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Coal, thermal coal for our purposes, is fired up. Does not look it, when you scan financial media on this arcane commodity. But it is. Or will be. We’ve been talking thermal coal since TCR’s visit to northern Mongolia — and briefly, Russia — 8 weeks ago.
Market Vectors Coal fund, or index, is making its biggest up-arrow move since June 2013. KOL (ticker in USA) represents 10 coal producers, led by China’s China Shenhua Energy Company Limited H Shares.
Coal prices, which are challenging to quote real time. The metric ton price, in dollars, depends on source location, shipment size and KCAl count — also percentage of sulphur, ash and other nasties. Also: tariffs if going cross border. Plus: user conditions for the mix. Is the carbon going straight into the smelter, so to speak? Or is the user blending the good stuff — 4,000 KCAl/kg and higher – with the mediocre stuff? On the profits side of the sheet: transportation costs for rail, ship and truck are a big deal.
The great recent year for thermal coal, which is No. 1 on the list of the world’s electricity fuels, was 2011. That is when so-called Newcastle coal rose to $140 per ton. It’s down to about $80: Australia, Colombia and South Africa are flooding the market, supposedly, with their thermal coal exports. That average price, assembled by World Bank, in actuality is 20 percent or more higher than what many producers outside of Australia, Colombia and South Africa get for their thermal. Signs of life? India’s 12 state-owned ports report thermal coal imports up 22 percent, to 71.6 million metric tons, for fiscal year 2013-14 that closed March 31.
India will have used in that fiscal year about 125 million or more tons of the high-quality coal, mainly for power plants, cement plants, steel plants, and even individual villages and small towns. Vietnam this year said it will be importing more thermal coal. Southern Russia is a white knight for the black hydrocarbon. Bordering Mongolia and into Russia, thermal coal is so valuable, it ranks almost up there with Olympic bronze and silver (but not yet gold) Olympics Games medals.
Several large coal producers’ shares are rising sharply in recent weeks. Recall that thermal coal is one of the few commodities that has yet to enjoy a resurrected price in the new century. TCR subscribers know that if we were not heading to Cambodia on Thursday for a priority review of Angkor Gold’s gold mine, which is under rapid development with an India partner, I today would be in southern Russia. (Brief addition on Angkor and its non-profit foundation at close of this report***.) I would be touring possible new buyers of thermal coal and dropping into Lake Baikal, the world’s oldest fresh water lake, for a brisk dip. The invitation, at my expense, is from John Lee at Prophecy Coal — the two-mine owner in Mongolia that I reviewed earlier in this year of 2014.
This second visit to Mongolia to see Prophecy (and fifth overall to that nation) defers to Cambodia. Mr. Lee appears to be working through Prophecy’s challenges. The shares (PCY in Canada) this week were removed from the British Columbia Securities Commission’s default list. The financial are out in full. The management discussion is in the filing. Yes, there is a long way to go on improved cash flow from the Ulaan Ovoo Mine, which appears to my eyes, as a writer and researcher, I remind you, to be experiencing gains in production, gains in resource and gains in quality levels for the thermal coal. Also: selective stockpiling of grades, marked by KCAL grade — photos, my own, on request. Prophecy is working with Mongolia’s Ministry of Finance on a customs clearing zone at Ulaan Ovoo to facilitate exports into Russia.
Mr. Lee on previous trips has signed more than one Russia buyer for the company’s high-KCAl coal and fewer than five, by my count. I also have witnessed plans to lay in fresh road from UO across the three dozen or so kilometers required to reach Russia paved roads, and also interior rail head. He has his critics, mostly because of a salary that at times approaches yearly half-million dollars. Continue reading