Pattersons have just put out a report naming AEA as their best...

Pattersons have just put out a report naming AEA as their best pick in the coal sector.


Beneficiaries of the higher coal prices - Offshore

? In the below email our coal analyst Andrew Harrington has outlined the offshore based coal companies (RIV, BTU, AEA, HUN) that we consider will benefit the most from the rapidly rising coal prices. I have highlighted the relevant section in red.
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? AEA is the standout pick of the bunch, having just acquired a coking coal project in Kalimantan, raised $20 million and appointed a brand new - extremely well credentialed board on 24/12/2010.

NB: Coal prices have already reacted and we expect coking prices to rise the most. Coking prices are around the $250/t level and latest thermal spot prices are at $136/t as of today, up by about $10 and $20 respectively compared to pre-2011. The Coking market is very illiquid and we expect that the next quarterly contract reset may well push prices above the historical high of $300/t.


QUEENSLAND FLOODS

Coal

Most miners budget on 2-4 weeks of lost production due to unforeseen events but this flood is a lot more serious, and we still have not properly entered into the cyclone season, so their ability to make-up tonnages in the remainder of the year will be harder this time around. Disruptions are a double edged sword ?lost production is often almost offset by higher prices. Ideally those not affected at all will do best (FLX last time) - in this case it is the US, Canadian coking coal suppliers, and South African and Colombian thermal suppliers that will benefit.

Coal prices have already reacted. Coking prices are around the $250/t level and latest thermal spot prices are at $136/t as of today, up by about $10 and $20 respectively compared to pre-2011. The Coking market is very illiquid and we expect that the next quarterly contract reset may well push prices above the historical high of $300/t.

Ports

It looks like Abbot Point (Xtrata) and QBH (NHC) are operating close to normal. Hay Point and Dalrymple Bay have been loading coal since about 1 Jan because a train derailment not far from the port caused a backup of loaded trains which has subsequently supplied to port with product to load. The rain continues and going forward, new deliveries are under serious doubt over the next week or two, and likely to be at a reduced rate while the Goonyella rail line is repaired. Gladstone loaded what was expected to be its last ship last night and is unlikely to receive any new coal for at least a couple of weeks as the nearby Rockhampton region is the centre of the flooding at the moment.

QLD Met. Companies

The latest info to hand on Metallurgical coal producers is that so far:

? BHP/BMA ? no official announcements yet, but plenty of mines under FM. Lots of their workers are helping mop up townships rather than mining. Ultimately BHP will be a big winner from this.
? XTA ? Newlands and Collinsville, in the far north of the Bowen, have been spared, expect XTA to wring every last dollar for any spot coking tonnes. Other mines under FM.
? RIO ? plenty of mines under FM in the central Bowen.
? NHC ? operating Ok, minor site access problems
? MCC ? some minor impact, has started recovery, still under FM, no rail access to port
? WES ? Curragh spent a lot of money on flood defences and they held, recovery has begun, still under FM.
? AQA ? no specific update yet.
? CCD- mines unaffected, not under force majeure, but severe site access problems. (under takeover from Chinese group GRAM). Could be a winner from this.
? COK ? Baralaba pit flooded, questions over damage to the causeway to the site, under FM

There are a number of metallurgical coal explorers in QLD that will have plans delayed but should realistically recover without too much trouble. Thinking of SMR, BND, NEC, CLR, EOC, GUF, and others. Drilling work is mostly contract operated so delays will not be a cost borne by the explorers.

NSW Met. Producers

? GCL ? produces met and thermal and so far unaffected by the minor disruptions in the Hunter. Likely to benefit
? GNM ? in the Southern coalfield ? no impacts ? selling premium (but unwashed) coking coal. Will benefit but has opaque pricing.
? WHC ? has suffered some disruptions and has issued profit warning

Beneficiaries of the higher prices - Offshore

? RIV ? due to produce first coal at end of this year, the biggest new coking supplier, now trading at $17, above the $16 bid from Rio. Indians will be hurting from QLD floods worse than the Chinese ? may underscore their coking shortage and need to secure assets.
? BTU ? coking based in NZ, planning to produce in late 2011, I think later. Likely to benefit
? AEA ? coking in Kalimantan, very early days.
? HUN ? thermal and coking in Mongolia, no coking production yet, but may see uplift from higher seaborne prices reflected in the domestic China price