Cool response to breakthrough ResGen deal

[] — FOR a mineral that shapes like the persona non grata of any sovereign energy plan, coal sure generates a lot of money, as well as heat.

Resource Generation, a coal junior listed in Sydney and Johannesburg, has effectively signed a $16bn coal supply agreement with India’s Integrated Coal Mining, a unit of the RPG Group. In practice, this means some 139 million tonnes (mt) of coal will be supplied by Resource Generation’s Boikarabelo thermal coal mine, under development in the Waterberg.

Boikarabelo, perhaps the last of the large thermal mines in South Africa, is expected to start production in late 2013 and will supply 73 mt over the life of its first phase. The second phase will supply the balance of 66 mt to RPG. These are massive and lucrative amounts of offtake – little wonder coal overtook platinum group metals (pgms) as South Africa’s largest generator of export earnings: total coal sales were R65.4bn in 2009, which compares to some R58bn from pgms and R48bn from gold.

And yet most of the new money in coal is finding its way to Botswana’s Waterberg coal fields, or Mozambique which has attracted billions of dollars in new investment lately. Even Zimbabwe is enjoying a renaissance in its long-known Hwange coal fields.

In Mozambique, another Indian buyer, this time a consortium of five state-owned companies, is reportedly bidding up to $1bn for a 59% stake in Minas de Revuboe. Currently owned by Australia’s Talbot Group, Revuboe is developing a 5 mt/year premium hard coking coal plant, an important mineral as it’s the stuff alloy and steel producers burn and plays right into the China infrastructure development story.

Shares in Resource Generation were little changed in Australia and didn’t trade at all in Johannesburg. Interest in another coal junior, Beacon Hill Resources, an AIM-listed firm, is also muted considering its strategic positioning in Mozambique where it will be the first company to actually start producing meaningful amounts of coal.

Perhaps the reason for the lack of investor excitement – in South Africa and regionally in places like Mozambique – is that building a coal mine and securing the offtake is currently secondary to actually getting material shipped to the lucrative export markets in India and China.

All roads (rail?) leads back to infrastructure. Transnet Freight Rail is hoping to get capacity closer to 70 mt/year or more but it is still way below the 91 mt/year capacity of Richards Bay Coal Terminal, which said on Monday annualised coal exports for the year to date totalled about 54 mt, nearly 10 mt less than last year’s shipments, and well below what it should be achieving.

Coal exports may be South Africa’s biggest mineral earner but they could be so much more.

Interestingly, the same could be true of Mozambique’s putative coal industry. Its 1 mt/year Sena line, which travels about 580km from the coal-rich Tete basin to Beira, is some 18 months late commissioning a 6 mt/year rail expansion. The Indian arm of the consortium trying to expand the line is about to be fired.

Beacon Hill Resources is hoping to export some coal in the second quarter, with more production from an underground expansion due to kick in next year. But it is already making plans to truck the material to Beira. It will be followed by Vale and Rio Tinto, which also want shipments from Beira until the deepwater port at Nakala in the north of Mozambique is developed.

Surely there are privately-owned companies that know how to build rail infrastructure quickly, efficiently and on time?