This move at this time strikes me as a good defence play. Spent some time researching contract mining and found it is a good move for new miners who are not heavily capitalised. They do not have to find money to buy all the expensive capital equipment for a start. On the flip side the contract miner will usually require a take-or-pay contract. They too have borrowings required to fund heavy equipment. Contracting BUMA was the right move then, with highish coal prices and a new business. Now with the low prices part of the cycle with an oversupplied market at the lower end, particularly, take or pay obligations would likely cripple the operation if they had to run at loss to fund the contract with the contract miner t-or-p. It could be worthwhile at some point to shutter operations for a few quarters rather than produce at a mined cost loss to preserve cash holdings. Not suggesting that this will happen but it is a genuine possibility in the current market with all sorts of problems in China. Better to fight and run away and live to fight another day.
BCB Price at posting:
37.0¢ Sentiment: None Disclosure: Held
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