By James Wellstead – Exclusive to Coal Investing News
To put it modestly, coal is a hot commodity. With the price of thermal, metallurgical and lignite coal rising to record heights, a recent article in The Economist was a little bolder, stating “A new age of coal is upon us.” And in this new age, some new destinations are rising to prominence in the search to supply the world’s rising demand.
Developing nations like India, China and South Africa are leading the coal craze as the countries currently rely on thermal coal for 69 percent, 79 percent and 93 percent of electricity production and economies are expanding at a rate of 7.1 percent, 9.0 percent and 2.8 percent respectively. In 2010, world coal consumption increased by 7.6 percent to 3.555 billion tonnes, lead by the Asia Pacific which expanded by 9.1 percent.
In the next 25 years, the U.S. Energy Information Agency’s 2010 International Energy Outlook predicted that world coal consumption will increase by 56 percent between 2007 and 2035. As suppliers seek to fulfill this expanding demand for both metallurgical and thermal coal, mining giants and Greenfield explorers alike are scouring the earth to bring dormant assets and new acquisitions to the global market.
While the coal fields of China, Australia and the U.S. are well known internationally to investors, some regional players are beginning to make their presence known as burgeoning or reliable coal suppliers. The following describes a few of the lesser known, but quickly growing coal hotspots gaining attention by investors and multinationals alike.
Despite dating back more than 150 years, the coal industry in New Zealand is more recently known for the Pike River mine disaster that claimed 29 lives on New Zealand’s south island. However, the tragedy also shines a light on the country’s expanding coal and lignite production which has ramped up in recent years to feed growing demand for low cost energy sources.
With 571 million tonnes of proven reserves, 94 percent of which are sub-bitumous and lignite, and only 4.5 million tonnes of production in 2009, there remains a huge untapped resource. Currently, only a small portion of total production is dedicated to lignite, while it constitutes 80 percent of economically recoverable reserves. With all coal prices moving higher in recent years, several companies are looking to become involved in lignite production.
While the support of New Zealand’s Prime Minister John Key for lignite production on the South Island has brought on a whirlwind backlash from environmental groups, Key believes that “companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion.” Solid Energy has produced a proposal to mine lignite from its Southland asset and includes a $25 million pilot plant, capable of processing 148,000 tonnes of lignite a year (converting to 90,000 tonnes of briquette).
New Zealand is not restricted to lignite expansion as Bathurst Resources Ltd is developing a number of prospects in the Buller coalfield on the South Island’s western coast. Its most advanced site, Escarpment, is to soon begin production of high quality coking coal which will increase annual production to 1 million tonnes, doubling in two years to 2 million tonnes predominantly set for export out of the under-used port of Westport shipping terminal destined primarily to China.
Other mining companies in New Zealand include L&M Energy.
Though often overshadowed by its coal giant neighbour South Africa, Mozambique is starting become known as the next big mining location. In recent years, finding ways to sustain consistent production levels have been one of the country’s biggest challenges. But the country’s extensive coking coal resources measure in the billions of tonnes, with the Moatize basin in the country’s remote Tete province holding an estimated 2.5 billion tonnes of coal.
With one of the fastest growing economies in the world, with an average growth of eight percent over the past decade that is largely the result of sustained reforms and increasingly large-scale foreign direct investment into the country’s natural resource sector. In 2009, coal production increased 31 percent due in large part to investments to supply Brazilian, European, Indian and Chinese markets.
Brazilian steel giant Vale (NYSE:VALE) spent $1.4 billion to bring its coal mine at Moatize online this past May. The mine is expected to produce 8.5 million tonnes of coking coal and 2.5 million tonnes of thermal coal a year. Despite the initial trepidation around the country, Vale recent stated that it is expected to nearly double its original production projections for 2011 from 850,000 tonnes to 1.5 million tonnes, with mine output quadrupling to 6.3 million tonnes by 2012. The company plans to spend $422 million on the project in 2011.
The Benga coal mine in Mozambique is a metallurgical coal mine initially commenced by Riverdale Mining. The company was taken over in June 2011 by Rio Tinto (NYSE:RIO) and is expected to produce 5 million tonnes by December of 2011, and upwards of 20 million by 2016-17.
In January 2011, it was reported that Coal India planned to import 10 million metric tons of coal from Mozambique over the next five years, where the company has prospecting rights to two blocks in the northwest of the country measuring 225 km2 (87 square miles). If viable coal deposits are found, the company claims that it intends to invest $400 million.