Miners hit jackpot buying bargain-bin coal mines
Buying bargain-bin coal mines amid the worst commodity slump
in a generation has turned into a savvy bet as prices of the fuel surge.
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Bloomberg
03 October 2016
Buying bargain-bin coal mines amid the worst commodity slump in a generation has turned into a savvy bet as prices of the fuel surge.
Stanmore Coal Ltd bought the Isaac Plains metallurgical coal mine in Australia for A$1 (S$1.04) in July 2015 from Brazilian miner Vale SA and Japan's Sumitomo Corp when the price of met coal, used to make steel, averaged the lowest in about a decade and just three years after the mine was valued at A$860 million.
One year later, spot prices have soared above US$200 a tonne as China's steel mills crank out record volumes while its mines slow production. "It seems like we did get our timing right in this instance," Stanmore chief executive officer Nick Jorss said in Sydney.
"When we bought Isaac Plains, hard coking coal was in the US$70s. We've had pretty substantial movement since then."
Coking coal has surged almost 170 per cent this year as output from China, the world's biggest miner, tumbles under pressure from the government to cut overcapacity even as demand from steelmakers surges. Prices reached US$210.80 a tonne as at Thursday, according to The Steel Index.
Stanmore, which has seen its share price double since the beginning of last month, isn't the only miner who bought low.
Australia's TerraCom Ltd last week completed the purchase of the Blair Athol thermal coal mine, also for A$1, from Rio Tinto Group as the world's second-biggest miner exits some of its Australian coal portfolio. Thermal coal in Australia, while unable to match coking coal's rally, has risen more than 50 per cent this year.
Miners who struck deals before the recent price surge were well placed to profit from the unexpected revival, even if they're small producers, said Robin Griffin, research director for global metallurgical coal markets at Wood Mackenzie Ltd, a consultant. "They were brave enough to make the call to try and make it work," Mr Griffin said. "They wouldn't have foreseen this spike, but they would have had a more optimistic view perhaps. So, in some respects, you could argue their gut feeling was justified."