COAL Demand Still 'Breaking Records' and 'It Keeps Going UP'

Key Concepts

• Metallurgical Coal (Met Coal): Used primarily for steel production, specifically as coking coal.
• Thermal Coal (Steam Coal): Traditionally used in power plants and steam engines for electricity and heat generation.
• High Calorific Value Coal: Coal with a high BTU content, meaning it burns more efficiently and produces fewer emissions per unit of energy.
• Energy Transition: The shift from fossil fuels to renewable energy sources.
• Base Load Power: Reliable, continuous power generation that forms the foundation of an electricity grid.
• Energy Security/Dominance/Independence: The ability of a nation to reliably and affordably meet its energy needs.
• ESG Concerns: Environmental, Social, and Governance factors that influence investment decisions.
• Carbon Foam (Seafoam): A material made from 100% coal, used in aerospace and defense for its heat resistance.
• Coal Plastic Composite Decking: A durable decking material made from coal.
• Battery Grade Anode Material: A component used in batteries, with a coal-derived substitute being developed.
• "Not So Fast" Campaign: An initiative by Core Natural Resources to educate the public and policymakers about the benefits of coal and the potential consequences of a rapid transition to renewables.

Summary of Discussion on Coal and Core Natural Resources

This discussion with Matthew Makoak, Director of Government Affairs at Core Natural Resources, aims to demystify coal as a commodity and highlight its continued relevance in the global energy landscape. The conversation addresses common misconceptions, differentiates between types of coal, explores investment opportunities, and details Core Natural Resources' innovative approaches and strategic positioning.

Misconceptions and Global Demand for Coal

A significant portion of the discussion is dedicated to dispelling myths surrounding coal. Makoak emphasizes that 35% of the world's power still comes from coal, making it the single largest fuel source for electricity globally. He highlights that global demand for coal is at an all-time high, with 2024 breaking the record set in 2023. This trend is expected to continue, at least plateauing in the near future.

The narrative that coal is inherently "bad for the planet" and needs immediate phasing out is attributed to political rhetoric and activists. Makoak counters this by explaining that there are significant differences in coal quality and production methods. Core Natural Resources, for instance, mines high-quality metallurgical and thermal coal in southwestern Pennsylvania and northern West Virginia. This coal has a high calorific value (high BTU), leading to more efficient burning and comparatively lower emissions. Furthermore, coal mining in the United States is conducted cleaner, better, safer, and more efficiently than ever before due to abundant reserves and evolved technologies that have corrected past mistakes.

Metallurgical vs. Thermal Coal: Uses and Investment Potential

Makoak clearly delineates the two primary categories of coal:

• Metallurgical Coal (Met Coal): Primarily used for steel production. It is often referred to as coking coal, which is heated to produce coke, a crucial raw material for steelmaking.
• Thermal Coal (Steam Coal): Traditionally used in power plants and steam engines to generate electricity and heat. The process involves combusting the coal to heat water, producing steam that drives turbines connected to generators.

From an investment perspective, coal's attractiveness lies in its versatility. In 2024, Core Natural Resources exported approximately 26 million tons of both metallurgical and thermal coal. The demand is particularly strong in developing economies for infrastructure development. Globally, 774 million people still lack access to electricity, and coal remains one of the most affordable and abundant resources to meet this demand, facilitating industrialization and economic growth. Customers abroad utilize coal not only for steel, concrete, and brick production but also to expand electricity access for their populations.

The Energy Transition and Policy Challenges

The conversation critically examines the push for an energy transition, particularly in the West, which heavily favors wind and solar energy. Makoak expresses skepticism about the sufficiency of these renewable sources to power a grid effectively, citing examples like the blackout in Spain. He suggests that policy decisions often overlook the tradeoffs involved.

He points to the PJM grid and the MYO grid in the United States, which are experiencing rising electricity costs due to policies that prematurely wean off dependable base load sources like coal and natural gas, while demand is increasing and capacity is decreasing.

Despite the push to phase out hydrocarbons, fossil fuel use has actually been rising over the last decade. Over the past two decades, fossil fuel use has increased by approximately 41%, with coal use rising by about 55%. Makoak anticipates this trend to continue, as hydrocarbons are currently the only viable means to meet both electricity and raw material demands. He also notes the paradox that materials needed for renewable infrastructure, such as steel for wind turbines and solar farms, are themselves derived from coal and hydrocarbons.

