COAL: Screaming coal prices and a new coal mine on Vancouver Island?
COMMENT:The news article which follows is pointing at recent price rises for thermal and metallurgical coal. Some of BC's small coal miners react to this kind of news like Santa has just arrived and certainly spot prices of $200 a ton are a coal companies best Christmas ever. But the article also explains why these coal prices are so high right now, and it's all incidental transitory stuff - power cuts, flooding, snowstorms. You don't open new mines or enter into long term contracts based on such ephemera.
Nevertheless, Compliance Energy has announced a memorandum of understanding with a Japanese and a Korean company which reads as if these companies are about to fund a new coal mine on Vancouver Island. Whoa. Hold on.
Actually, no money will exchange hands at least until after the "due diligence" period which ends May 31. And even then, if it moves to the next stage, agreements will have to be signed, and then perhaps $600,000 will be paid to Compliance. This style of announcement is typical of the bottom-of-the-barrel companies that inhabit the TSE Ventures Exchange.
Here's another "nevertheless", and even a "however" for good measure: Nevertheless, and however, you may want to watch Compliance.
- Over the last couple of years it has been testing and sampling two potential coal mine sites on Vancouver Island, the Bear and Raven deposits. Both are on the western edge of the Comox Coalfield, between the Tsable and Trent Rivers, between Fanny Bay/Union Bay/Denman Island and Courtenay.
- Compliance is also acquiring substantial coal rights from West Fraser, and may intend to start exploring those rights for coalbed methane potential.
FYI, thermal coal is a lower grade than metallurgical coal. British Columbia mainly mines and exports metallurgical coal. There is no export market for BC's thermal coal because of shipping costs. Australian thermal coal has a readier export market in China and Japan. Compliance is here talking mainly about thermal coal.
COMPLIANCE SIGNS MOU WITH ITOCHU CORPORATION AND LG INTERNATIONAL CORP. TO ADVANCE THE RAVEN COAL PROJECT
Vancouver, B.C., February 1, 2008 - Compliance Energy Corporation (the "Company") announces that it has signed an exclusive Memorandum of Understanding ("MOU") with ITOCHU Corporation and LG International Corp. ("the Parties") for the development of the Raven Coal Project located on Vancouver Island. Under the terms of the MOU the Parties will make an initial payment of $600,000 to secure exclusivity in the project and subject to the favourable outcome of due diligence will fund the next $5.4 million in payments to earn up to a 50% interest in the Raven Coal Project. The $5.4 million will be spent as follows: $2.4 million to complete the purchase of the property and up to $3.0 million for environmental assessment studies and a bankable feasibility study. The MOU provides for a due diligence period up to May 31, 2008 at which time the Company and the Parties expect to have definitive agreements signed.
ITOCHU Corporation is a major Japanese trading house and, among other things, has extensive experience in the development of coal mines and the marketing and sale of coal globally and has investments in coal mines in Australia and Indonesia. ITOCHU had annual revenues of $22 billion US and Net Income of $1.5 billion in the fiscal year ended March 2007.
LG International Corp. is a leading general trader in Korea with a worldwide overseas branch network and has abundant experience in coal mining development and the marketing and sales of coal worldwide. LG International Corp. has annual revenues of $5.8 billion US and investments in coal mines in Russia, Australia, and Indonesia.
The Raven Coal Project located in the Comox Coal Basin of Vancouver Island, British Columbia covers an area of approximately 3100 hectares and has 39,093,000 tonnes of measured and indicated and 59,004,000 tonnes of inferred coal resources as reported in the Company’s technical report prepared by O.R. Cullingham Resource Consultant Ltd. (see press release May 29, 2007). The coal is classified as high volatile A Bituminous and is suitable for targeting the metallurgical coal market as a blend product or the thermal coal market. The Company recently completed a positive Preliminary Assessment Report on the Raven Coal Project. In the report, Associated Geosciences Ltd. of Calgary ("AGL") studied two production cases: one producing 823,000 tonnes of high volatile metallurgical coal per year and another producing 1,440,000 tonnes of thermal coal per year. Based on these studies AGL believes that the Raven Property warrants additional exploration and a feasibility study to form the basis of a production decision and that the estimated net present value of the project at a constant dollar discount rate of 12% is $105.6 million. AGL’s Preliminary Assessment was prepared by Peter Cain Ph.D., P.Eng. and Alan Craven P.Eng. who are the Independent Qualified Persons for reporting purposes as defined in NI 43-101Standards of Disclosure for Mineral Projects.
Compliance Energy Corporation’s shares trade on the TSX Venture Exchange under the symbol CEC and investor information is available on the Company’s web page at www.complianceenergy.com.
