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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (44696)	10/7/2009 8:44:26 PM
From: LoneClone	Read Replies (1) \| Respond to of 197011

Coal of Africa Has News Flow Galore Rob Davies minesite.com Apart from profits and dividends the factor that drives stock prices the most is news flow. Right now ASX and AIM listed Coal of Africa is generating so much it is hard to keep track. Early in the week the company was obliged to make a statement in response to media speculation that it had not received any takeover offers from any third parties. As managing director Simon Farrell commented to Minews, the press often resort to such a line when share prices are strong and they don’t have a quick explanation to hand. In fact there was a reason. Bulge bracket broker Morgan Stanley had initiated coverage on the stock with a 23 page note recommending an overweight position and a price target of 150p share. Nothing gives brokers more comfort than moving in herds so it is no surprise to hear that J.P. Morgan Cazenove is also preparing an opus. It would of course not be difficult to construct a takeover story for Coal given that ArcelorMittal already owns 16 per cent of the company. Indeed, one suspects that the large M&A banks are hardly going to devote so much effort to covering a company capitalised at A$1 billion just for taking 0.2 per cent on secondary trading, especially as a third of the stock is locked up and not available for sale. A seasoned observer might suspect that these banks are fishing for bigger business than trading a few thousand, or even millions, of shares. That said it is highly unlikely that anyone is going to jump until the company has been granted New Order Mining Rights for its Vele and Makhado properties. According to Simon Farrell these will probably be on track to commence production by the first quarter of 2010 for Vele and the fourth quarter of 2011 for Makhado. Whether the company will still exist as a separate entity by then is a question the research analysts don’t seem to have addressed. But they don’t really need to add that spice to the shares when the projections for 2011 and 2012 are for earnings before interest and tax are A$292million and A$552million. The bulk of these profits are forecast to come from the Makhado coking coal deposit in the Limpopo region of northern South Africa that will be exported through the port of Maputo in Mozambique. Large mining projects, like wars, are really exercises in planning and logistics and it is here that the long term vision of the management of this company can be seen. Maputo needs a large expansion programme to take its current 1 million tonne capacity up to a potential of 16 million tonnes. Dredging is already underway to raise the port handling capacity from Handy to Panamax size and Coal of Africa has committed A$15million to fund the expansion to six million tonnes with an option to spend another A$20million to add a further 10 million tonnes of capacity. That would give it the right to 13 million tonnes in total. The importance of freight and handling costs is well illustrated by the current situation at the Vanderbijlpark steel plant owned by ArcelorMittal. Because South Africa only has one coking coal mine this plant is importing from Australia. Even with the lower freight and handling charge this is probably adding the best part of A$40 a tonne to its cost. No wonder is it keen to get the Vele mine up and running and willing to pay the free on- rail price. Simon reckons he could start production by the end of the year if he could the New Order Mining Right by October. Lastly, and not least, is the Mooiplaats thermal coal mine. It was reopened to supply the recently re-commissioned Camden power station 1.7 kilometres away. However, listening to Simon describing the pain of dealing with Eskom, the state power utility, it is easy to understand his frustration. The utility has lost the paperwork four times and is still not in a position to purchase the coal. Instead, it is trucking coal from 200 kilometres away at a cost that is greater than the price Mooiplaats could supply it for. In the meantime the mine is exporting 70 per cent of its production to India and Europe. Coal might not be as glamorous as the metals investors like to focus on. But for a miner it has two great qualities. Consumers need lots of it and you don’t suffer competition from recycled material. If the news flow from Coal of Africa continues at this rate the brokers will need to be updating their price targets before very long.