This will be a massively profitable project. High grade coking...

This will be a massively profitable project. High grade coking coal is booming and expected to continue.
Patience will prevail on this one.
Hold NZO ( 40% of PIKE)

Booming coal markets in 2007��

Data is gradually coming in regarding trade in coking and
thermal coal for the fist half of 2007. This enables us to
start to analyse why prices have taken off as strongly as
they have. We have collected the export data form the
major coal exporting countries (adding some estimates
where data is not yet available). The interpretation of this
data is difficult in the sense that higher exports could
indicate over-supply or strong demand, while lower
exports could reflect lower demand or supply problems.
�� The fact that spot prices for coking coal have soared to
roughly $135–140/t fob in Australia in recent months
(compared with the annual contract settlement of $98/t)
and that spot thermal coal prices out of Australia
(Newcastle) are currently $72/t fob compared with
annual contract prices of $55.50/t suggests the following:
⇒ Coking coal – 10.4% YoY growth in exports =
booming demand but a relative supply shortage
⇒ Thermal coal – 2% YoY growth in supply = supply
growth lagging demand
Summary of 1H07 thermal and coking seaborne coal
exports (mt)
Steam Coal Exports (mt) Jan-Jun Jan-Jun % Change Change mt
2007 2006 Y-o-Y Y-o-Y
Australia 56.1 56.1 0.0% 0.0
South Africa 31.7 30.9 2.6% 0.8
Indonesia 91.7 81.6 12.4% 10.1
China 17.9 25.7 -30.3% -7.8
Colombia 31.1 27.0 15.2% 4.1
USA 3.5 2.1 65.9% 1.4
Venezuela 3.9 3.9 1.5% 0.1
Russia 29.2 29.1 0.4% 0.1
Poland 3.9 7.4 -47.4% -3.5
Total Above 269.0 263.8 2.0% 5.2
Jan-Jun Jan-Jun % Change Change mt
Met Coal Exports (mt) 2007 2006 Y-o-Y Y-o-Y
Australia - hard 41.5 38.2 8.8% 3.4
Australia - semi-soft/PCI 26.2 21.9 19.8% 4.3
Canada 12.4 11.8 5.4% 0.6
USA 11.7 10.7 9.6% 1.0
China 3.1 3.8 -19.3% -0.7
Russia 2.5 2.4 5.6% 0.1
Poland 1.1 1.5 -27.0% -0.4
Total Above 98.6 90.2 9.2% 8.3
Chinese coke - coal eqv. 10.5 8.5 22.4% 1.9
Grand total - coal eqv. 109.0 98.8 10.4% 10.3
Source: Customs’ statistics, Barlow Jonker, McCloskey Coal,
Macquarie Research, August 2007
�� The highlights of the thermal coal data include:
⇒ No growth in Australian or South African exports
(despite expectations to the contrary at the start of
the year).
⇒ A collapse in Chinese exports (down 30.3% YoY in
the first half – accompanied by a strong rise in
imports (see next table).
⇒ A collapse in Polish exports (these are total not
seaborne export numbers).
⇒ Strong growth from Indonesia, Colombia and US
(from a low base). However, Indonesian exports
were weaker than expected and an increasing
portion are sub-bituminous (lower energy content)
coals.
⇒ European coal demand has been weak this year
(down 10mt+ YoY) due to plentiful gas and excess
power station coal stocks. However, Indian,
Japanese (nuclear power problems) and Chinese
demand has been booming and buyers have been
looking to South Africa for extra coal units following
recent Australian port and Indonesian weatherrelated
problems.
�� The highlights of the coking coal data are:
⇒ Surprisingly strong growth in Australian exports
(especially of-lower quality semi-soft coal) –
however, exports are expected to slow in 2H07 due
to lack of port capacity at DBCT.
⇒ No or low growth everywhere else (US the
exception).
⇒ We understand that the booming exports reflect a
strong rebound in buying following heavy destocking
in 2007 plus a switch by steelmakers back to coking
coal from coke following a doubling in Chinese
export coke prices from $120/t fob to $250/t over the
past year (given you need one 1.3t of coking coal to
make a tonne of coke, it was much cheaper to buy
coke last year – this year it is much cheaper to buy
coking coal and make coke, if you can get the coal).