L&L Energy ($1.60) appears on track to report solid on target Q2 (October) results. The company is a Chinese coal producer run by Americans. Thermal coal (electricity) prices fell during the summer due to a variety of factors. They've bounced back in recent months. Metallurgical coal (steel) prices remain depressed. L&L Energy unloaded part of its metallurgical operation earlier in the year, minimizing the damage from that segment. A series of acquisitions and divestitures are being made to position the company to take advantage of new government regulations that are slated to take effect in China. Larger mines are being pursued. And higher quality coal is being added. Political (environmental) factors are forcing the industry to discontinue the use of dirty coal.
Sequential earnings improvement is anticipated. Our full year (April) earnings estimate is unchanged at $.85 a share. Faster improvement is possible in subsequent years as the industry consolidates and the Chinese economy keeps growing at a fast pace. The stock has been under pressure following President Obama's re-election. U.S. coal producers are likely to feel the heat from tighter federal regulation. But alternative fuels aren't generally available in China. Equity values in China have declined across the board following the revent change in government. The new group is considered to be far less progressive than what many in the country had hoped for. That may slow the pace of reform. Economic growth is likely to remain a top priority, though. And coal is sure to remain a key source of energyin China for decades to come.
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