Transcription
Hello everybody and welcome into Commodity Culture, where our goal is to make you a better investor in the commodity sector. My name is Jesse Day.
Before we dive in, standard disclaimer: nothing here is investment advice. Do your own due diligence. And today's guest is the director of government affairs at Core Natural Resources, a world-class producer of high-quality metallurgical and thermal coals for the global marketplace. It's Matthew Makoak. Great to have you on the show.
>> Thanks, Jesse. Great to be here. I am so excited to discuss coal on the program. It's a commodity that we don't talk about enough and for the general public out there, it's one of the most misunderstood and hated commodities around. We are always hearing reports that coal is going away, that it's bad for the planet, and that we need to phase it out as soon as possible. Let's start with clearing up some misconceptions surrounding coal. How much of this narrative is true and how much is false?
>> Yeah, thanks, Jesse. That's a great question. Great to start off with that. There's so many misconceptions about the coal industry. I'll start off by mentioning that 35% of the world's power still comes from coal. It's still the number one single, uh, single largest fuel where we get our electricity from across the globe. And global demand is at an all-time high. 2024, uh, was a record-breaking year, and it broke the record held by 2023, the year before that. So, that demand for global coal just keeps going up. Um, I don't think that's going to go down anytime soon. At the very least, it'll plateau. Um, but there's a variety of things that coal is still used for. So, you know, just to put that out there right up front, uh, the industry is, you know, we're firing on all cylinders. The demand is still very high.
>> And then in terms of the idea that coal is bad for the planet and we need to get rid of it ASAP, this is a lot of the rhetoric that comes out of the, the political class, um, as well as activists. Is that a real concern? Is, is there a difference between coal produced in one area versus another? Um, different types of coal, you know, we hear that lignite coal, for example, is one of the dirtiest forms of coal to burn. Maybe if you could help us parse through all that, that'd be great.
>> Yeah, there are differences in coal and, uh, I would say for us at Core, we mine some of the highest quality coal in the world. It's, it's our high calorific value thermal coal that's mined in southwestern Pennsylvania, a little bit of northern West Virginia as well. Um, but that has, it's very high BTU coal and so it burns a lot more efficiently than other coals, comparatively speaking. There's less emissions when it's burned, comparatively speaking. Um, also in the United States in particular, but, but in a lot of countries that still mine coal, um, particularly the United States, we're able to mine it a lot cleaner, a lot better, a lot more safely and efficiently than, than ever before. Um, since we have the most abundant reserves here in the states, um, we've been, you know, this industry has been going for a long time and we've, we've corrected a lot of mistakes from the past. We were able to evolve the technologies and get to the point where we can do it again more efficiently, more safely, um, and, and cleaner than ever before.
Can you help us understand the difference between metallurgical and thermal coal, the use cases for both, and why both versions of coal could be presenting an interesting investment opportunity right now?
>> Yeah, those are the, the two main, you know, when you split coal into different groups, those are kind of the two main groups. The metallurgical, as you mentioned, we, we also call it met coal. Um, that's used for primarily steel production. It's industrial use. A lot of it is coking coal. Uh, and so you can, you know, you heat it to a point where it turns into coke and the coke is a raw material that goes into steel. On the other side of that, you have thermal and the thermal coal is otherwise called steam coal, traditionally used in power plants, um, or steam engines to, to generate, you know, power or, or heat or electricity. Um, and the way that that's done is, you know, combust it, heats up water, causes that to boil, sends the steam up to a turbine, spins the turbine, powers a generator.
And then on the investment side, maybe some color on the supply demand fundamentals and, and why coal still makes sense to invest in because obviously a lot of investors have been scared away from the sector, particularly institutional funds, um, have gotten out due to ESG concerns, etc. A lot of that probably overblown. But from an investment perspective, what makes coal attractive right now?
>> I think what makes it attractive is its versatility. So right now, last year in 2024, we exported about 26 million tons of our coal. And that was both metallurgical and thermal. And so a lot of the, the uses that we're seeing that in where that demand is, is in developing economies that are using that for infrastructure development. There's also still about 774 million, uh, people worldwide that have never had access to electricity. So coal is one of the most affordable and abundant resources that's able to provide that electricity for these economies that are looking to grow and expand and industrialize, bring themselves into a new revolution there. Um, and so, you know, a lot of our customers abroad will, will buy the coal for not only, uh, the steel production and even concrete, cement, and, and brick production, um, but also just to get more of their populations on the grid.
>> That makes a lot of sense. I want to talk about the energy transition for a moment here because the policymakers and elite politicians in the West have been pushing for an energy transition involving mostly wind and solar energy for quite some time now. They seem to either not know or just not care that renewable energy sources are not sufficient to power a grid effectively. We saw the results of that with the recent blackout in Spain. Um, is this all due to these politicians pocketing a piece of the business side? Is this just plain ignorance? Is this trying to appease the voter base? What's your view on this whole push for a renewable energy transition?
