By Kishori Krishnan Exclusive To Coal Investing News

Coal stocks have been hit hard in this recession, given slumping electricity demand in the U.S. and the sharp drop-off of steel demand. For shareholders of Patriot Coal Corp (PCX: NYSE), the pain has been particularly acute. The stock lost 96 per cent of its value since last June’s record highs. This year alone, Patriot’s stock is down 41 per cent versus a 1 per cent decline by the Dow Jones U.S. Coal Index. That’s no surprise, considering it recently reported a loss of $1.32 a share for 2008. Patriot posted a 40-cent loss in 2007, the year it spun off from Peabody Energy (BTU).

Coal stocks at Qinhuangdao, China’s top coal shipping port, however, climbed 13 per cent on the week, to 5.5 million tonnes, as more coal arrived than was shipped out. According to Reuters calculation based on the data a total of 265 million tonnes of coal arrived at the port via railway in the past five days, while only 206 million tonnes were shipped away. Port data showed average daily arrival of coal cargoes based on month-to-date calculations rose 11 per cent to 6,080 up to January 16, compared with the period up to January 9. At ports of Guangzhou, capital of the southern province of Guangdong, coal stocks had risen 6 per cent to 1.7 million tonnes.

Sydney-headquartered Xstrata (XTA), the world’s largest exporter of thermal coal, said on Thursday that its total managed coal resource had increased by 2.1-billion tons, comprising 1.6-billion tons of measured and indicated resources, and 0.5-billion tons of inferred resources. Recoverable coal reserves increased by 1.2-billion tons.

“This significant increase in reserves demonstrates the long term strength of our current operations, supported by substantial resources which will ensure our continued growth,” said Xstrata Coal CEO Peter Freyberg. “Included in these figures is a substantial increase in the coal resource at the Wandoan project, in Queensland, to over 2.5-billion tons, an increase of about 1.4-billion tons, together with the declaration of a coal reserve of 540-million tons,” the company reported.

‘Put up or shut up’

BG Group Plc. (UK:BG LSE), Shell (RDSA) and Arrow (AU:ARW) are seeking more reserves to feed proposed liquefied natural gas projects in Queensland that may meet rising demand in north Asia for cleaner-burning fuels. Brisbane-based Pure Energy’s independent directors and two key shareholders earlier this week accepted BG’s offer, taking its interest in the target to about 29 per cent, while Arrow has 20.2 per cent and Shell about 11.2 per cent.

BG Group Plc raised its offer for Pure Energy Resources Ltd. to A$1.03 billion ($667 million) and made the bid conditional on getting 90 per cent of the stock as it seeks to thwart a rival offer from Arrow Energy Ltd. The cash offer of A$8.25 a share, a 3.1 per cent increase, is final in the absence of a higher bid, the U.K.’s third- biggest natural gas company said. The move further boosts BG’s offer above the cash and stock bid by Brisbane-based Arrow, Royal Dutch Shell Plc’s Australian partner in coal-seam gas.

BG’s latest offer “requires everyone to come across the board” to succeed, said Andrew Williams, an oil and gas analyst at Credit Suisse Group in Melbourne. “It’s a ‘put up or shut up.’ You would only do it if you thought you had options” for other investments, he said.

Thermal coal

Mining Weekly reported that power station coal production at the Eskom tied mines was significantly higher due to a good turnaround at Arnot mine after successful implementation of improvement initiatives. The commercial mines, most notably North Block Complex and Inyanda increased production to supply higher demand from Eskom. NBC started mining new reserves and increased overall capacity.

Sales of power station coal to Eskom increased by 2 million tonnes to 36.3 million tonnes as a result of improved production performance at the tied mines and demand from the electricity utility to increase stock levels at various power stations. Other domestic sales were negatively affected by the lower production at Tshikondeni as well as a 13 per cent decrease in sales to Arcelor Mittal SA Limited in line with reduced demand in the steel and ferroalloy industry in the last quarter of 2008. The coal business was able to fully offset these lower sales volumes through additional sales from Leeuwpan and NBC to the domestic market.

Company news

WestCan Uranium Corp.,(TSX: WCU) has reached an agreement with North American Gem Inc., (TSX:NAG) whereby WestCan has the right to acquire a 37.5 per cent interest in 12 coal prospecting permits (CPP) totaling 23,040 acres, located in Township 55-07-02 Northeast of Tobin Lake in Central Saskatchewan. In addition, Silver Fields Resources Inc. (TSX: SF) will also have the right to acquire a similar 37.5 per cent interest in the property and North American Gem will retain a 25 per cent interest upon completion of the agreement.

The terms of the option agreement will require WestCan to pay the sum of $7,500 and issue 200,000 common shares to North American Gem as well as complete $480,000 in shared exploration costs on the property with Silver Fields, prior to October of 2011. A bankable feasibility study on the property must be completed within five years of the vesting of this agreement. Upon acceptance of this study, the Companies will enter into a joint venture agreement whereby North American Gem Inc. will hold 25 per cent interest in the project and WestCan and Silver Fields, will each hold a 37.5 per cent interest in the project.

Teck Cominco Ltd. (TSX:TCK) says it has agreed to sell its fifty per cent interest in the Williams and David Bell gold mines in the Hemlo district of northern Ontario for $65 million. The sale to an affiliate of Barrick Gold Corp. (TSX:ABX), is part of Teck’s plan to dispose of non-core assets to pay down its more than $9 billion in debts. Teck loaded up on debt to pay for last year’s $14 billion cash and stock acquisition of the Fording Coal Trust, Canada’s largest metallurgical coal producer for the steel industry. In a brief release, Teck said the Hemlo transaction will have an effective date of January 1 and will close in the second quarter, after regulatory approvals.

Russian miner Mechel  (MTL.N) has agreed to buy U.S. privately-owned Bluestone Coal Corp for $425 million plus shares, having agreed to a $4 billion cash deal last year, the Vedomosti business daily said. The paper has quoted sources present at Wednesday’s meeting of Mechel’s top management and investment bankers in London as saying that Mechel will buy 100 per cent of the U.S. firm from the James Justice family which owns it. Under the deal, Mechel, Russia’s largest producer of coal for the steel industry, will pay $425 million and issue preferred shares equivalent to 15 per cent of its charter capital. Mechel has paid the Justice family $424 million as a deposit.