Coal:
Coal A 'Tight' Community, Skyrocketing Prices To Continue
By Kristine Owram
22 Jul 2008 at 02:22 PM GMT-04:00
Thermal coal isn't as available as it used to be, so the price of thermal coal has skyrocketed. It was selling for under $50 a ton just a few years ago and is now going for close to $200 a ton.
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TORONTO (CP) -- Skyrocketing demand combined with a shrinking supply is making coal a "tight" commodity right now, causing prices — and profits — to soar, says the CEO of an Australian mining company that lists its stock in Canada.
Peter Lynch, president and CEO of Waratah Coal Inc. (WCI), said in an interview Tuesday that "hot demand" for coal used to fire power plants in emerging markets such as China and India is benefiting his company and the industry as a whole.
"Essentially, thermal coal isn't as easily available as it used to be, so the price of thermal coal has skyrocketed," said Lynch, adding that the commodity, which was selling for under $50 a ton just a few years ago, is now going for close to $200 a ton.
"The commodity's in hot demand, it's not waning at all, because the demand for the product is continuing to grow. Irrespective of other economic conditions, the energy demands of India and China will continue unabated."
The rising price of coal has also led to a consolidation trend in the global industry as companies that produce coal used to make steel or to fuel power production try to get bigger to raise output to become more competitive and cash in on rising prices.
Last week, Ohio-based miner Cleveland Cliffs struck a nearly $10 billion deal to acquire Alpha Natural Resources, creating a company with the largest reserves of iron ore and metallurgical coal in the United States.
The merged company will have more than 60 coal mines and nine iron ore mines in North and South American and Australia.
Earlier this year, the world's two biggest miners, BHP Billiton and Rio Tinto, discussed a possible merger of their far flung operations, which include metals, mineral processing and coal mining assets around the world. However, the BHP bid, now valued at about $170 billion, was rejected by Rio Tinto and has turned hostile.
As prices for everything from iron ore to coal rise, the value of companies that produce such commodities also goes up.
Lynch said coal is increasingly seen as a cheap alternative to oil — another reason for the price increase.
"As oil prices go higher, the attraction for coal-fired electricity is even more so," he said.
Lynch added that supply issues will continue to push prices up.
"There are bottlenecks developing in the supply side of the industry, which has resulted in significant price increases, yet the demand will not go away because people don't like cold showers and they don't like being in the dark," he said.
Waratah Coal is hoping that the development of a new coal mining region in Queensland, Australia will ease the supply crunch.
The area, known as the Galilee Basin, is largely untouched because of its remote location and lack of supporting infrastructure.
Waratah has 15,000-square-kilometres of exploration permits in the region, and started drilling in March 2007.
The company's proposal of a coal mine project, worth about $C5.2 billion, has been declared a "project of state significance" by the Queensland government. With the new designation, the company will be fast-tracked through the regulatory process and the government will support the development of the mine and a related rail and port development.
The new 495 kilometre rail line and deep-water port would carry the coal for export to thermal power plants in China, India and Southeast Asia.
Lynch said drilling in Waratah's properties in the Galilee Basin has inferred thermal coal resources of more than four billion tonnes.
The company and government will carry out an assessment of the environmental impacts of the project.
Jim Elder, a former deputy premier of Queensland, said the government of Australia and the country's coal companies are leading the way when it comes to reducing the environmental impacts of coal use, and Canada should take note.
Elder said the government and mining companies like Waratah have agreed that coal companies have to take some responsibility for the "global CO2 agenda." He added that between $A1-$2 billion have been committed over the next five years to fund emission reduction technologies, and coal companies will then work as partners to help introduce that technology into the countries that buy their coal.
"It's a global challenge, and companies like us have a responsibility," said Elder.
Rising coal prices have also led to increased activity in the sector in Canada.
Certain companies are looking to re-open production at old mines to benefit from the higher prices: Xstrata Coal Donkin Ltd., a subsidiary of Xstrata PLC, and Erdene Gold Inc. (ERD) are looking to re-open the Donkin project in northeast Cape Breton Island to sell its coal to the domestic market and export thermal coal for power generation.
Sherritt International Corp. (S), plans to buy back the outstanding units of Royal Utilities Income Fund (RU.UN), owner of Canada's largest thermal coal producer, in a $704 million deal that will allow it to invest more money in its coal business.
Fording Coal (FDG.UN) is reviewing strategic alternatives for the Calgary company, a major produder of coal exported to Asian steelmakers.
Meanwhile, Coalcorp Mining Inc. (CCJ) rejected a takeover offer by Switzerland-based advisory firm Pala Investments AG, which argued some of the company's upside had been capped because of contracts they had entered into.
© The Canadian Press 2008 |