The "Not So Fast" Campaign and AI's Energy Demands

Core Natural Resources launched the "Not So Fast" campaign approximately two and a half years prior to educate the public, policymakers, and business leaders about the benefits of coal and the potential unintended consequences of a rushed transition to renewables. The campaign's core message is to encourage a closer examination of current energy policies and to acknowledge the lack of a clear plan for meeting future electricity demands.

A significant driver of this demand is the burgeoning AI revolution, with AI data centers consuming vast amounts of energy. The electrification of appliances and automobiles further exacerbates this. Makoak argues that nations leading in energy production, particularly in the context of the AI race, will likely gain a competitive advantage. He highlights that countries like India and China are actively building coal capacity, while the West is scaling back. This disparity raises concerns about the West's ability to maintain its position without sufficient reliable base load energy. Makoak suggests that expanding the capacity of existing coal fleets, with investment and potential policy changes, is crucial for the West to remain competitive.

Government Support and Energy Security

The discussion touches upon the Trump administration's focus on energy security. President Trump's statement, "Pound for pound, coal is the single most reliable, durable, secure, and powerful form of energy," is cited. Makoak recounts being present when President Trump signed executive orders on coal, including designating metallurgical coal as a critical mineral and opening up more federal lands for coal mining. The "One Big Beautiful Bill Act" signed in July is also mentioned for addressing tax credit inequities and supporting the coal industry's pursuit of energy dominance and independence.

These policies are seen as positive signals for the domestic coal industry, potentially leading to job growth in the US, contrasting with job losses experienced during the Biden administration. The US possesses the most abundant coal reserves globally, and leveraging these resources is seen as beneficial for the nation and its allies, ensuring reliable energy.

Return to Market Principles and Core Natural Resources' Role

Makoak advocates for a return to market principles in energy policy, where decisions are guided by supply and demand. He illustrates this with recent power auction results in the US: the PJM grid saw an 830% increase in the cost of power over two years, and the MSO grid experienced a 20-fold increase in power costs in a single year. These price hikes are directly linked to the equation of power demand versus available capacity.

Core Natural Resources is strategically positioned to address these energy needs. The company employs approximately 5,000 people and offers a diverse product range, mining both thermal and metallurgical coal in the eastern and western United States, including the Powder River Basin in Wyoming. They possess substantial export capabilities, with their own terminal on the eastern seaboard.

From an investment standpoint, Core Natural Resources' value proposition centers on returning shareholder value through share buybacks (approximately 5% of shares bought back in the first two quarters of the year despite soft market conditions) and dividends. The company is consistently cash flow positive and has focused on debt reduction, leading to a strong strategic position.

The leadership team at Core is described as "world-class," with CEO Jimmy Brock having decades of experience in the industry. Other key figures include CFO and President Mateesh Takar, Senior VP of Strategy Dex Sloan, and VP of Operations George Scheler, who oversees 11 mines and 8 longwalls.

Government Affairs and Innovation at Core

Makoak's role as Director of Government Affairs involves interacting with government at both state and federal levels. He notes frequent engagement with Hill staff, executive offices, and agencies on regulatory issues. The creation of the Energy Dominance Council by the current administration is highlighted as a significant positive development, providing a dedicated office to address energy-related challenges.

Core Natural Resources also boasts an impressive innovation group, which is unique within the coal industry. This group includes wholly owned subsidiaries like Seafoam and Touchstone Advanced Composites.

• Seafoam: Produces carbon foam from 100% coal. This material, resembling black brittle styrofoam, is used in aerospace and defense for tooling and creating molds for components like nose cones and airplane wings. Its desirable property is a low coefficient of thermal expansion, allowing it to withstand significant heat.
• Coal Plastic Composite Decking: A durable decking material developed from Core's coal, designed to withstand weather and closely resemble traditional decking.
• Battery Grade Anode Material: Innovations is developing a substitute for battery-grade graphite (98% of which is imported) using coal. This coal-derived anode material can be incorporated into batteries, supporting onshoring of production and enhancing energy security.

Conclusion and Resources

Makoak encourages the audience to visit thecoalhardtruth.com, a resource providing accurate, cited information on the energy industry, particularly coal, to combat misconceptions. He reiterates that coal is a necessity and will remain relevant for many years. Links to Core Natural Resources' website and social media will be provided in the video description. The discussion concludes with an appreciation for the insights shared and the importance of continued dialogue on energy policy.