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Tuesday, August 01, 2006

Recovery of Coal

Stocks: (XOM)

By Yaser Anwar, CSC of Equity Investment Ideas

Coal in the U.S. is forecast by analysts to recover from a drop this year caused mainly by a mild winter.

Prices in Wyoming's Powder River Basin, the largest U.S. producing region, have fallen from a record $21.50 a ton at the end of last year to $11.50, according to data compiled by Bloomberg, while the eastern coal benchmark has declined 15 percent to $49 a ton.

Investors value coal reserves at a fraction of oil deposits. Peabody Energy's reserves are worth 7 cents per million British thermal units, a measure of energy content, based on the company's market capitalization.

At today's share price, Exxon Mobil Corp.'s oil deposits are worth $3.16 a million British thermal units.

That gap may narrow, raising the value of coal relative to oil, as more plants are built that allow coal to compete with oil.

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