizes coal gasification and carbon sequestration technology to generate electricity. Currently, the project is still in the development stages and a site will likely be selected in the later half of the year. The plant is expected to be online by 2012.

Overall, I am bullish on the long-term outlook for clean coal technologies and what they mean to the nations miners. However, investors need to realize that this is going to be a long process of trial and error before economic, environmentally acceptable solutions are found.

With the current environment then, how can investors profit from the coal sector?

Again, as I have said over the last several months, investors should wait for better prices. While the coal sector is clearly off of its highs, I still think the miners in particular are trading near fair valuation. The market has a bit of speculation baked in here due to the country's long-term energy dilemma. If coal liquefaction technology becomes more efficient and more mainstream, it could mean windfall profits for the sector. However, I try not to overweight this factor and think that it is still at least a decade away from producing material results.

Overall, wait for better prices in the mining sector. If you are interested in yield, consider a coal MLP. I have buy recommendations on both Alliance (Nasdaq: ARLP) and Natural Resource Partners (NYSE: NRP), which yield 5.7% and 5.3%, respectively.

Read the full interview at http://at.zacks.com/?id=2647.

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Source: Business Wire

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