CoalAI.

Ok, it's not entirely an AI company – but at least it makes money! Scroll to the second section (i.e. CNR) if you don't want an update on AI and the state of the market.

The Pre-Coal

We've written extensively on how the AI trade is getting overstretched and tired. This piece will focus on the opportunity in CNR (Core Natural Resources), but let me update you on the state of the market before we get to it.

Our last piece focused on Micron's last quarterly results – touching on how the current Brute Force paradigm in AI has affected the whole supply chain.

Flash Philo on Memory

The cure for high prices is high prices. June 2026.

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• We layered a cost dimension in our analysis of the AI cycle – while those we broadly label as technologists are unwilling and unable to.
• We showed in last month's Flash Philo on Memory that the overwhelming increase in Micron's revenue was from sales price increases, rather than absolute unit sales (bit) increases.
• In other words, Micron (and the broader Memory sector) is milking the AI trade for as much as possible, for as long as possible. While we take no capitalistic offence with that, we take note and make sure to not get confused – like those who seem to believe that the memory cycle has been abolished.

• In February of this year we published Low Hanging Compute, to discuss the twin concepts of Compute as Intelligence and Technological Determinism.

• Stock valuations of Hyperscalers are starting to suffer while investors are pushing back against infinite AI capex budgets, with questionable ROI.
• Elon's SpaceX is down 40% from its post-IPO spike high, as META signalled that it will enter the compute selling business (i.e. Cloud).

The Alchemy of Elon - Part 1

Space Crusade. Elon’s Premium.

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• We published on SpaceX last month, a company that names itself after Space but projects 80% of its revenues to come from AI. Not a good look, especially at a ~$2 trillion valuation...

...But as I said, we've written about all this extensively. Today we are here to layer on a trade that diversifies from the AI trade – while still benefitting from it.

CNR: Core Natural Resources

CNR is the result of a merger between Consol Energy and Arch Resources, finalised in January of 2025. The merger puts together two giants in the Coal sector, but with different coal production profiles.

Consol Energy was primarily a thermal coal producer and Arch was a leader in metallurgical coal. Thermal is used for power generation and industrial applications while metallurgical (i.e. met coal) is used for the production of steel.

By combining the two businesses, CNR now benefits from diversification across coal segments, shielding it from prolonged downturns in one of the two. But that's not all – considerable cost synergies have been promised as a result of combining these two coal giants. In the region of $150mln annually.

CNR boasts a robust balance sheet running in net cash, and distributes 75% of FCF to shareholders – the bulk of which goes to share repurchases.

Due to the re-ignited interest in coal as an energy source in the past few years, coal companies had the ability to pay down debt and accumulate tons of cash in the process.

CNR now has a completely different profile than the pro-forma entity did several years ago.

Range of Outcomes (and the Big Bucks)

In Module 14 of the course at Philo's Academy, we introduced the concept of Range of Outcomes – an intangible dimension to investing that we've been discussing for years. You can read more about it here.

Bad Companies & Value Traps

Rule #1: Don’t lose money.

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We put the lessons of the article in practice with our article on Transocean – breaking down "intellectually" why shares in RIG were a negatively skewed bet.

But while both RIG and CNR rely on unpredictable commodity cycles – the predictability in the one is completely unlike the other.

Let's first look at the Coal cycle at a high level before getting into the details of this opportunity.

The Cycle(s)