>> Yeah, I can't speak to any motive, any of their motives. Um, but I, you know, I'm really glad you brought up the example of Spain. That's a pretty crucial one to take a look at. Um, I, I think when you're, when you're looking at, you know, when in terms of policy, when you're looking at things like this, you have to consider tradeoffs. And so you mentioned the Spain example. We also have examples in the United States we can point to as, um, you know, this dire need for power that's, that's ratcheting up the cost of electricity in the PJM grid, also the MYO grid, which is the mid-continent grid in the United States. Um, and that's all due to policy decisions that have tried to wean us too quickly off of these dependable base load sources of electricity like coal, like natural gas, oil, um, and, and try to push us into a, a future that demands more power. Uh, and we have less of it going with less capacity going into that. So, I think that's one of the, the main problems there.
And despite this massive push for the phase out of hydrocarbons, fossil fuel use has actually been rising over the last decade. Uh, over the last two decades, fossil fuel use has increased by around 41%. Coal use has increased by approximately 55%. Do you expect this to continue moving forward? Uh, for hydrocarbon use to rise up ahead and, and if so, why?
>> I don't want to predict the future, uh, you know, definitively, but look, I'll point to, to global demand again. Global demand has risen the last several years for coal, it continues to rise, um, and that's due to a variety of reasons. But, um, you know, hydrocarbons, coal, oil, gas, they're, they're really the only way that this demand can be met for both electricity and also raw materials. You also look at even if you have nations that are trying to rapidly transition to a, to a more renewable-focused power grid, you have to remember that steel, uh, you know, cement, all of these raw materials that go into producing wind turbines and solar farms, that's going to also come from coal and, and raw materials that are directly from hydrocarbons as well. So, you know, that, that demand, as that demand goes up, um, that usage is probably going to go up as well.
>> And the Not So Fast campaign, give us some insight on that. I want to read a quote from your press materials. It stated, "Society was moving too quickly toward renewables without considering the consequences. Coal has become key to our natural resources economy." So, talk to us about what's behind the Not So Fast campaign and, and the main message that you want to get out there.
>> Yeah, I'm, I'm glad you brought up that campaign. We've been having it. We had it going for about two and a half years. Uh, worked really hard on it and, um, we're really proud of, of what we made. So the, the, the idea of the campaign is to just, you know, obviously educate the public, policymakers, uh, you know, business leaders, the general public, really, about the benefits of coal and, you know, as you mentioned, there are benefits and drawbacks to that. We've kind of rushed too quickly without considering these unintended consequences. A lot of them are, I think we're starting to realize now, um, demand is, is shooting through the roof because of mainly because of AI generation, AI data center, uh, demand generation in the West, and also electrification of appliances, automobiles, all those things. Um, and so the, the campaign really tries to let to make the audience take a closer look at that and analyze what our current energy policies are and say, "Wait a second, maybe we shouldn't run headlong into this without having a, a clear plan of how to get this electricity because I don't think we do."
>> Yeah, I would tend to agree with you there. Now, we are seeing countries like India and China build up their coal capacity in terms of coal-fired power generation, whereas it seems in the West people are trying to scale things back. And we are entering that AI race, as you mentioned, AI data centers are now taking up a lot of energy. And it feels like in that race, those countries who are able to produce the most amount of energy could end up being on top. What, what is your view there on the fact that the West is scaling back versus places like India and China when it comes to coal-fired output and how that could impact everything?
>> Yeah, the, the AI race is, is probably one of the, one of the crucial questions that we have to wrestle with right now is how do we get there? How do we make sure that we are the ones, you know, that the West is the ones on top of this and making sure that we can win that race? Um, it's, it's all going to come down to how much reliable base load energy that we have and how do we expand that capacity. Even there are ways that we could expand the capacities of our current coal fleet right now. Um, you know, it's going to take some investment and maybe a little bit of time. Um, pro, maybe some policy changes as well to address some of these issues. But I think that has to be what we focus on and we, we can't let others win this race. This has to be, uh, we have to have the power to do it.
Well, there is a big push coming out of the Trump administration for energy security at home. I'm going to quote something from President Trump. He said, "Pound for pound, coal is the single most reliable, durable, secure, and powerful form of energy." How could the support of the current administration provide tailwinds for the domestic coal industry in your view?
