Ricardo Pillai
4 min read
In This Article:
We came across a bullish thesis on Warrior Met Coal, Inc. (HCC) on Substack by Margin of Sanity. In this article, we will summarize the bulls’ thesis on HCC. Warrior Met Coal, Inc. (HCC)'s share was trading at $45.29 as of May 8th. HCC’s trailing and forward P/E were 22.92 and 5.13 respectively according to Yahoo Finance.
A coal miner in a thick protective suit and helmet drilling for coal under bright lights.
Warrior Met Coal (HCC) stands out as a deeply misunderstood yet potentially undervalued player in the metallurgical coal sector. Despite producing only about half the tonnage of Alpha Metallurgical Resources (AMR), Warrior commands a higher market cap of roughly $2.5 billion. At first glance, this seems puzzling given Warrior’s comparatively lower output, modest debt of $172 million (versus AMR’s debt-free balance sheet), and lack of aggressive capital returns such as buybacks. However, this apparent valuation premium starts to make sense when considering the quality of Warrior’s product, the strategic value of its Blue Creek expansion, and its operating resilience in challenging market conditions. Unlike AMR, Warrior produces premium low-volatility (PLV) and mid-volatility met coal—rare, high-margin grades that command premium pricing in global steel markets. While most steel is made using a blend of coals, PLV and Mid-vol remain the most sought-after due to their scarcity and superior metallurgical properties. Warrior also produces these grades at a cost advantage, roughly 10% lower per ton than AMR, positioning it as a more resilient producer during periods of price softness or broader economic uncertainty.
A key strategic asset is Warrior’s Blue Creek mine, slated to begin production in 2025, with output ramping up to 2.7 million tons in 2026 and stabilizing at 4.4 million tons by 2027. While capital-intensive projects typically raise red flags, most of the investment required for Blue Creek has already been deployed, leaving only around $300 million to complete the development. This positions Warrior for significant volume and earnings growth just a few years out. Once Blue Creek becomes cash generative, the expectation is that management will shift its focus toward capital returns—potentially initiating share buybacks similar to those AMR currently executes. Warrior’s cautious approach to returning capital, for now, reflects disciplined capital allocation rather than shareholder neglect, and that patience may soon be rewarded.
Beyond internal developments, the broader market context plays in Warrior’s favor. Supply of high-quality met coal remains structurally constrained as new mine development faces growing regulatory and ESG headwinds, especially in Australia, a leading exporter. On the demand side, while China may be cooling, India’s infrastructure boom is just beginning, and recycled steel has reached its limits in U.S. mega-projects, renewing the need for virgin steel and, by extension, metallurgical coal. In a future where fewer players control supply and demand steadily recovers, Warrior’s premium products could become even more valuable.
