Coal mine fire has analysts ramping up met coal price forecasts
\nGoldman Sachs thinks PHCC prices could hit US$300\/t this quarter
\nSandfire excites with MATSA copper reserve upgrade<\/p>\n
If you\u2019ve been reading Stockhead over the past few days you\u2019ll be unsurprised to hear coking coal stocks are on a tear.<\/p>\n
Singapore futures for premium hard coking coal have been all over the shop this week, rising as high as US$261\/t before slipping back under US$250\/t.<\/p>\n
But even with the pullback in the front month contract, the market is settling into a significant contango, with December contracts running at US$281\/t.<\/p>\n
That hints traders think it could get tougher to procure steelmaking coal towards the end of the year after a fire caused Anglo American to shut its Grosvenor mine on the weekend.<\/p>\n
The 3.5Mtpa operation is one of the few coking coal mines that was forecast to increase output in the years ahead and its closure is sensitive given Anglo\u2019s plans to sell its coal assets in Queensland after the collapse of a BHP (ASX:BHP)<\/strong><\/a> bid for the diversified London-listed miner.<\/p>\n Accounting for around 1.3% of the seaborne market and much of its higher quality content, the closure could last months and fuel shortages for Indian mills reliant on spot contracts and Japan-Korea-Taiwan steel mills who could see Anglo call Force Majeure if it cannot replace those tonnes with coal from Moranbah North and its German Creek product mix.<\/p>\n That has threatened higher prices and seen big moves upwards this week for coal equities like Whitehaven Coal (ASX:WHC),<\/strong><\/a> up 13.7% in the past five days to a new 18 month high of $8.96, and Coronado Global Resources (ASX:CRN)<\/strong><\/a>, with has risen over 10% in the same time period to $1.34.<\/p>\n New Hope Corp (ASX:NHC)<\/strong><\/a> is up only 2% in the same period, but largely trades thermal and lower grades of met coal, which garner lower prices on the seaborne market, and spooked investors by issuing $300m in convertible notes that suggested, egads, it could be ready to waste their money on M&A.<\/p>\n READ: Bulk Buys: Anglo walking on hot coals as fire hits sale process<\/a><\/p>\n \u00a0<\/p>\n Grosvenor is a big player in the met coal trade, but analysts at merchant banks have already been calling met coal their preferred market for commodity exposure.<\/p>\n Morgan Stanley made the call this week after the Grosvenor fire and other supply cuts in the United States which will serve to tighten the market, lifting its year end forecast for PHCC to US$290\/t.<\/p>\n Goldman Sachs thinks prices will head even higher, surging to US$300\/t in the September quarter due to production issues from Anglo and its failed suitor BHP.<\/p>\n GS analysts reckon the world has already lost 8Mt of supply against pre-pandemic levels due to production problems caused by methane and geotechnical issues at Anglo\u2019s Bowen Basin portfolio.<\/p>\n It also think waste stripping at BHP\u2019s key BMA JV mines will see its output drip 10Mt this year.<\/p>\n Met coal is expected to be balances from 2024-2026, but Goldman sees a modest market deficit emerging in 2027 because of stagnating Aussie supply growth and rising demand from India, already BHP and Coronado\u2019s largest external customer.<\/p>\n Higher Queensland royalty rates and cost inflation, which has seen met coal production costs run to 10 year highs, has seen Goldman lift its long run hard coking coal price from US$205\/t to US$220\/t.<\/p>\n The marginal cost base has now settled around US$240\/t, suggesting it is unlikely prices could drop from current levels in the foreseeable future.<\/p>\n \u201cOur analysis indicates the met coal market will be broadly balanced from 2024-2026 with increasing India demand being offset by a modest recovery in Australian supply,\u201d GS said.