Going Against the Fear Curve: Dan Chu on the Coal Market
At the 2014 Coal Association of Canada Conference and Trade Show, seasoned metals and mining investment banker Dan Chu shared his views on the coal market and tried to answer the question "is now the time to invest?"
Investors in search of a coal industry expert could certainly do worse than Dan Chu. He's the managing director of mergers and acquisitions at Deutsche Bank (NYSE:DB) in New York, and has spent the last 25 years of his life facilitating major transactions, mostly within the coal space. At the 2014 Coal Association of Canada Conference and Trade Show, held in Vancouver from September 10 to 12, Chu shared his views on the coal market and tried to answer the question "is now the time to invest?" While stressing that his specialty is making the market rather than timing it — he is an investment banker and not an analyst, after all — he offered some valuable observations and suggested that going against the grain might be a good approach to consider. The fear curve "The last time it was the right time to be investing in coal was probably in the late 2000s and early 2010 era," Chu said. He noted that large institutional investors like BlackRock (NYSE: BLK) and Fidelity went from owning very few shares in coal to "dominating the share registers of most large coal companies." At the same time, "the sector funds couldn't get enough exposure." Furthermore, companies like Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO), Vale (NYSE:VALE) and Cliffs Natural Resources (NYSE:CLF) were all busy acquiring coal projects. It certainly seemed that everyone was busy securing a stake in the coal market at that time, giving coal "the focus of the sharpest minds and the biggest wallets." Overall, the industry was enjoying cost curves that "reflected the sum of all our hopes." However, as coal investors know too well, the market turned, and the price curve changed its mood. Today, it "reflects the sum of all our fears," the banker said, noting that momentum funds have left the sector, while large institutional funds no longer hold large positions. "They are trying to slowly decrease the exposure they have in coal companies," he said.