Drop­ping hot coals

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS shaunh@fin­week.co.za

THE AUSSIES HAVE great tim­ing in sport. We see it, to our dis­ad­van­tage, in rugby when a ball is slipped out to the wing to score a try as the last de­fender closes in. And in cricket, when the Aussie bats­men slap our fast and spin bowlers all over the park. How­ever, that flair doesn’t seem to ex­tend to tim­ing coal de­vel­op­ments and ex­ports.

Coal of Africa, or CoAL as they like to call them­selves, is drilling holes all over the coun­try. The Aus­tralian domi­ciled com­pany is in­volved in four coal projects at var­i­ous stages of ex­plo­ration in South Africa. Though the busi­ness is var­ied, ba­si­cally CoAL buys, ex­plores and de­vel­ops coal projects. It has a cosy re­la­tion­ship with its sec­ond largest share­holder, steel maker ArcelorMit­tal, to sell it be­tween 2,5m and 5m t/year of hard cok­ing coal. But coal ex­ports are the big news here, even af­ter the re­cent hit on com­modi­ties prices. That’s where CoAL seems to have its tim­ing all wrong.

It’s ac­tively de­vel­op­ing the Mooiplaats project, which should soon start pro­duc­ing coal for ex­port. MD Si­mon Far­rell says dis­cus­sions with “po­ten­tial cus­tomers” in­clude “po­ten­tial ex­ports” of lean coal to Europe. That’s great, but China is re­ally where the ex­port coal mar­ket is. And Europe is cur­rently ex­pe­ri­enc­ing a warmer than usual win­ter, with ex­port vol­umes at the Richards Bay Coal Ter­mi­nal drop­ping to one of its low­est lev­els so far this year.

But that’s okay, be­cause CoAL only plans to start ex­port­ing next year, hav­ing se­cured long-term al­lo­ca­tions of 900 000 t/year of coal through Richards Bay and the op­tion to se­cure 50% of any in­creased ca­pac­ity at the ter­mi­nal, Far­rell says. He adds that has the “po­ten­tial” to in­crease CoAL’s ex­port ca­pac­ity to 3m t/year.

That should kick in just as the Euro­pean econ­omy, al­ready on the skids as gov­ern­ments rush to res­cue banks, hits its low. Don’t ex­pect great de­mand for coal. It’s al­ready start­ing to sound like the Bee Gees on a bad day. But at least there’s Eskom. It will prob­a­bly ab­sorb as much coal as fall­ing ex­port de­mand al­lows.

How­ever, much of the bad news al­ready shows in CoAL’s share price on the JSE (it’s also listed in Lon­don and Aus­tralia). Al­most 60% has been lopped off its price over the past three months. That takes the shine off the com­mend­able 50% it has gained this year.

Lots of “po­ten­tial” – ter­ri­ble tim­ing.

Full of po­ten­tial. Si­mon Far­rell

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