On behalf of the Board of
COMPLIANCE ENERGY CORPORATION
John Tapics
Chief Executive Officer
Contact Rob Roney, Investor Relations at 250-897-0437 or Rod Shier, CFO at 604-689-0489 for further information.
www.complianceenergy.com
South African, Australian Coal Rise to Records on Supply Curbs
By Angela Macdonald-Smith and Alistair Holloway
Bloomberg.com
04-Feb-2008
A load of coal is loaded onto a ship berthed at the Port of Newcastle in
Australia, Sept. 3, 2007. Photographer: Andy Shaw/Bloomberg News
Feb. 4 (Bloomberg) -- Coal jumped to records at South Africa's Richards Bay and Australia's Newcastle port as production was curbed by power cuts and flooding, while snowstorms disrupted mining and transportation in China.
Coal at Richards Bay rose $12.20, or 12 percent, to $111.30 a metric ton, according to McCloskey Group Ltd. figures. That's the biggest-ever weekly rise for the data on Bloomberg that go back to 2000. Prices at Newcastle climbed $23.09, or 25 percent, to $116.44 a ton in the week ended Feb. 1, according to the globalCOAL NEWC Index.
"It is another indicator of tightness" in supply of the fuel, Andrew Wells, an assistant editor at the Petersfield, England-based McCloskey, said by phone today.
The rising prices helped drive up coal producers' shares.
Centennial Coal Co., Australia's second-largest coal company by sales, gained 2.7 percent in Sydney trading and Gloucester Coal advanced 2.5 percent. China Shenhua Energy Co., the world's second-largest coal company, climbed as much as 5.5 percent in Hong Kong trading. U.K. Coal Plc rose as much as 2.2 percent in London.
Power shortages in South Africa forced Anglo American Plc to close mines last month.
Eskom Holdings Ltd., the nation's state-run power utility, is unable to meet demand after the government delayed a decision to expand generating capacity. Today it began cutting 1,500 megawatts of electricity to towns and cities.
Supply Needed
Eskom needs 5.4 million metric tons of additional coal in the next three months to restore stockpiles to 20 days of consumption.
In Australia, BHP Billiton Mitsubishi Alliance is among mining companies that say they may miss deliveries after heavier-than-usual rain flooded pits in the world's biggest coal-exporting country.
Melbourne-based BHP Billiton Ltd., the world's biggest miner, said operations at its alliance with Mitsubishi Corp. may be affected for as long as six months.
The disruptions, in Queensland, are mostly affecting the now "unbelievably tight" metallurgical coal market, pushing up spot prices to about $200 or $210 a ton, Graham Wailes, a coal analyst at AME Mineral Economics Pty, said in Sydney.
The worst snowstorms in 50 years in China, the world's largest producer and consumer of coal, prompted the country to halt exports until April.
China Snows
More than three weeks of snow in central and southern China have brought transport networks to a standstill, killed at least 60 people and caused economic losses of at least 53.8 billion yuan ($7.5 billion). The country, reliant on coal for 78 percent of its power, is restricting exports to boost domestic supplies.
Indonesia may be unable to increase production of thermal coal sufficiently to compensate for shortages of supply elsewhere in Asia, as it has in the past, Wailes said.
"I just don't think the supply solution is readily available and that's probably why you've had these huge increases," he said.
GlobalCOAL's monthly index for Newcastle thermal coal prices rose $1.71, or 1.9 percent, to $90.87 a ton in January, the fourth successive monthly record. Newcastle is the world's biggest coal-export harbor.
The increase will influence negotiations scheduled to begin between suppliers and buyers on contract coal prices.
JPMorgan, UBS
UBS AG, Europe's biggest bank by assets, on Feb. 1 raised its forecasts for thermal coal contract prices for 2008 and 2009, citing the coal ``crisis'' in China and disruptions in Australia. Prices may reach $100 a ton this year and $125 in 2009, from previous estimates of $90 and $110, the bank said.
JPMorgan on Jan. 29 said it raised its estimate for 2008 contract prices for power-station coal to $90 a ton, from $70.
It boosted forecasts of 2008 prices for coal used in steelmaking to $140 a ton, from $120. Those for thermal coal are $55.65 a ton for the year that started April 1, while coking coal contract prices are $98.38, JPMorgan said.
In Europe, thermal coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement in the fourth quarter advanced $1, or 0.1 percent, to $126.50 a ton as of 4:37 p.m. in London, ICAP prices showed.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Last Updated: February 4, 2008 11:56 EST
Posted by Arthur Caldicott on 06 Feb 2008