Dropping hot coals
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