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Our main feature looked at the reasons why coal is suddenly being touted as a carbon-neutral alternative to other sources of energy. But how can investors gain exposure to the expected upside in coal prices? Here are some coal miners we like the look of:
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Coal of Africa (CZA)
We published a share tip on Coal of Africa (CoA) just recently (7 August 2008), although it's not possible to discuss good coal investments without mentioning the company again.
CoA is perfectly placed to benefit from sharply rising thermal and coking coal prices in the power-constrained South African market. Its most advanced project, Mooiplaat, is a large thermal coal project less than 2km from the Camden power station, which it can supply directly by conveyor. Mooiplaat should begin production in spring 2009.
CoA also plans to produce 5mt a year from each of the Makhado and Vele projects in northern South Africa, although severe rail and port capacity constraints are likely to restrict output to 2.5mt. This output would supply ArcelorMittal – the only significant producer in South Africa – which recently acquired a 16.6 per cent stake in CoA and has agreed to buy 2.5mt of coking coal annually with an option to increase this to 5mt. Makhado production should commence in mid-2010.
In total, CoA has a combined resource of more than 1bn tonnes of coal. What gives the shares additional upside is that the Mooiplaat resource was defined on only a small proportion of the company's acreage and could be considerably larger. The resource at Makhado has similarly been defined on only a small area and the company is targeting over 2bn tonnes of coal in total here. Furthermore, if CoA can resolve the logistical constraints and increase Makhado and Vele output to their combined 10mt capacity, the company's valuation would rise considerably.
More articles, comment and data on Coal of Africa
Caledon (CDN)
Caledon continues to increase output from its Cook coking coal mine in Queensland, Australia, which it bought from Xstrata in late 2006. Cook historically produced at a peak rate of 0.5mt/year, and Caledon aims to increase this to 1.8mt/year by 2009.
Cutting coal using the Magatar continuous mining system helped achieve record production of 55,000t in June. July production could be even higher, with one shift having produced at the rate required to achieve the company's 100,000t/month target. Full-year saleable production is expected to be 600,000-700,000t.
Caledon's Minyango project provides a “blue sky” development some 15km to the north of Cook, and the two developments have an estimated combined coking coal resource of over 416mt.
More articles, comment and data on Caledon
Energybuild (EBG)
Energybuild has been making good progress developing its coal operations in South Wales. Since acquiring the plant pool of the closed Tower Colliery, the company has brought the Aberpergwm underground and Nant y Mynydd open cast mines back into production. Aberpergwm will supply up to 225,000t of coal to Aberthaw power station during 2008 and also sells to retail customers. Open cast mining is currently producing some 2,000t/week and the company has potential for additional open cast sites. The company aims to mine 20mt over a 30-year mine life, although Aberpergwm in particular offers the potential of additional resource upside.
Energybuild also has a joint venture with Coal Recovery Investments for recovering coal from tailings in an operation estimated to yield 270,000t over a two-and-a-half year period. With its experienced and well connected local management team, the company is also well placed to pick up any further opportunities that may arise in the Neath area.
More articles, comment and data on Energybuild
Churchill Mining (CHL)
Churchill Mining is bringing forward production from its East Kutai thermal coal project in Indonesia to before the end of 2009, 12 months ahead of the previously planned start date. This fast-tracking will deliver quicker cash flow and profits and enable the company to exploit high coal prices.
Managing Director Paul Mazak sees transportation as the main issue that needs to be resolved. Conveyors offer cheaper operating and maintenance costs than road haulage, but require high initial capital expenditure, which brings the transport decision down to one of volume. Mr Mazak is fast-tracking Churchill's production by combining transportation methods: an access road will let the company start hauling coal by truck next year as it builds its conveyor, which should be operational in two years' time.
More articles, comment and data on Churchill Mining
Polo Resources (PRL)
Polo recently emerged as a possible bidder for Caledon, in which it owns a 24.8 per cent stake, particularly after its hurried raising of £80m in early June and the Polo board's confirmation that it is focused on "several attractive potential acquisition opportunities". Polo also owns 29.8 per cent of GCM Resources, which is seeking to develop the potentially world class Phulbari coal mine and power plant project in Bangladesh. GCM is targeting annual production of 15mt, although doubts remain as to whether the project will receive all the necessary approvals.
Despite the attention on takeovers, Polo has made significant progress on its own account, most notably in Mongolia, where it has acquired 46 coal licences and 26 uranium licences. Mongolia has some of the world's largest reserves of coal and copper, and numerous other resources. According to Deputy Chairman Neil Herbert, Mongolia has so much coal at or near surface – available to open cast mining – it won't be necessary to mine underground for 100 years. Furthermore, sandwiched between Russia and China, voracious markets await only a rail journey away.
Polo plans to bring the Ereen coking coal mine (potential resource 50mt) and Union thermal coal mine (potential resource 250mt) back into production during 2009. Advanced exploration shows that its Erds and South Gobi projects could contain even larger coal reserves.
Altona Resources (ANR)
Altona Resources is at the early stages of developing an enormous coal to liquids project with integrated power generation in South Australia. It has a huge resource of several billions of tonnes of high moisture coal that isn't suitable for export but can be liquefied.
The initial gasification process will extract and store CO2, making the technology a prime example of clean coal technology. Fischer-Tropsch Synthesis will then convert the gas into liquid hydrocarbons such as diesel and other fuels, with residual gas being used to generate power through a combined cycle gas turbine.
The investment of Tongjiang International Energy raised £11.6m to complete the bankable feasibility study and, more importantly, should provide introductions to Chinese customers and financiers. Much remains to be done to develop the project. The timescale is long (first revenues estimated in 2014) and capital requirements huge (estimated £2bn), but so could be the project's investment returns.
More articles, comment and data on Altona
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