Bulk Buys: This thermal coal hopeful says Asia will drive demand for the fossil fuel for years

Junior coal hopeful Australian Pacific Coal is confident thermal coal prices will support the restart of its Dartbrook mine near Aberdeen in the Hunter Valley after completing a US$60m debt deal
Stanmore and Coronado report 2023 production
BHP announces new iron ore head as prices rise above US$130/t

Rumours of coal’s demise have been expounded for years.

But after sewing up a US$60 million ($90m) funding package, the newest Hunter Valley coal company to chance its arm at entering production sees decades of demand for the energy fuel.

Planning to reopen the Dartbrook underground mine for the first time since 2006, Australian Pacific Coal (ASX:AQC) completed a deal with energy trader Vitol, which will fund the redevelopment of the former Anglo American asset and market its high CV Newcastle spec product.

The project, which suffered years of delays including opposition from local thoroughbred horse breeders and a brief takeover attempt from fallen ‘bogan billionaire’ Nathan Tinkler, will replace expensive longwall mining methods with approved bord and pillar mining when it reopens.

It would produce, at its peak, around 2.4Mt of coal in a year, though the extension of the mine beyond the end of 2027 is reliant on the NSW Government approving mining to 2033.

Coal usage remained at all time highs last year, projected by the IEA to hit 8.5Mt last year, and AQC interim CEO Ayten Saridas says demand will be strong from Asian markets for years to come.

“When we speak to particularly the Japanese buyers, they don’t have other alternatives. The alternative that they have for electricity supply is not something they want to grow, which is the nuclear power plants,” she said.

“So in terms of the demand, we believe that it’s going to be sustained in the long run, at least for another 20-30 years.

“The fundamentals for the supply side, though, is that the supply is going to come off with restrictions on being able to raise capital for it, ESG concerns around it.

“But also projects not being sanctioned. Especially in Australia, it’s very difficult to get a greenfield project sanctioned.”

Prices stabilise after 2022 boom

When Dartbrook first returned to the minds of investors in 2022 amid the standoff between Tinkler and a group associated with major shareholder Nick Paspaley’s Trepang Services, coal prices were mooning.

Hitting all time highs of more than US$450/t, the dearth of supply from non-Russian sources in the wake of Putin’s Ukraine invasion appeared as though it could keep energy prices at unthinkable levels for years.

But a mild northern winter replenished gas stores, leading to a 66% trim of the 6000kcal Newcastle benchmark in 2023, with front month futures at US$123.95/t yesterday.

High cost juniors who emerged in the 2022 boom like Bowen Coking Coal (ASX:BCB) and some private players flopped as the market for thermal and low grade met coal restructured when it had looked like those who swam against ESG trends and stayed in coal would be counting their millions.

Costs have also risen for established players, although infrastructure, Covid and weather issues that saw miners struggle with production in 2022 look to have abated as exports from the Port of Newcastle lifted 6% to 144.5Mt last year.

Saridas acknowledged the cyclical nature of coal mining, but believes the floor will be higher than it was in the past given the mismatch between demand and future supply.

“My understanding is that the weather extremities in Europe wasn’t quite what they expected but I think there’s a fair bit of snow right now and the cold snap has come through,” she said.

“That will probably support coal prices. But again, we’re looking at this long term and longer term we believe that there is a higher floor in the thermal coal price.”

She said at current prices and costs after ramp up of ~US$80/t, AQC expects to pay off the Vitol facility before 2027, with much of the corporate focus over the next 12-18 months to move to securing the extension of the Dartbrook project, 80% of which is owned by AQC.

Banks have largely abandoned fossil fuel finance in recent years. Saridas said most of the interest came from private equity, with some firms who missed out on the project funding keen on involvement in a future working capital facility.

“Getting money for thermal coal projects is near impossible but we’ve been very lucky that investors have seen the value in this both from equity and the debt side,” she said.

Higher met coal pricing “for some time to come”

Despite weakness in global steelmaker margins, especially in China, Coronado Global Resources (ASX:CRN) says forward pricing is showing higher than average met coal pricing will persist for “some time to come”.

SGX futures are currently paying US$321/t for February, with prices currently projected to remain over US$200/t through to the end of December 2028 according to those punting on the market.

“We forecast there’s market optimism stemming from an improving global economy as the Chinese government’s easing policies and the new stimulus, particularly infrastructure and housing, will assist in improving steel prices and margins,” CFO Gerhard Ziems said on an earnings call yesterday.

“These higher price projections indication a higher pricing environment for longer and (the) pricing environment is well above the long term average of US$197/t for some time to come.”

The Queensland and US met coal miner said its group revenue of US$2.9b was its second highest in its history, lifting the miner’s stock 3.1%.

