MELBOURNE: Straits Asia Resources, whose shares gained twofold this year, may spend as much as $400 million buying mines to double production of coal in Indonesia as rising demand from China increases prices.
The company is seeking to buy mines to add 3 million to 4 million metric tons of coal, Milan Jerkovic, chairman of the Singapore-based Straits Asia, said in an interview Monday. That may cost between $200 million to $400 million, he said.
Asian thermal coal prices may climb to a record next year as demand for energy in China surges.
Exports from Australia, the second-largest shipper of coal used by power stations behind Indonesia, have been constrained by port and railroad congestion.
"We're seeing a shift up in coal prices, and if you look three to four years out, there's a very stable price outlook," said Jerkovic, who is also chief executive of Straits Resources, the parent of the coal miner. "There's a scramble for long term off-take agreements."
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Shares of Straits Asia Resources, which is 60 percent owned by Straits Resources, have doubled this year, compared with the 18 percent gain on the Straits Times index in Singapore.
Thermal coal prices may rise 26 percent to $70 a ton in 2008, Centennial Coal, second-largest Australian coal producer, said July 23.
JPMorgan Chase said Thursday that China may increase consumption 9 percent to 2.67 billion tons next year as power demand rises.
China, the world's biggest coal producer, became a net importer of the fuel for the first time in January as domestic utilities constructed power stations at a record pace. The nation gets about 78 percent of its electricity from coal, spurring imports from Australia, Indonesia and Vietnam.
Sales from Australia have been curbed by storms and bottlenecks at Newcastle Port, which had 49 ships waiting to load as of Monday. Ships waited an average of 25.7 days to load, Newcastle Port said.
Shipping fees charged because of the waiting lines and the longer freight distance to Asia makes Australian coal as much as $9 a ton more expensive than Indonesian coal, Jerkovic said. Asia's demand for the fuel may rise by 70 million tons from next year, he said.
Straits Asia plans to produce 4 million tons of coal this year at its Sebuku mine in Indonesia, and is working to expand output to 6 million tons in 2008. It wants to buy mines with at least 10 years production life, Jerkovic said.
The company plans to borrow and may also sell shares to fund an acquisition, he said. Straits Asia, which posted a profit of $48.2 million last year, had borrowings of $4 million as of Dec. 31, 2006.
"We would need to gear up and top it with some equity, that would not have to be large," said Jerkovic. "It will be a good thing as it will improve our liquidity."
PetroChina, the nation's biggest oil company, signed an initial accord with Arrow Energy NL of Australia to explore for coal bed methane in the Xinjiang autonomous region in northwest China.
The agreement covers the 4,000-square-kilometer, or 1,500-square-mile, Dajing block in the Junggar basin, where conventional natural gas is produced to supply a pipeline connecting to Shanghai, Arrow Energy, said Tuesday in a statement. The block could hold 35 trillion cubic feet of coal bed methane, Arrow Energy said.
Arrow Energy is developing overseas interests in coal seam methane and has entered ventures in India and Indonesia. Once a production sharing contract with PetroChina is signed, it plans to drill as many as 20 exploration wells in the Dajing block over 18 months to better determine the volume of coal seam gas that could be recovered.
"This could be an enormous resource," Nick Davies, chief executive of Arrow Energy, said in the statement, lodged with the Australian Stock Exchange. "We look forward to developing the area for China's first long-term gas supply agreements from coal bed methane."
Australian miner's profit falls
Coal & Allied Industries, an Australian coal producer controlled by Rio Tinto, said first-half profit fell 53 percent as flooding along with port and rail congestion limited sales.
Profit fell to 70 million Australian dollars, or $60 million, for the six months ended June 30, down from 148.6 million dollars a year ago, the company said in a statement Tuesday to the Australian Stock Exchange.
Record waiting lines for ships at Newcastle, Australia curbed exports and raised costs for miners in the Hunter Valley of New South Wales State. Coal & Allied said its share of mine production fell by almost 22 percent in the first half.
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