Columbia has long been known for its exports. From flowers to coffee, the country exported around $55 billion in 2014. While coal may not be the first export to come to mind when you think of the third largest economy in Latin America, Columbia is in fact the fourth largest coal exporter in the world. It’s vast coal stock is thanks in no small part to its numerous coal mining companies, which have been known to produce as much as 25 million tons each year.
Columbia’s extensive trade relations and over 9,700 exporter companies enable it to export to 181 countries. It’s also a country with one of the largest annual increases in human resources. Columbia’s universities, of which 7 are ranked among the best in the world, have over 200,000 graduates each year. Among those graduates, 53% earned their undergraduate degrees while 28% completed their postgraduate education.
Columbia’s coal mining companies are focusing on high quality metallurgical mines, as high quality metallurgical coal is becoming one of the most attractive emerging markets. Since the start of 2014, $622.5 million have been put into Columbia’s bond market, representing the largest inflow received by any emerging market that year, according to the fund flow tracker EPFR Global. These impressive inflows significantly out-shined that of its peers. South Korea, Poland, and Greece each had less than $200 million in inflows to their bond markets in 2014. This popularity is likely in no small part due to the nation’s second lowest perceived default risk as measured by the behavior of its 5-year Credit Default Swaps.
What’s more, the Columbian economy in general is doing well. Columbia’s GDP has doubled in the first decade of the 21st century thanks to its strengthening macroeconomic variables and dynamic economic performance. The per capita GDP went from $5.826 in 2000 to $10.350 in 2012. Since then, Columbia has continued to grow at a rate of 4% to 6% per year, resulting in an overall GDP in 2013 of $378 billion. The 2% inflation rate is surprisingly low alongside the nation’s neighbors, Argentina and Brazil with 10% and 5.5% inflation, respectively.
With such a strong economy at its back, investing in coal through Columbia’s coal mining companies can be a great long-term addition to any portfolio. Why invest in coal? Besides the fact that it makes up a key part of Columbia’s export background, coal itself isn’t going anywhere. In 2013, coal remained the largest source of power in the U.S., accounted for 39% of American’s electricity, according to the Energy Information Administration. If coal mining companies are showing low valuations, that could be less due to the production and consumption of coal itself and more due to the public’s misconception of the value of coal mining companies. For savvy investors, a low valuation can signal great buying opportunities.
Not only is coal still an integral source of energy for even the most developed nations, but it’s also slated to play a major role in the growth of one of the world’s largest: China. With the potential for a long future ahead, buying the low-priced stock or bonds of coal mining companies and holding it over the long-term can provide a steady cash flow.
Among the best ways to gain access to coal investment is through coal mining companies; and where better to look than the coal mining behemoth that is Columbia? Columbia’s coal is often highly sought after for its low sulfur content. While there has been a slump in output for 2016 coal output, this is by no means an end all for coal producers in the nation. Many coal mining companies are reorganizing their budgets to improve productivity. The fruits of such labors likely won’t be noticeable for a couple years, yet, but if investing in coal is a long-term strategy, getting in before production begins to revamp could be a smart strategy.
The future of coal is hardly uncertain. Likewise, based on its growth trends, the future of Columbia is as bright as ever. Putting two and two together could be the makings of a strong contrarian investment.