December quarter revenue came in at US$680m, with average sale prices for the year of US$215.7/t coming in at a 72.8% realisation of the Australian hard coking coal index of US$296.3/t in 2023. In the December quarter, a surge in demand from steelmakers saw prices rise 26.7% to US$333.9/t.

Coronado produced 6.1Mt of ROM and 3.9Mt of saleable coal production in the December quarter, with full year numbers up 0.4% to 25.4Mt and down 1.1% to 15.8Mt for the full year.

It sold 15.8Mt in 2023, 9.9Mt of those from the Curragh mine in Queensland, down 3.4% on 2022.

It came as wet weather hampered Aussie coal producers, with the 314mm of rain seen at the nearby town of Blackwater in the quarter – the highest on record – and despite sales slippage from five vessels moving into January due to ship queues at the RG Tanna Coal Terminal.

Meanwhile, Stanmore Coal (ASX:SMR) shares fell 6.6% yesterday despite producing 13.2Mt of saleable coal (13.1Mt of sales) in 2023, beating last year’s guidance for its Poitrel, South Walker Creek and Isaac Plains mines.

But the Indonesian backed coal producer noted that its realisations to the premium hard coking coal index were subdued by rising discounts for PCI coal. Cheap Russian product flooding the market has seen a gulf grow between PHCC and PCI pricing, with the latter making up 61% of SMR’s product mix in 2023.

Storms that have lashed north and central Queensland have also taken their toll early this year. Another tropical cyclone — Kirrily — is expected to hit north Queensland on Thursday.

CEO Marcelo Matos said before New Years 200mm of rain fell at South Walker Creek and Isaac Plains in just 24 hours, with lightning at South Walker knocking out its train loadout and coal handling and preparation plants.

Meanwhile, Matos said the increased use of PCI coal in coke plants and steel mills as the value gap widens between it and PHCC could help reduce the relativity gap caused by the rise of Russian stock in the market. Meanwhile, hard coking coal prices have been driven by weak supply from the big Australian producers, he said.

BHP’s latest quarterly report saw it increase cost guidance for its BMA coal assets after a tough quarter.

ASX coal stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP NAE New Age Exploration 0.004 -27% -33% -27% -50% $ 8,969,494.55 CKA Cokal Ltd 0.105 -13% -13% -5% -50% $ 113,289,642.90 BCB Bowen Coal Limited 0.072 -20% -28% -47% -76% $ 218,985,122.74 SVG Savannah Goldfields 0.038 -16% -13% -59% -75% $ 8,547,826.10 GRX Greenx Metals Ltd 0.97 2% 4% 4% 29% $ 251,334,088.84 AKM Aspire Mining Ltd 0.205 5% 105% 177% 211% $ 101,527,397.00 AVM Advance Metals Ltd 0.036 -10% -10% -74% -85% $ 1,443,058.34 YAL Yancoal Aust Ltd 5.46 2% 12% 9% -19% $ 7,222,803,720.39 NHC New Hope Corporation 5.22 -2% 1% 0% -22% $ 4,429,557,831.36 TIG Tigers Realm Coal 0.005 -9% 0% 0% -69% $ 65,333,511.84 SMR Stanmore Resources 3.8 -6% -2% 39% 11% $ 3,668,663,950.38 WHC Whitehaven Coal 7.93 -1% 7% 13% -15% $ 6,642,610,224.96 BRL Bathurst Res Ltd. 0.94 -2% -4% -5% 11% $ 177,964,595.40 CRN Coronado Global Res 1.68 1% -1% 2% -21% $ 2,732,619,579.90 JAL Jameson Resources 0.033 -6% -27% -34% -65% $ 13,943,466.30 TER Terracom Ltd 0.37 -12% -4% -11% -63% $ 292,352,675.78 ATU Atrum Coal Ltd 0.004526 0% 0% 0% -29% $ 8,853,517.37 MCM Mc Mining Ltd 0.13 0% -10% -13% -63% $ 53,025,796.72 DBI Dalrymple Bay 2.78 0% 4% 1% 11% $ 1,368,302,200.92 AQC Auspaccoal Ltd 0.1 0% 0% -30% -57% $ 48,731,921.15

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China bumps iron ore back above US$130

News China was planning more stimulus measures to recover its stock markets flowed into commodities, with iron ore surging 2% in Singapore to over US$131/t.

The reports came just days after Li Qiang said at the World Economic Forum in Davos that China wouldn’t be relying on massive stimulus to get its economy back on an even keel.

The country saw 5.2% GDP growth last year, in line with its targets, though its property sector has been maudlin and youth unemployment is high.

At the same time iron ore prices posted a surprising rally at the end of last year.

BHP (ASX:BHP) and Fortescue (ASX:FMG) were both up close to 1% yesterday, with the latter the last of the big three to deliver its quarterly report tomorrow.

