Industrial Metals

There is a real, physical demand for commodities and coking coal price is expected to jump by 36% in 2010, forecast analysts.

By Kishori Krishnan Exclusive To Coal Investing NewsShowing the way

A much needed infusion of funds is expected to take place. A rebound in prices of coking coal, used to make steel, is also expected to underpin an investment boom in Queensland.

The world’s biggest miner, BHP Billiton, is set to inject US$ 267 million to speed up the development of its Queensland coking coal mine and a terminal expansion.

The funds would be used for feasibility studies, procuring long-lead-time items and initial project activities for the Caval Ridge mine and the Hay Point Coal Terminal stage three expansion.

BHP and Japan’s Mitsubishi own the projects jointly through the BHP Billiton Mitsubishi Alliance, the world’s largest exporter of coking coal.

The global financial crisis had stalled all development. In July, the coal major had announced that the start of its biggest production growth development, the Caval Ridge mine, had been delayed by two years because of slowing global steel demand and production cutbacks.

The Caval Ridge project, in the Bowen Basin, was expected to produce an estimated 5.5 million tonnes annually of high-quality coking coal from the Caval Ridge mine and an incremental 2.5 mtpa from the Peak Downs mine.

The terminal expansion is expected to increase the annual capacity of the Hay Point Coal Terminal from 44 mtpa to 55 mtpa.

Coal price

Coal prices did nothing for six months, making it an unattractive market, but institutional money came back in heavily this week, some analysts have said.

What has also boosted sentiment is that, last week, Deutsche Bank AG raised its forecast for 2010 coking coal prices by 36 per cent to $175 a metric ton because of the return of “real physical demand for commodities.”

Australia’s Queensland state posted a 48 per cent jump in exports last fiscal year, overtaking New South Wales as the nation’s second-biggest exporting state.

The value of overseas sales from Queensland rose to A$ 65.5 billion in the fiscal year ended June 30, the biggest increase among the nation’s states and territories, according to a government report.

Western Australia, which accounts for a majority of shipments to China, remained the leading exporter with a 24 per cent gain to A$ 92.1 billion.

“Strong commodity prices, demand from China and Australia’s diversified trade base were factors in the resilient performance of the nation’s exporters in the face of the global economic crisis,” Federal Trade Minister Simon Crean said.

Cloudy skies

All is not hunky dory though. The world’s largest producer of thermal coal, Xstrata (XTA:L)  has halted output at its Australian mine over a strike.

The company has said the strike at Bulga, one of its Australian coal mines over a wage dispute, has been extended by 24 hours and will significantly interrupt operations.

Bulga produces around 8 million tonnes of thermal coal used in power generation and semi-soft coal for steelmaking for export.

The Bulga operation is 87.5 per cent owned by Oakbridge Pty Ltd, in which Xstrata holds a 78 per cent shareholding. Nippon Steel owns the remaining 12.5 per cent.

And away in Canada, Coalcorp Mining Inc (TSX:CCJ) said Blue Pacific Assets Corp has threatened to ask a court to block the proposed sale of the Francia mine and related infrastructure in Colombia.

Toronto-based Coalcorp is suing to, among other things, nullify a royalty agreement reached by its former management and Blue Pacific. Blue Pacific has now given Coalcorp until 5 pm ET on Wednesday to pay about $2 million of royalties that are purportedly overdue and to terminate the proposed sale of La Francia for US$ 150 million to Goldman Sachs.

China, India

Rising demand for coal to fuel power stations and for use in steelmaking in the world’s two fastest-growing major economies is driving Chinese and Indian companies to seek acquisition targets in Australia.

Last month, China’s Yanzhou Coal Mining Co completed a A$ 3.5 billion acquisition of Brisbane-based Felix Resources Ltd.

India’s Jindal Steel & Power and Meijin Energy Group of China have made rival takeover proposals for Australian coal explorer Rocklands Richfield Ltd.

And now a failed Australian coal mining company with debts of at least A$ 700 million, Griffin Coal Mining Co, may be sold to a Chinese or Indian buyer, its administrator has said.

The WA government has also thrown Griffin coal a lifeline.

There could be a hurdle though. Griffin Coal’s liabilities could exceed $1 billion as creditors have objected to reclusive millionaire owner Ric Stowe’s attempts to be appointed to the committee charged with sorting out the finances of the failed miner.

In India, 30 proposals have been made to the country’s largest coal firm, which is looking for partnership.

The Anglo-Australian mining giant Rio Tinto, the US-based Massey Energy and seven others have evinced keen interest in partnering with Coal India.

“Nine global mining firms, including Rio Tinto, Massey Energy have presented as many as 30 multi-billion-dollar proposals to Coal India for partnership (either in joint mining abroad or through joint ventures),” a senior executive of a global mining firm said on Sunday.



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