>> Yeah, I think it already has. Uh, I'm glad you brought up the president. I was actually fortunate enough to be in the room when he signed the first executive orders on coal during this administration in April. Um, it was surreal. We, we're in the White House watching him, uh, sign these orders in front of some of our miners that were up on the stage. Um, it was a really great day. But, you know, among other things, it, it highlighted how much of a focus we need to have on coal, um, by making, you know, coal a critical mineral, especially metallurgical coal, a critical mineral for us, which is huge. Um, opening up some of the, some more federal lands for coal mining so that we can, we can harvest more American coal here. Um, do it domestically in, you know, the Western Hemisphere here. Um, and also there have been other pieces of legislation that have come out, namely the, the One Big Beautiful Bill Act that was signed in July. Um, it, you know, it addressed a lot of the inequities there with tax credit policy. Um, and also, you know, gave a, a lot of support to the coal industry to help us pursue energy dominance and, and energy independence, energy security so that we can, we can feel secure moving into the future.
And how do you think these policies coming out of the current administration could affect the employment picture when it comes to the coal industry? Because a lot of that, I remember in the Biden administration, that a lot of the coal mines were shut down. There, there was a lot of headlines about that, people losing their jobs. Um, do you think things are going to turn around for the better now when it comes to the coal mining space in the US on the employment side?
>> I hope so. Well, you know, I can't speak for the whole industry or, or try to, um, to predict too much. Um, but I think that, you know, these, these, these policy, um, signals that we've been getting are, are positive to the industry and have really prompted a, a harder look at how do we expand what we currently have, at least in the United States. We have, you know, again, the most abundant reserves of coal in the world. So, how do we take advantage of that to our benefit, to our allies' benefit, to all of our benefit so that we can have reliable energy? And I think that since there's been so much attention on that, um, there's a potential for growth there.
>> Now, you also discuss in the Not So Fast campaign a return to market principles where energy policy realigns with free market fundamentals. Walk us through how you see that playing out.
>> That is, it really comes down to supply and demand. If you look at some of the recent auctions, the power auctions in the United States, which I, I brought up briefly earlier, but the PJM grid in the northeastern part of the United States last year during the, the base residual auction saw an 830% increase in the cost of power over the last two years, the previous two years. Um, similarly, this past year, the MSO grid, uh, saw a 20 times increase in the cost of power since just last year. And all of that is driven by this equation that they do based on supply and demand. How much power do we need based on projections, based on the, you know, the current demand that's out there right now? How much do we have available in terms of capacity that dictates the price?
Let's discuss how Core Natural Resources fits into the picture. Could you start by giving us an overview of the company and why you believe it's well positioned for this new energy future you've outlined?
>> Yeah, Core has about 5,000 employees and we're, we're pretty, we're pretty well strategically positioned. Um, mainly because of the diversity of products that we offer. So, we, we mine not only thermal metallurgical coal, we, we mine coal in the eastern part of the United States, also out in the West. Um, some of the Powder River Basin in Wyoming. Um, and we also have substantial export capabilities. You know, like I said, in 2024, um, we exported about 26 million tons and we still have the capabilities and the capacity to do that. We own our own terminal, um, on the eastern seaboard, which is very helpful. And on top of that, too, I, I think that central to the company's value proposition to our shareholders is returning shareholder value, and we've done that even despite soft market conditions over the first two quarters of this year. We were still able to buy back about 5% of shares.
>> That's great. Could you walk us through Core's projects, its overall business model from an investment standpoint? What are the main factors potential shareholders of the company should be focused on?
>> Yeah, I think that value proposition is crucial. That's, that's central to what we're doing is just trying to return value. Um, we are, you know, we're consistently cash flow positive and, and we, um, you know, we've taken steps to pay down our debts over the last several years, um, which has allowed us to, to have a very strategically strong position. And, and I think that, you know, investors should just focus on the, the fact that our value proposition is very strong, um, to toward them, to, you know, to return the value to them. We do that in the form of not only share buybacks but also dividends too. We have a, a pretty strong, um, you know, dividend and, and stock buyback program.
Could you shed some light on the team behind Core and how you plan to leverage their expertise to continue to move your projects forward?
>> Yeah, we have a, a world-class team here at Core. Our CEO is Jimmy Brock. He's been in the industry for, uh, for many decades. Started actually in the coal mines of, I believe it was down in Virginia, Kentucky area, down on the border. Uh, worked his way up through the company, was with the same company his entire career, and he's now at the helm as our CEO. Um, knows everything there is to know about coal, about the industry, and he's a, he's a strong leader. So, he's, he's the head of the company. He's also our chairman of the board. Um, we have a strong financial team as well. Mateesh Takar is, is our, uh, chief financial officer and president. Uh, we have a, a strong strategic team. Um, Dex Sloan, our senior VP of strategy. And then we have George Scheler, who oversees our operations. Uh, he's been in the business for a long time as well. Um, knows everything there is to know about the operations of the coal mines and, you know, since we have 11 mines and eight long walls, uh, that's, it's quite a job. So he does it very well. And, and the rest of our leadership team, too, is, is incredible. Um, you know, Erica Fischer, our PR person and our communications person, Kurt Salvatorei, he's been in the industry a while as well. Um, and so our leadership is second to none.
