For many years, I have shied away from investing in stocks whose underlying businesses are closely linked with commodities. I find it really difficult to assess their business fortunes over a multi-year period because their business results are closely entwined with the prices of the relevant commodities, and I do not have any ability to predict these prices. A recent review of a company Jeremy and I looked at two years ago illustrates this difficulty really well.
Back in October 2024, Jeremy and I came across a company named Beaver Coal which owns land that it leases out to third parties for the extraction of timber and coal in exchange for royalty payments. At the time, around 70% of Beaver Coal’s revenue came from royalties linked to the extraction of coal, and the company had a high double-digit dividend yield that looked attractive on the surface. Here’s an edited reproduction of our conversation on Whatsapp about the company at the time:
[1:36 am, 25/10/2024] Jeremy :
Beaver Coal sounds interesting. At 12% dividend yield – 9% after tax, quite a decent return.
[5:12 am, 25/10/2024] Ser Jing:
I don’t find it interesting enough. The company owns land that it leases out to 3rd parties to extract timber and coal in exchange for royalty payments. About 70% of Beaver’s revenue comes from coal-extraction royalty, so it’s still very dependent on coal prices. Very similar to this company called Natural Resource Partners.
[10:59 am, 25/10/2024] Jeremy :
Actually quite interesting as the income likely gonna be quite stable barring some small fluctuations from coal prices. But yeah I guess the risk is if coal prices collapse but likely won’t anytime soon. The other problem is the reserve running out in 28 years so the share price will likely degrade over time as the cash cow dries up.
[11:03 am, 25/10/2024] Ser Jing:
I’ve yet to plot a chart of Beaver’s revenue against coal prices, so can’t tell how stable the revenue actually is. I did look at such data for Natural Resource Partners, and it’s not stable – still cyclical
[11:17 am, 25/10/2024] Jeremy :
Ya I cant see beaver’s historical revenue on TIKR. Have to look through the annual reports to see the past financial data.
[11:27 am, 25/10/2024] Ser Jing:
Haha yea, some of these obscure stocks have data that’s hard to find
[11:39 am, 25/10/2024] Ser Jing:
Beaver’s revenue and net profit fell in 2023
https://www.otcmarkets.com/stock/BVERS/financials
Natural Resource Partners had the same thing, and management said it was because of a decline in coal prices. So seems like Beaver Coal is in the same situation, where swings in coal prices will affect its revenue and net income.
Coal prices have continued falling in 2024, and Natural Resource Partner’s revenue and net income have declined double digits. So Beaver’s trailing numbers are not very useful.
[12:03 pm, 25/10/2024] Jeremy :
Thanks. I see. Yeah I guess these swings in prices can have quite a big impact
[12:24 pm, 25/10/2024] Ser Jing:
I keep waiting for a commodity-related company whose business is not affected by commodity price swings, but yet to find one. Even the royalty-based ones can’t cut the mustard.
[1:00 pm, 25/10/2024] Jeremy :
Haha but guess that’s the nature of it. That’s why trade at such nice valuations. When you add the low valuations plus the swings, I guess you still can make a decent return.
[1:14 pm, 25/10/2024] Ser Jing:
Haha still find it hard to make such a call, coz I can’t come to a view on whether the business can be larger in 5-10 years.
[1:20 pm, 25/10/2024] Jeremy :
Ah I see.. I see it as a diminishing business but the cash taken out of it will more than make up for the diminishing value of the asset.
A bit like real estate with a 28 year lease. Haha. You can just keep collecting rent, which will more than offset the cost of purchasing the property, whose value will degrade to 0 at the end of 28 years. But you must buy cheap haha.
Can probably do an IRR calculation based on the cash flow. The nice thing about Beaver is the capital is distributed. If it’s reinvested into lousy projects, then it’s hard to gauge.
[3:59 pm, 25/10/2024] Ser Jing:
What makes it difficult here is that Beaver’s net income can fluctuate wildly. The company distributes all earnings as dividends, so we can take the dividend per share to be equivalent to its net income per share.
Its trailing dividend yield is 12%, based on a trailing dividend of $400 per share. But this is based on 2023 financials. In 2017-2019, its dividend was around $225 per share. Coal prices in 2024 are already lower than in 2023, so the forward dividend yield is lower than $400 per share. If coal prices fall further from 2024 levels, then the dividend is likely going to be even lower.
This shows coking coal futures prices (coking coal is metallurgical coal) over the last 10 years. 2024’s prices for coking coal futures are similar to the period in 2017-2019. 2015-2016 prices for coking coal futures are about 50% lower than today’s level.
https://www.investing.com/commodities/coking-coal-futures-streaming-chart
I think it’s just very hard to make an accurate IRR calculation if we have no view on where coal prices go.
[4:04 pm, 25/10/2024] Jeremy :
Ah I see.. yeah very wild profit fluctuations. 2023 earnings don’t look sustainable. Maybe probably better to take the last 10 year average earnings as a gauge.
[4:09 pm, 25/10/2024] Ser Jing:
Yea, 2021 and 2022 were bumper years for Beaver Coal because coking coal prices rocketed. In 2023, coking coal prices started coming down, then continued falling in 2024.
[4:14 pm, 25/10/2024] Ser Jing:
Coking coal futures were around $1000-$1500 for 2017-2020. In 2021 and 2022, the futures reached a high of nearly $4000
[4:19 pm, 25/10/2024] Jeremy :
Big swing in the price. Seems like 2023 dividends was an anomaly. Probably closer to to 2017-2019 dividend of $225.
[4:19 pm, 25/10/2024] Jeremy :
In that case the valuation is still too steep. Especially after tax.
[4:24 pm, 25/10/2024] Ser Jing:
That’s my guess for now – but we’ll know in time when Beaver reports 2024 financials! Still worth keeping an eye on the company.
[4:25 pm, 25/10/2024] Ser Jing:
Yea, hence my earlier statement that I’m still waiting for a commodity-related company whose business is not affected by commodity price swings. Haha
I recently reviewed Beaver Coal after it reported its financials for 2025. It turned out that the company’s revenue, net income, and dividend had fallen materially since 2023, as shown in Table 1 below.
The culprit for the big declines was lower coal prices. According to the Coal 2025 report from the IEA (International Energy Agency):
“Coal prices averaging lower in 2025 than in previous years…
…After unprecedented prices in 2021 and 2022 amid the energy crisis, coal prices continued to be higher than the pre-Covid levels throughout 2023 and 2024…
…Met coal prices have followed a distinct trajectory since mid-2023, with significantly higher volatility compared with high-CV thermal coal. Prices exceeded USD 350/t in the third quarter of 2023, driven by rising demand from China and India. Market tightness eased in the second quarter of 2024, supported by increased exports from Mongolia to China. Since then, prices continued to decline, averaging USD 186/t in the first eight months of 2025.”
Beaver Coal’s arc in 2023-2025 is yet another important reminder to me of the significance a commodity’s price movement has on the business fortunes of a company whose revenues are linked to said commodity. This significance in turn makes it really difficult for me to assess the long-term future of a commodity-linked company when I have no ability to predict the price of the commodity in question.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I don’t have a vested interest in any company mentioned. Holdings are subject to change at any time.