L and L Energy (LLEN): Acquiring existing mines more cheaply than it can dig new ones

By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report

From Cabot Wealth Advisory, 8/12/10. Sign up for free Cabot Wealth Advisory e-newsletter

An interesting random news story essentially picked today’s stock for me. I had attended a presentation for L&L Energy (LLEN) last month, but I didn’t see anything about the stock that indicated to me that it was ready to take off.

Then I saw an August 10 PR Newswire story announcing that Norman Mineta—a former U.S. Secretary of Transportation under George W. Bush and Secretary of Commerce under Bill Clinton—had joined L&L Energy’s board of directors.

If this was a cheap trick intended to borrow a little credibility from a former high-ranking official of the U.S. government, I have to admit that it worked. At least it got me to take another look. And I liked what I saw.

L&L Energy is basically a Chinese coal company, producing both thermal and coking coal. But it has one key difference from a pick-and-shovel miner.

The company has realized that it can acquire existing mines more cheaply than it can dig new ones. And since the government of China has announced that it wants to shut down all mines that produce less than 300,000 tons per year, it’s a great environment for acquisitions. L&L, which was formed originally to help Chinese companies access U.S. capital, has already acquired three operating mines, two coal-washing facilities, a coking facility and a coal wholesale and distribution network in China.

L&L’s coal washing yields cleaner-burning coal and plans are already underway to increase capacity.

With triple-digit growth in both revenues and earnings in the last three quarters (plus a P/E ratio of just 9), LLEN looks like a good way to play a country that uses nearly 43% of the global total of coal burned every year and gets 71% of its total energy from the black rock.

Editor’s Note: Click here to learn about Paul’s top emerging markets stocks: Cabot China & Emerging Markets Report.

Paul GoodwinPaul Goodwin

Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.