Author Topic: Coal Shares  (Read 4928 times)

The Trader

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Coal Shares
« on: January 08, 2015, 10:36:47 am »
The below graph tells you all you need to know about export coal prices. International coal prices are finally in their death throes as China stops building massive new coal plants as they try and get pollution under control. China will be the world leader in renewable energy in a few short years, mark these words. Perhaps India might still be able to save international coal prices as they import huge amounts of SA coal still. However, even India is focusing more on renewables as they also battle to get their own coal production sorted out (India has far larger coal reserves than SA)....

Of course in SA we have Eskom to help out the local coal miners. Eskom is becoming the darling client of all coal producers, even though Eskom only pays around R280 per tonne whilst export prices are currently around R480 per tonne Free on Truck at mine. Also, with Eskom you can get a sales yield of around 90 to 100% whilst with export coal you only get around 60% yield. Then of course there is the local industrial market (for sugar mills, paper mills, cement mills etc.) and they are paying around R750 per tonne FOT mine for high grade coal. But that is a very small specialised market controlled completely by Wescoal now with their acquisition of Macphail. Most of these guys want to move to cheaper natgas anyway.

Buy coal shares at your peril now. I can't see the coal price ever getting back to a level which makes any sense for the deeper level mining which is now required. Waterberg? Forget it. Eskom only. Glencore is the most exposed to world coal prices and this year should see them getting a hiding from the market. Sorry Ivan, you had your day in the 90's and 2000's....

P.S. I co-founded globalcoal.com and traded international physical coal for a living from around 2006 to 2012.
« Last Edit: January 08, 2015, 10:39:46 am by The Trader »

NakedPeanut

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Re: Coal Shares
« Reply #1 on: January 08, 2015, 11:25:58 am »
Thanks for that interesting post!  :TU: I like reading things like this that give you a background you won't find in news articles!

As a side note, I have a friend, who's dad runs a fleet of coal trucks between the mines and eskom, he makes a killing!

jaDEB

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Re: Coal Shares
« Reply #2 on: January 08, 2015, 11:40:18 am »
Yip, thanks for the input appreciated. :TU:

jaDEB

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The Trader

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Re: Coal Shares
« Reply #3 on: January 08, 2015, 02:18:17 pm »
Thanks for that interesting post!  :TU: I like reading things like this that give you a background you won't find in news articles! As a side note, I have a friend, who's dad runs a fleet of coal trucks between the mines and eskom, he makes a killing!

Yup, good business. Especially now with lower BFP price.

SB45

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Re: Coal Shares
« Reply #4 on: January 14, 2015, 11:35:01 am »
The below graph tells you all you need to know about export coal prices. International coal prices are finally in their death throes as China stops building massive new coal plants as they try and get pollution under control. China will be the world leader in renewable energy in a few short years, mark these words. Perhaps India might still be able to save international coal prices as they import huge amounts of SA coal still. However, even India is focusing more on renewables as they also battle to get their own coal production sorted out (India has far larger coal reserves than SA)....

Of course in SA we have Eskom to help out the local coal miners. Eskom is becoming the darling client of all coal producers, even though Eskom only pays around R280 per tonne whilst export prices are currently around R480 per tonne Free on Truck at mine. Also, with Eskom you can get a sales yield of around 90 to 100% whilst with export coal you only get around 60% yield. Then of course there is the local industrial market (for sugar mills, paper mills, cement mills etc.) and they are paying around R750 per tonne FOT mine for high grade coal. But that is a very small specialised market controlled completely by Wescoal now with their acquisition of Macphail. Most of these guys want to move to cheaper natgas anyway.

Buy coal shares at your peril now. I can't see the coal price ever getting back to a level which makes any sense for the deeper level mining which is now required. Waterberg? Forget it. Eskom only. Glencore is the most exposed to world coal prices and this year should see them getting a hiding from the market. Sorry Ivan, you had your day in the 90's and 2000's....

P.S. I co-founded globalcoal.com and traded international physical coal for a living from around 2006 to 2012.

The Trader, you have called it correctly, GLN taking a beating at the moment

The Trader

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Re: Coal Shares
« Reply #5 on: January 14, 2015, 12:10:33 pm »
The Trader, you have called it correctly, GLN taking a beating at the moment

Couldn't happen to a bunch of nicer guys. Why do you think Cyril Ramaphosa (GLN's man in SA) was sent to South Sudan? Because GLN needed their oil to start flowing again. Ok, that's probably a little conspiracy theorist of me. But not far from the truth if you know some of the other supposed GLN tactics.

With GLN buying millions of their own shares back they have also destroyed shareholder value, although shareholders were no doubt for some time grateful to them for holding up the price.

Just remember however that GLN probably owns over 70% of Richards Bay exports i.e. they may not own the actual export shareholding but they have bought many of the remaining cargoes from Anglo, BHP etc. They also buy up the financial swaps (API4 index) to try and keep the coal price up so they spend an immense amount of firepower on supporting coal prices. When the tide goes out, as it has, we will see their exposure in their next set of financial results.

Having said all this, GLN are very astute traders and just maybe coal prices could recover. If they do then GLN surely stands to benefit from that monopoly power.
« Last Edit: January 14, 2015, 12:17:21 pm by The Trader »