All eyes will be on Andrew Forrest’s green energy projects and the progress made at its Iron Bridge magnetite mine in the Pilbara, where 2024 shipment guidance has already been slashed from 7Mt to 5Mt.

Meanwhile, BHP elevated Tim Day to the role of iron ore chief yesterday to replace new Americas boss Brandon Craig.

Day ran BHP’s 290Mtpa WAIO on an interim basis during the Covid era of 2019-2020 and was previously general manager of its Jimblebar and South Flank iron ore mines.

BHP also announced head of asset management at the maintenance centre of excellence Anna Wiley as the boss of its South Australian copper mines.

ASX iron ore stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP ACS Accent Resources NL 0.007 -13% -13% -36% -72% $ 3,311,890.98 ADY Admiralty Resources. 0.007 0% 0% 0% 0% $ 9,125,054.07 AKO Akora Resources 0.125 -11% -17% -38% -24% $ 12,822,679.89 BCK Brockman Mining Ltd 0.028 17% 17% -10% 22% $ 232,005,803.28 BHP BHP Group Limited 46.3 0% -7% 3% -6% $ 232,401,719,233.95 CIA Champion Iron Ltd 7.65 -5% -3% 33% -2% $ 3,975,009,997.79 CZR CZR Resources Ltd 0.325 0% 71% 103% 30% $ 77,792,433.18 DRE Dreadnought Resources Ltd 0.022 -19% -29% -64% -77% $ 86,976,824.00 EFE Eastern Resources 0.008 0% 0% -27% -50% $ 8,693,625.23 CUF Cufe Ltd 0.016 -16% 7% 7% -30% $ 18,337,797.84 FEX Fenix Resources Ltd 0.265 -2% 2% -15% 6% $ 184,073,748.80 FMG Fortescue Ltd 28.05 5% -1% 24% 25% $ 85,687,593,667.94 RHK Red Hawk Mining Ltd 0.59 -11% -7% 25% 16% $ 109,518,499.37 GEN Genmin 0.18 0% 0% 0% -10% $ 81,275,982.12 GRR Grange Resources. 0.445 1% 2% -22% -57% $ 497,655,640.14 GWR GWR Group Ltd 0.084 -3% -8% 4% 40% $ 26,982,199.02 HAV Havilah Resources 0.16 -14% -20% -33% -57% $ 50,662,273.60 HAW Hawthorn Resources 0.098 -2% -1% -31% -7% $ 32,831,530.07 HIO Hawsons Iron Ltd 0.04 -13% -11% -2% -60% $ 38,600,984.48 IRD Iron Road Ltd 0.065 -3% -7% -26% -43% $ 55,009,298.44 JNO Juno 0.095 -10% -5% 19% -16% $ 17,284,799.70 LCY Legacy Iron Ore 0.017 0% 6% -11% 0% $ 115,322,871.58 MAG Magmatic Resrce Ltd 0.04 0% -18% -50% -67% $ 11,922,019.12 MDX Mindax Limited 0.053 4% 6% -20% -10% $ 108,414,615.34 MGT Magnetite Mines 0.28 6% -2% -34% -42% $ 27,069,494.38 MGU Magnum Mining & Exp 0.022 -21% -24% -58% -19% $ 16,187,228.06 MGX Mount Gibson Iron 0.52 1% -2% 12% -22% $ 637,813,959.83 MIN Mineral Resources. 54.09 -10% -21% -23% -41% $ 10,257,046,791.40 MIO Macarthur Minerals 0.14 -7% -3% -30% 0% $ 23,275,488.32 PFE Panteraminerals 0.049 -13% -6% -39% -66% $ 6,631,127.45 PLG Pearlgullironlimited 0.03 -3% -3% -6% 0% $ 6,136,253.70 RHI Red Hill Minerals 5 -2% 2% 14% 6% $ 319,516,850.00 RIO Rio Tinto Limited 127.8 1% -5% 9% 1% $ 47,526,811,878.42 RLC Reedy Lagoon Corp. 0.005 0% 0% -43% -53% $ 3,097,703.66 CTN Catalina Resources 0.003 -14% -25% -40% -67% $ 3,715,460.68 SRK Strike Resources 0.037 -23% -24% -47% -57% $ 11,917,500.00 SRN Surefire Rescs NL 0.009 0% 0% -47% -40% $ 17,668,420.32 TI1 Tombador Iron 0.014 0% 0% -36% -50% $ 30,218,753.22 TLM Talisman Mining 0.22 -12% 2% 47% 33% $ 44,255,282.02 VMS Venture Minerals 0.008 0% 14% -47% -71% $ 17,680,104.28 EQN Equinoxresources 0.3 7% 2% 131% 131% $ 29,846,625.89 AMD Arrow Minerals 0.005 -17% 25% 25% -17% $ 17,368,825.48

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