21/07/2011 - 00:00

Rising coal prices attract interest and investment from local opportunists

21/07/2011 - 00:00

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Energy demand has put coal on the map for WA companies.

NOT long ago, investors would have been hard pressed to find a coal company based in Western Australia.

Apart from Wesfarmers, which has long held a stake in the local Collie coalfield and has a very profitable major operation in the Bowen Basin in Queensland, this traditional energy source was all but ignored by the local listed sector.

But the rising price of energy and the skills of WA’s junior mining sector have changed all that. WA Business News has found nearly 30 companies – private and public – with principal or significant interests in coal; from producers in South Africa to those that merely hold tenements in WA as a backup to their own energy generation plans.

The newest kids on the block are typically reinvented listed companies that – in classic WA junior style – have changed direction, in many cases from completely different fields. Among these is former retailing sector player TVN Corporation, which now has exploration leases in Mongolia.

Another newcomer to Mongolia is C@, which shifted from the optical business, joining a handful of WA companies with interests in this neighbour of China (see story pages 8-9).

Proximity to markets and the infrastructure available appear to be a significant factor in many of the stories being told.

Perth-based ZYL, for instance, is another player that has entered this field in the past year, focusing on north-east South Africa, where it has an anthracitic deposit. The coal here has qualities best suited to specialist metallurgical production, such as that for alloys.

ZYL managing director Eric Lilford talks up his company’s Kangwane project in the Mpumalanga province, which can take advantage of both the internal markets of South Africa and export markets through the use of the Maputo terminal at the Matola Port in Mozambique.

Kangwane has grid electricity, water rights, community support and a rail line running across the edge of the property (with a siding).

“We don’t have to build a metre of rail infrastructure,” Dr Lilford said.

Furthermore, a main road is within 10 kilometres of the project, if for any reason there are unforeseen issues with rail.

At 120km from a major port, Dr Lilford suggests tongue in cheek that ZYL is close enough to wheelbarrow the coal to port if necessary.

Interestingly, ZYL was formerly Zylotech, a failed IP security surveillance vendor based in NSW, before returning recently to Perth to join the resources sector. By some quirk of history, in 2005 Zylotech relocated from Perth to Sydney in the same week as Riversdale Mining, a former technology company called Wave Energy, which had made the shift into resources much earlier in the cycle.

These days, Riversdale is the poster boy for all these newcomers to the coal sector, after the recent successful takeover bid by Rio Tinto valued the company at $4 billion.

While Riversdale never officially returned to Perth, its strategy to get into coal in Africa is seen as a blueprint for numerous hopeful juniors, for whom coal in emerging markets is a way to take part in either rising energy values, in the case of thermal coal, or high steel prices, in the case of metallurgical or coking coal.

With Australia’s miners having endured a tough year with regard to sovereign risk due to tax, there is much debate about the opportunity for West Perth’s expertise to capitalise on foreign developments.

Of course, sovereign risk remains a talking point in emerging markets, too. South Africa has the influential ANC Youth League calling for mine nationalisation, Botswana has stopped issuing new exploration licences, and Namibia is looking at more state-control of projects in certain strategic commodities, potentially including coal.

Burswood-headquartered Kangaroo Resources had a different set of challenges with regard to its operations in Indonesia, the world’s biggest exporter of thermal coal.

With mining costs at its Mamahak coking coal project in Kalimantan causing angst, it elected to do a deal with its major client, Bayan Resources, which vended in its Pakar thermal coal project in return for 56 per cent of the company.

Analysts suggest that deal was a company maker, increasing Kangaroo’s resources while bringing in Indonesian expertise.

Cullen Resources is one player with a foot in both camps. Its main interests are in WA but it has tenements in Queensland and Namibia.

Cullen managing director Chris Ringrose said the shift into coal came naturally, with demand rising and two key shareholders, Aquila and AMCI, already involved in the field. It has a joint venture in the Canning Basin with Indian-focused Singaporean group Advaita.

“It did not escape my attention that a lot of companies that have done well have been in the bulks, iron ore and coal,” Dr Ringrose said.

But he acknowledged that getting a foothold in Australia required exploring frontiers that presented challenges such as remoteness and difficult seasonal conditions.

“You weigh up the pros and cons, the Canning Basin is quite difficult to work in, you would think,” Dr Ringrose said. “Having said that, as soon as we got that ground we had an expression of interest from Advaita.”

India is a constant theme in discussion around WA companies with interests in coal.

Another, more advanced, operator in the Canning Basin, Rey Resources, believes India is a key potential market for its Duchess Paradise project near Derby, pointing to the freight advantage the location has for its thermal coal, even over nearby Indonesia.

Rey managing director Kevin Wilson said the company had recently completed a definitive feasibility study, which was positive, and hoped to start mining by late 2013 and shipping in 2014, quite likely making the company the first significant coal exporter from WA, after private player Griffin’s previous small efforts in that field.

Mr Wilson isn’t put off by the carbon tax, though he acknowledges it will increases costs.

“We don’t have any gas in our coal so we don’t get singled out for being a coal miner,” he said.

 

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