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Whitehaven Coal ramps up production while New Hope and Anglo cut costs

At the recent Whitehaven Coal (ASX: WHC) Annual General Meeting, a diverse group of protestors (including a few in sharp suits) caught the attention of many with their signs. One large sign, looking like an enlarged certificate of merit, announced that Whitehaven Coal was winner of the fictional “worst investment” award.

The protestors may be exaggerating but they have a point. Relatively few current Whitehaven shareholders have made a decent return on their investment. Everyone else has lost money, on paper at least. Those who bought shares in late 2010 or early 2011 have lost two-thirds of their money, even accounting for the special dividend paid in 2012.

In comparison to Whitehaven Coal, New Hope Corporation (ASX: NHC) has had a relatively steady share price since 2007, and has absolutely thumped Whitehaven Coal. In particular, the share price performance since the middle of last year has differentiated the companies. It helps that New Hope is owned by Washington H Soul Pattinson (ASX: SOL), and therefore benefits from some of the best leadership on the ASX.

The Chairman of Whitehaven Coal is Mark Vaile, former leader of the Nationals. Interestingly, Vaile was also appointed Chairman of CBD Energy (ASX: CBD) in 2009. Shareholders of that company have fared worse than Whitehaven Coal. CBD’s share price has declined from above 15 cents in 2009 to the current price of 1.1 cent. The company has applied to be delisted from the ASX.

The SBS reports that Vaile assured investors at the AGM that Whitehaven’s current projects will pay off. He said that the company “doubled our coal sales in fiscal 2013 and have plans to more than double production again over the next three years.”

In comparison, New Hope announced in April that it was scaling back operations from its higher-cost Jeebropilly mine “in order to minimize costs during the current downturn.” Similarly, Anglo Coal announced recently that it would axe 200 jobs at the Dawson Mine in Moura. As with New Hope, Anglo is cutting costs due to the weak coal price and relatively strong Australian dollar.

Foolish takeaway

As I’ve written before the risks of investing in coal miners far outweigh the rewards. Investors who want exposure to coal mining, without the full commodity price risk, should consider an investment in an infrastructure company such as Aurizon (ASX: AZJ). Aurizon hauls coal on its rail network, and stands to gain from coal production whether or not the prevailing price is particularly profitable for miners.

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Motley Fool contributor Claude Walker does not own shares in any of the companies mentioned in this article.

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