Coal as a regional power source was under attack from three fronts: environmental concerns, the promise of advances in alternative energy technologies, and the prospect of gas-powered plants supplied by reserves in the former Soviet Union and the Middle East delivered via new pipelines along with advances in liquefied gas technology.

Yet all three premises have been increasingly exposed to vulnerability over the last few years: advances in “clean coal” technology development, lack of state funds to subsidize electricity from alternative sources, and increasing concern about energy security—essentially a euphemism for fear of dependence on Russian gas, especially following the January 2009 gas crisis. However, the bottom line is that although the share of coal in overall electricity production in the EU is forecast to drop just slightly lower than the current level of one-third by 2030, EU electricity consumption is forecast to rise approximately 1.8 percent annually for the foreseeable future, despite the renaissance of nuclear power. And this means a steady in demand for coal amid falling production levels on the Continent. 

Second, demand for steel in China and India has shown a steady recovery since the slump in 2008, and with urbanization set to continue over the next decade, demand for steel is forecast to remain steady and assure consistent demand for hard coal by the metallurgic sector.

All these factors suggest that New World Resources (NWR), Central Europe’s largest coal mining company listed on the Prague, London and Warsaw stock exchanges, should represent a safe mid to long-term investment, especially given the spectacular slump in price in Q4 2008—common to practically all mining and metals companies—and the slow but steady rise in the stock price as of Q2, 2009.

Nevertheless, the NWR stock price fell by an alarming 13.05 percent Feb. 4, the day after the company announced brief performance update for 2009 and sales contract volumes and provisional pricing for 2010. Undoubtedly, the fall was partly caused by the overall fall on commodities markets on the day and fears of a slump in the euro, which could complicate the company’s exchange rate presumptions: NWR’s 2010 forecasts are based on a rate of Kč 24.5 to the euro. Also on Feb. 3, NWR revealed its CAPEX for 2009 was around 7 percent higher than the forecast €234 million. However, the main reason for the fall was analysts’ reaction to NWR’s expectations for 2010. “It turned out that some expectations were set too high and large players from abroad probably started to sell NWR shares,” Josef Nemý from Komerční banka said. Moreover, on Feb. 3 Bank of America Merrill Lynch (BoA/ML) cut the stock to “neutral” from “buy,” reduced its price estimate to £7.50 from £8.75, and revised the earnings forecast for the title down 46 percent to £0.37. Analysts predict that Czech-owned NWR shares could fall further in the short term.

Nevertheless, the Czech and Polish coal mining sectors are undoubtedly very well positioned on the EU market. In addition to the large reserves, the Czech coal sector is fully competitive, i.e. it does not receive any state aid and, the Polish sector—where NWR is investing and anticipating sector privatization—is expected to remain profitable after subsidies stop at the end of this year. This contrasts sharply with Germany, for example, where the industry is a serious burden on the state coffers and plans are in place to cease all production by 2018, despite the fact that coal still accounts for 50 percent of the country’s electricity generation.