Coal companies are locking in some advantageous deals, as the broad economy juggernaut rallies forth. Look out for coal stocks in 2010.
By Kishori Krishnan Exclusive To Coal Investing News
Corporates are showing the way. Coal miner Consol Energy’s board has approved a capital budget of $1-billion for this year, including $400-million for subsidiary CNX Gas Corporation, in which Consol is a majority shareholder.
The firm, which has begun to see the end of a once-in-a-generation recapitalisation of its fleet of longwall mines, has indicated that the gas business will be the focus for growth going forward.
Consol Energy Inc (CNX.N) has budgeted $500-million for coal operations this year, and $100-million for other activities, the firm said on Monday.
Consol has 12 bituminous coal mining complexes in six states and has proven and probable coal reserves of 4.5-billion tons.
The coal budget for 2010 includes $130-million in efficiency projects for longwall face extensions and overland conveyor systems, projects which the company committed to before the economic downturn and which are expected to help lower unit costs.
Late last month, a federal judge had allowed the company to continue mining at its West Virginia surface mine.
Consol Energy had reportedly said it would lay off workers at its Fola Coal operation beginning February 7 because of US District Judge Robert Chamber’s ruling to suspend several valley fill permits at the mine.
Other news that buoyed the market was the report that global miner BHP Billiton has offered to buy the Australian state of Queensland’s coal freight business.
Also, Griffin, Western Australia’s oldest coal miner, appointed an administrator January 3 after it couldn’t pay interest on $475 million of bonds.
Vancouver-based Teck Resources $14-billion takeover of Fording Canadian Coal Trust has also come under the spotlight. The deal, if it fructifies, will give the firm sole ownership of the massive metallurgical coal resources in BC’s Elk Valley.
After a $1.5 billion US equity infusion from one of China’s sovereign wealth funds, a $4.225 billion US issuance of five, seven and 10-year bonds, and a series of strategic asset sales, the company’s status as Canada’s largest publicly-traded base metal producer seems secure.
Leighton Holdings Ltd (LEI.AU) said Tuesday it has been awarded a 12-month contract extension worth about A$140 million at Tarong Energy’s Meandu coal mine in Queensland state.
Another news report that Queensland-based Macarthur Coal, already the world’s largest producer of low volatile pulverised injection coal, offered to buy fellow Australian Gloucester Coal, to add two new mines and increase coal resources, supported the coal market.
If the Middlemount and Donaldson transactions are completed, Macarthur will pay Noble A$ 175-million and 22.5-million of its shares.
Macarthur said the deals being proposed would make it Australia’s leading independent coal producer, with a market capitalisation of about A$ 3.4 billion.
Still on Australia, the Queensland Resources Council has said that the coal industry can expect ‘steady growth’ in the year ahead. Chief executive Michael Roche said new coal export records are likely to be set this year, given the short-term contract prices for coal. These are an indicator of how prices will perform in the longer term.
“Spot prices have continued to strengthen in the second half of 2009 and that does point to contract prices for coal coming in somewhat stronger,” he said.
Sustainable mining in the US has also ensured fewer mining fatalities. Coal mining states have also toughened their mine health and safety laws and stepped up enforcement.
The number of miners killed on the job in the United States fell for a second straight year to 34, the fewest since officials began keeping records nearly a century ago.
Coal mines recorded 18 mining deaths, and metal/nonmetal mines recorded 16 mining deaths, for a combined total of 34 mining deaths nationwide.
That was down from the previous low of 52, in 2008. The federal Mine Safety and Health Administration documents show 18 of the deaths occurred in coal mines, down from 29 in 2008; 16 were in gold, copper and other types of mines, down from 23 in 2008.
Meanwhile, Japan’s steelmakers are increasingly finding themselves in a difficult position in talks over coal and iron ore prices, with global titans like BHP Billiton, Rio Tinto and Vale following the emergence of China and India as big rival buyers of such raw materials.
To aid supply, the world’s No 6 steelmaker JFE Holdings, said it would invest $560 million in an Australian coal mine, in a move to counter global mining giants’ tightening grip over prices of key steel-making materials.
The unit of Tokyo-based JFE Holdings Inc signed a long-term contract to secure 2 million metric tons of hard coking coal annually from the Byerwen coal mine.
Coalcorp owns the La Francia coal mine in Colombia, as well as interests in two ports, a rail-line operator in north-eastern Colombia, and a number of coal exploration properties in the country.
The company failed to make the payment to preserve its cash position. It has 30 days to make the payment to avoid default.
As the firm scrambles for interest payment of around US$ 7 million, reports suggested the firm’s options include sale of the Colombian mine.Coal miner SouthGobi Energy Resources climbed 74 cents, or 4.3 per cent, to $17.84 after the company announced it would raise $400 million in an initial public offering in Hong Kong. The company plans to extract 1.5 million tonnes of coal from its mine in Mongolia, located 40 km north of the border with China.