Some radical long term/long reaching changes have been occurring in the thermal coal market over the last year or so.
* The natural gas revolution in USA has displaced MAJOR volumes of coal. Gas prices dropped from 12 to 2 in recent years - hence p/stations converted to gas. Now prices are back to 4 - so some are burning more coal again.
Bottom line is...LT there will be plenty more USA coal (very high sulphur - but that's not a major nasty for them as it can be blended with the very low sulphur Indo coal) available on the world market. It was inevitable that Newcastle/Australian coal prices would be affected to the downside.
* The other major factor I see as LT reducing coal price expectations is Chinese demand was over estimated by analysts in recent years. Sure - China will be a LT importer - but the volumes coming from OZ wont be what analysts thought even 6 months ago. China's growth will gradually head south from 8% and they have more hydro etc happening than expected are two of the main reasons I see for reduced expectations.
April 12 there was a landmark change:
"Australia's largest thermal coal exporter Xstrata Plc and Japan's Tohoku Electric Power Co have settled a benchmark annual supply contract 17 percent lower than last year, in a victory for cost-pressured Japanese utilities .
The first Japanese coal import contract for the financial year beginning April 1 was set at $95 per tonne, industry sources close to the negotiations said on Friday, down about $20 from a year earlier.
The price level, which was in line with most analyst expectations, will likely be followed by other Japanese utilities and will be used as a benchmark for Asia .
"It's a big compromise (for Xstrata), I think," said a Sydney-based market source. "For suppliers, it's not a good number."
So HOW does all this affect Coldry...?
I've spent a few hours over the last few weeks (since April 12 game change ann) researching where Coldry's economics stand.
Fact is - Exergen/Coldry etc claim to be economic "game changers" for the coal market. But are they...or is it hot air...have the Govts got it all wrong in calling the Pilbara and even as recent as last Mon making grandiose statements of export etc...?
"At current spot prices of about $90 a tonne in Newcastle, the Australian port that serves as the benchmark for Asia coal, executives believe that up to a quarter of Australian miners would lose money ."
So the Newcastle benchmark (6080 calorific value) producers need ~$90 to break even . Very important fact for Coldry's prospects. What does Coldry need...? Actually - LT buyers from Japan/Korea NEED suppliers to be PROFITABLE...not just break even.
Japan/Korea buyers/burners ideally need/want a "one stop shop" of guaranteed continuity of LT supply of cleannnner ~6000 cv coal + very low sulphur/ash from a very low sov risk nation at the right $$. I notice that the Japanese are historically happy to pay a premium for a "one stop shop" contract type scenario.
LV/Coldry can deliver the above unique needs/wants.
Basically - coal is priced in this order - calorific value, sulphur, ash. Coldry cv is ~5850...BUT its sulphur/ash content is wayyyy lower (this a MAJOR Coldry selling point) - so it can be reasonably assumed Coldry could closely track the Newcastle Benchmark ($95) that Asia follows.
Seems Coldry production/feedstock costs will be around $31/tonne - interestingly prod'n costs have come down significantly since 2009. The Freight to Port (FOB) $20 = ~$51
Now the more subjective part. Interest, depreciation, royalties...and profits.
I calculate Govt Royalties at ~$1.70 = 1 Coldry tonne. The end game for Govt will be not only royalties, but a re-vitalised LV region...jobs, flow on investment, votes etc
Interest on finance. Pay Back/ROI figures from the above articles/ann's factor this in. For the demo - obviously that's different - actually everything is dif for the demo. There are NO profits for demo funders - they are taking a LT view of the Coldry/Matmor value adding scenario.
Its only ONE extra day dif shipping to Tokyo from LV compared to Newcastle. So forget the distance factor extra cost...its peanuts. _____________________________________________
So does Coldry have a future...ie do the economics stack up in this new thermal coal world...?
Yes. My recent research on this subject has highlighted to me the compelling Coldry economic competitive advantage (I didn't even mention the Water/Matmor Madness/CTL bonuses).
Bottom line:
* Newcastle needs ~$90 to break even - not pretty for LT.
* LV/Coldry needs ~$80 (imo) to keep ALL stake holders very happy LT...inc Govts, off takers, AGL etc, and ESI s/holders. Note too that Coldry would be utilising existing S7 LV coal...meaning reduced community/green friction. Significant.
An $AUD decrease in years to come (likely according to many analysts as the $$$ into massive Oz projects reduces) will massively improve the economics of all Oz coal exporters/wannabees.
Last Mon HeraldSun:
"LOWER-emission technologies to take advantage of Victoria's massive brown coal deposit - the second-largest in the world - are the centrepiece of the state's energy future."
I reckon Coldry tech will have a centrepiece role.
BUT - where is the ALDP private component Monashs $6m to kick start the party...?
We are not toooo concerned. Very frustrating to say the least and very disappointed in Monash's continued timelines debacles.
Anyway this post is re Coldry's economic cred/potential in the face of serious thermal coal headwinds.
IMO the Coldry economics are a no-brainer for a LV Pilbara. If/when private funding follows June onwards - ESI sp will be LT market darling stuff.
tick tock...
ESI Price at posting:
0.9¢ Sentiment: Buy Disclosure: Held
(20min delay)