The answer, once you cut through the jungle of conflicting views about coal, boils down to the simple fact that Peabody wasn’t profitable whereas Whitehaven is.

Debt, a massive pile measuring US$6 billion in the case of Peabody, was a major reason for the company’s descent into Chapter 11 bankruptcy protection.

Low coal prices were also a factor but that debt load, taken on to fund a helter-skelter expansion drive at a time of higher coal prices, was Peabody’s real killer.

Whitehaven, on the other hand, has been learning how to survive at a time of low coal prices and, after the significant expansion at its Maules Creek mine in New South Wales, has entered what management calls a “cash harvest mode”.

Over the next few years, Whitehaven is even tipping increased rates of production and growing profits despite coal slipping into an investment category occupied by other ‘sin stocks’ such as tobacco, alcohol and gambling.

What seems to be happening is that a cloud of moral indignation has enveloped the coal world as environmental protests about all forms of fossil fuel mask the reality that coal remains a legally produced product that is not fading away but is actually enjoying growing demand.

Low prices, a factor in the death of Peabody, are one of the reasons for increased coal demand especially in Asia where smoke from burning coal is being tolerated because it is providing affordable electricity to industry and households.

Debating the pros and cons of coal is an interesting topic and one which generates strong views, largely from environmental activists who see coal as a threat to the future of the world with politicians in third world countries expressing opposite views as they look for ways to lift living standards.

What seems to be missing from the debate is a dispassionate analysis of coal as a commodity and the role it plays as an essential source of electricity at a time when alternative and renewable sources of power are evolving and have a long way to go before the replace coal, if ever.

And then there’s the question of coal as a business and whether claims of its imminent death fall into the position that US author Mark Twain found himself when rumours of his death circulated and he was able to announce: “Reports of my death have been greatly exaggerated”.

Just as debt killed Peabody, not an anti-coal crusade, so too is the business case for coal being misinterpreted, just as it has been for those other sin stocks, tobacco, alcohol and gambling.

Apart from Whitehaven’s rising share price – and buy tips from big name investment banks such as UBS, Credit Suisse, Deutsche Bank and Morgan Stanley – there have been four other recent developments which defy the popular view about the imminent death of coal. They are:

• News that the latest long-term thermal coal contract between Australian miners and Japanese power utilities was substantially higher than expected. At US$61.60 per tonne it is down 9.1% on last year’s price fix but US$10.80 higher than the latest spot price, the biggest gap of contract over spot in 15 years;
• Rising prices for metallurgical (steel-making) coal with analysts at the consulting firm, Wood Mackenzie, tipping further price rises later this year;
• A complaint from Patrick Pouyanne, chairman of French oil company Total, that there is “a shift from gas to coal in Asia” because the coal price has collapsed at the same time as the gas price; and
• The economic inevitability of high-cost coal being forced out of the market (bye bye Peabody) only to be replaced by low cost coal (hello Macarthur), a process straight from an economics 101 course.

Coal is not everyone’s preferred fuel or a favoured investment but, once you consider the question of investment, another issue rises and that is the revival of the tobacco debate.

Back in the 1980s tobacco was the target of the health and morality police but whether anything has been achieved by sending tobacco to the sin bin now seems doubtful as sales of the cancer-causing material continues to rise, as do the profits of tobacco companies.

Coal and tobacco, it seems, have more in common than producing smoke when they’re burned. They also have a capacity to burn the money of investors who ignore them.

Just how costly the tobacco ban has been is interesting because if coal is travelling the tobacco road the monetary cost of divestment could be in the same league.

Two tobacco examples can be seen a possible coal-divestment precursor.

Norway’s oil fund, one of the world’s biggest, admits that it has forgone US$1.9 billion in profits by quitting tobacco stocks, and Calpers, the Californian State pension fund, has missed US$3 billion in profits by selling all of its holdings in cigarette makers such as Philip Morris.

According to one study, an index of tobacco stocks has returned 11.29% on funds invested over the past 10 years whereas an index of all major global stocks has returned 2.13%.

An example of what might happen with coal stocks over the next 10 years can be seen in Whitehaven. Its 122% share price rise from A35 cents in February to A78 cents today compares with a 9% rise in the Australian stock exchange’s all ordinaries index over the same time.

Anti-smoking and anti-coal campaigners can claim the moral high ground. Tobacco producers in the past, and possibly coal miners in the future, are left holding a bag of money.

For more comprehensive global mining investment and business coverage, go to www.mining-journal.com