Inderscience Publishers

Coal company valuation, production and reserves

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The primary determinants of the value of a coal company are its cash flows and earnings, which is dependent upon the quantity and quality of the coal it produces and coal selling prices; future production potential, which is described by its reserves; and its inventory of capital assets, mining equipment, infrastructure, and acreage. The purpose of this paper is to establish the relationship between the factors that determine company value for a cross–section of publicly traded North American coal companies for the year ending 2010. We review the consolidation trends of North American companies and the factors that impact company value. Companies vary in the size of their reserves and production, earnings, number and type of mines, use of technology and automation, areas of operation, sales markets, degree of diversification, and financial structure. We construct regression models for US and Canadian coal companies according to production, reserves, financial structure, and coal selling price. We show that reserves and assets are strong indicators of market capitalisation and enterprise value. Large producers exhibit a robust correlation between production and reserves, and small companies trade at a premium relative to large producers. We infer effective enterprise value and market cap for a sample of private companies. [Received: February 2, 2012; Accepted: May 7, 2012]

Keywords: company value, factor analysis, valuation modelling, coal reserves, coal companies, USA, United States, Canada, consolidation trends, regression modelling, coal production, financial structure, coal selling price, market capitalisation, enterprise value

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