>> I'd love to get some insight on your own position as director of government affairs. How does that work in terms of interacting with the government? Obviously, you mentioned you were there when President Trump was signing that executive order, which is pretty exciting. Um, how much direct contact do you have with the US government and are you seeing more and more signs that they're be, aside from what we've already discussed, that they're becoming more favorable on the coal industry?
>> Yeah, that's a great question. Um, you know, I, I work at both the state and the federal level and, uh, we do interface with government employees at the, at the federal level quite often. Um, at least, I mean, I would say every day for a variety of issues and, you know, that runs the gamut from Hill staff, uh, to executive offices, um, you know, the White House, or even just agencies on regulatory issues as well. And I think one of the, the best things that this administration has done so far in terms of coal policy or energy policy in general is the creation of the Energy Dominance Council. And that has been a, a huge help for the administration and for, for all of us in the energy space to have a, a go-to office that that can kind of, you know, take our issues in stride and, and figure out how we come up with creative ways to solve problems. So, that has been a, a really, you know, really positive aspect of the administration so far. That Energy Dominance Council is a huge help.
>> So, you also have an innovation group at Core Natural Resources. Uh, what do they do and, and, and how do they help the company?
>> Yeah, Innovations is, uh, incredibly interesting. It's, I love talking about it. I think we're one of the only coal companies that has something of this, this caliber. But, um, Innovations is comprised of, it's, of course, an entity of Core Natural Resources, but we have other wholly owned subsidiaries as part of that. Um, Seafoam, Touchstone Advanced Composites are just a couple of them. Those two are in the business of producing Seafoam. It's carbon foam. Um, which is a material that's made from 100% coal. It comes out of, of the ovens that we cook it in looking like a black brittle Styrofoam. Actually feels like a pumice stone, and that's used for aerospace and defense applications in the tooling. Um, basically making molds to, to form nose cones, airplane wings, those types of things. Um, it has what's called a low coefficient of thermal expansion, which means it can withstand a lot of heat by comparison to other materials. So that's why it's so desirable in that field because they need, uh, material that can withstand large amounts of heat when they're forming these, these components of aircraft and, and other, other craft. Um, in addition to that, we've, we've really branched out and we're trying to capture even more of the coal value chain. I think we've only just scratched the surface. Um, we also have developed a, a coal plastic composite decking material, um, that, that we've been working on over the last several years through a few iterations. Um, but it stands up to weather very well. Um, it's, it's sourced from our coal here and, and looks like something that you would have on your, you know, your back porch or your, your railing. Um, it, it just looks so similar to that you can't even tell the difference, but it's, it's made here from our coal. Um, and lastly, you know, one of the other things that Innovations is doing is trying to, uh, come up with alternative solutions for battery production. About 98% of battery-grade graphite, um, comes from overseas. Somewhere, um, mostly in the, in the Far East. But what we've been doing at Innovations is using our coal, we've created a substitute for that. It's a battery-grade anode material made from coal. Um, and so we can, we could put that into batteries and, and basically try to onshore more of that. Um, keep that production here and, and, you know, that obviously supports our energy security, energy independence here.
>> That's very interesting. Coal-powered batteries. I've, I've never heard of coal being used as a battery component. So, there's a lot of uses for coal yet in what many would consider the renewable energy world, which is really cool. Now, I want to end by opening the floor to you. Is there anything we haven't yet covered or anything you think it's important to emphasize when it comes to Core Natural Resources, uh, and the Not So Fast campaign?
>> Yeah, you know, you, you, uh, mentioned the Not So Fast campaign earlier, too, and I would encourage your audience to check out the website. It's the coalhardtruth.com. And that website, uh, was meant to be a resource for the general public, for policymakers, for, for anyone who goes there that, that is seeking information, accurate information on the energy industry, but specifically coal. Um, as we talked about in the very beginning, there's so many misperceptions to the industry and we wanted to put the information out there. It's all cited. We, we combed through, made sure that everything is accurate. We use primary sources. We use government sources, reports, everything that we could find that's that's credible information to put out there. I think the statistics speak for themselves on the state of the industry, where we are right now, and the fact that we, you know, the coal industry is, is going to be here for many years just because we need it. It's out of necessity. A lot of people don't realize that and that website is hopefully a great resource for your audience to learn more or at least, um, arm them with some, a little bit of knowledge so that they can keep the conversation going and branch out into new topics too. So I'd encourage everyone to, to take a look at that. Um, again, the coalhardtruth.com.
>> I will put that link in the description below as well as a link to Core Natural Resources website for people who want to follow along with the company on social media as well. So be sure to check that out. Matt, thank you so much for coming on. It's been a blast.
>> Thanks, Jesse. Had a lot of fun.
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