<\/p>\n \u201cHowever, we forecast a deficit from 2027 driven by underinvestment in new premium met coal supply in Australia and Canada.<\/p>\n \u201cThis deficit is expected even with a further increase in supply of lower quality Pulverized Coal Injection (PCI) from Russia (mostly into India), and new PCI and Semi-hard Coking Coal (SHCC) supply from Australia, which means we expect further tightening of PLV HCC market, driving increased premiums over SHCC, PCI and Semi-soft Coking Coal (SSCC).<\/p>\n \u201cOur cost curve analysis for the seaborne met coal market, shows the marginal cost (90th percentile) on a quality adjusted all-in basis is currently around ~US$240\/t.\u201d<\/p>\n At the US$275\/t average price seen in the first half, GS estimates the Queensland Government\u2019s higher tiered royalty rates, in place since 2022, adds around US$50\/t to the all-in cost base of miners like BHP and Whitehaven.<\/p>\n \u00a0<\/p>\n Sandfire Resources (ASX:SFR)<\/strong><\/a> has ridden the recent copper wave to levels pushing all time highs.<\/p>\n It was up, albeit only slightly, today after announcing a 2.3Mt year on year increase in ore reserves at its MATSA copper and base metals complex in Spain over mine depletion.<\/p>\n RBC Capital Markets\u2019 Kaan Peker says the announcement opens new mining areas at San Pedro and Masa Olivo and \u2018marks potential mine life extension\u2019.<\/p>\n RBC has an $11 price target on Sandfire and outperform rating, implying a potential upside for the ASX\u2019s largest pure play copper stock of 21%.<\/p>\n Peker remained positive on the announcement, despite lower copper grades across the new reserve, which has also been preserved by the selective mining of available resource blocks to preserve mine life.<\/p>\n \u201cWhile grades have marginally come down for copper, the total contained copper in Reserves is 23,000t higher at 588,000t, However, we do flag that Sandfire has favourably lifted commodity price modify factors, albeit very marginally,\u201d Peker said in a client note.<\/p>\n \u201cThe new reserve zones within the estimate, San Pedro and Masa Olivo make up only 0.1Mt and 0.6Mt of the reserve estimate.<\/p>\n \u201cWe view this as important as reserves have not just been maintained by adding new areas. However, the establishment of these zones does provide longer term optionality.\u201d<\/p>\n MATSA accounts of US$2.7bn of RBC\u2019s SFR valuation or $5.96\/sh, around 78% of its NAV, with the rest made up of the Motheo mine in Botswana and pre-development assets.<\/p>\n \u201cThis valuation assumes a mine-life of 10.5 years and long-term copper and zinc prices of US$4.00\/lb and US$1.20\/lb, respectively,\u201d Peker said.<\/p>\n \u201cOur estimate, modelled prior to today, would consume 100% of reserves, or only 49% of measured resources.\u201d<\/p>\n The materials sector tumbled from yesterday\u2019s lofty highs<\/a> by 0.71% as iron ore prices struggled to break resistance above US$113\/t, though gold held firm after US rate cut hopes were raised overnight by slowing US non-manufacturing activity data.<\/p>\n West African Resources (ASX:WAF)<\/strong><\/a> (gold)\u00a0 +4.9%<\/p>\n Westgold Resources (ASX:WGX)<\/strong><\/a> (gold) +3.6%<\/p>\n Resolute Mining (ASX:RSG)<\/strong><\/a> (gold) +2.6%<\/p>\n Bluescope Steel (ASX:BSL)<\/strong><\/a> (steel) +1.6%<\/p>\n \u00a0<\/p>\n Seven Group Holdings (ASX:SVW)<\/strong><\/a> (mining services) -4%<\/p>\n Boss Energy (ASX:BOE)<\/strong><\/a> (uranium) -5.4%<\/p>\n Zimplats Holdings (ASX:ZIM)<\/strong><\/a>\u00a0 (platinum group elements) -4.2%<\/p>\n Adriatic Metals (ASX:ADT)<\/strong><\/a> (silver) -2.3%<\/p>\n \u00a0<\/p>\n The post Monsters of Rock: Met coal has transformed into Goldman\u2019s commodity pick, go figure<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"But it\u2019s not just Anglo<\/h2>\n
Sandfire on the up<\/h2>\n
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