colombia expansion, page-4

Extracts from

http://www.proactiveinvestors.com/companies/news/5668/colombian-potential-for-coking-coal-producers-5668.html

Taking a look at current production levels compared to the estimated reserves in the country’s four main regions, we can see this belief is not unfounded. Data from the coal consultancy IHS McCloskey, shows that the Boyacá and Socha regions hold an estimated coking coal reserve of 860m/tn, but currently the estimated existing production in those areas is only 1.6m/tn. An estimated 702m/tn coking coal reserves are estimated in the Cundinamarca region, while only 1.4m/tn are currently being produced from the area.

Similarly, the Norte de Santander region has an estimated reserve of 245m/tn while the Santander area holds 158m/tn, but only 0.2m/tn are being produced in Norte de Santander while no discernable production comes from Santander. These all indicate a lot of potential to develop and increase the coking coal industry within the country, and IHS McCloskey go on to suggest that as the sector develops, even more reserves are expected to be identified.

As well as these underdeveloped and unutilized reserves, the disconnected nature of the current coking coal industry in Colombia also offers significant growth potential. Currently, ownership through the entire stream of coke production is fragmented in Colombia, with the majority of mines being small-scale and undercapitalized. Although there are a few major producers, including Acerias Paz del Rio (CB: PAZRIO) and Votorantim Participacoes (BZ: 1287Z), much of the current production is actually coming from small, specialist companies, which have an almost artisan or trade-vocational nature, naturally limited in the levels they can produce and the economies of scale they can take advantage of – in turn limiting their available investment into their concessions and infrastructure surrounding the industry in Colombia.

At the same time however, the quality of Colombian coking coal is very high, and is in fact one of few regions in the world to produce low volatility coking coal. This leaves undoubtable potential for a well financed and well organized producer to take advantage of the country’s coking coal potential, by expanding either through stand-alone operations, or joint ventures

As highlighted, the current logistics for coke production in Colombia are somewhat constrained due to years of underinvestment, however there is still a firm infrastructure in place for those companies entering the market, with the potential for an expanded and more developed network as the industry expands.

Firstly, Colombia has a large trucking fleet available for the delivery of end products, combined with fairly competitive tonnage rates (London Mining for example will pay $50 per tonne in trucking costs, for the 1,000km journey from Socha to Atlantic ports). Port access fees are themselves competitive, at around $10 per tonne.

Another immediate and even cheaper option for coke delivery is the Magdelena River, flowing through the western half of the country to the Atlantic coast. London Mining have estimated the costs of shipping via the river as between $30 and $35 per tonne, depending on the level of ‘backhaul’, i.e. the possibility for the boats to bring cargo back on their return journey.

Finally an underdeveloped area of Colombian infrastructure, but one which with some investment, would be key for coking coal producers, is the country’s rail network. As it stands, both the Atlantic and Pacific railways in Colombia require significant material refurbishment and investment before they become a reliable delivery mechanism for coke producers, with a specific need to extend capabilities in the regions where coking coal mines and producers currently work.

One last area to consider, although no less significant, is Colombia’s geographical standing as far as global exports and delivery are concerned. The country is well placed for coke delivery on both Atlantic and Pacific routes, as well as more direct delivery to South and North American countries. The country is perfectly placed for direct shipping routes to the world’s two largest coking coal importers: China and the European Union. Currently the majority of the country’s coke is sold to US traders, but already some of the biggest end product purchasers are more globally diverse, including US Steel, Brazil’s CST and the UK’s Corus. As the global economic recovery brings with it increased demand for steel, and in turn increased demand for coking coal, Colombia’s global placement will allow coking coal producers entering and developing in the country the perfect opportunity to take advantage of these key links with the world’s largest coking coal importers.

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