BARRY FITZGERALD Tiger Realm Coal burning bright as prices...

BARRY FITZGERALD

Tiger Realm Coal burning bright as prices skyrocket


A boy jumps from a snowdrift near St Basil's Cathedral at Red Square in Moscow

• The Australian
• 12:00AM November 21, 2016
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• BARRY FITZGERALD
  
  Resources Editor
  Melbourne
  
  

It’s getting real cold in Moscow, with subzero the forecast for today, but for Moscow-based Tigers Realm Coal (TIG) chief executive Peter Balka, things are decidedly warmer now that coking prices have shot through $US300 a tonne.
“It’s definitely much more pleasant to have strength in the coal price compared with the situation of the past few years. That’s for sure,’’ Balka says during a call to his Moscow apartment.
The group’s share price is reflecting that too, having risen from all of 3c a share back in August to the 7c a share on offer on Friday. But given TIG used to trade at 35c a share back in January 2012, there is still a lot of thawing to do.
TIG is an interesting position because unlike many other juniors, it stuck to the task of advancing its Project F coal development in the far east Russian province of Chukotka when the sub-$US100 a tonne prices of the past couple of years said it should think about doing something else.
But in April the button was pushed on a low-cost starter project that will see TIG begin mining before the end of the year, with the mix of thermal and coking coal stockpiled at the port for shipment between June and November next year when the port thaws out.
That April decision was based on export thermal prices of $US40 a tonne (FOB) and coking coal prices of $US60 a tonne. Prices for both have more than doubled since. What they will be next June is crystal-balling stuff.
But it has got to be assumed prices will still be higher than TIG’s assumptions when it gave the go-ahead. That’s particularly so for coking coal. There just isn’t much of the good quality stuff available, as its price zoom to more than $US300 indicates.
“We have some good quality coal. And regardless of the price movements, we have been talking to a few targeted customers in Japan and Korea. The recent price movement has reinforced with those particular customers their interest in taking our coals,’’ Balka says.
While Project F is a starter project (the bigger Amaam coking coal project is several years down the track), it is broken down into two parts. The first stage involves capital expenditure of $US6.6 million for annual production of 600,000 tonnes a year of mainly thermal coal, with operating costs of about $US25 a tonne.
“The best thing for us to do is demonstrate capability and demonstrate customer acceptance of the product,’’ Balka says.
“That will put us in a much better position to raise funds for the second stage of Project F.’’
The second stage would increase production to an annual rate of a million tonnes of coal with more of the output having qualities akin to premium hard quality coals, the stuff currently fetching more than $US300 a tonne.
The capex for the second stage would be more than $US90m with success of the initial stage critical to TIG’s ability to tap debt markets, or bring in a strategic partner for that matter.
Cheering it on are a bunch of shareholders more interesting than most you will find on the register of an ASX-listed company.
The foreign-funded Russian private equity fund Baring Vostok is in for 30 per cent of the action and Bruce Gray, the founder and former chairman of cancer therapies group Sirtex, is in for about 20 per cent. Then there is the development established under the orders of Russian President Vladimir Putin, the Russian Direct Development Fund. It is on the register with a holding of about 10 per cent.
JVs the way to succeed
Exploration legend Derek Carter signed out as chairman of Minotaur Exploration (MEP) last week, telling shareholders at the group’s annual meeting that after 40 years in the game, he continues to believe that exploration is a worthy cause.
More contemporary explorers could do well to take time to have a read of Carter’s farewell speech if they want to ensure the support of investors in an increasingly crowded funding world.
The way Carter sees things, the upside for shareholders in exploration companies depends on success in the field. Sounds self-evident, which it is.
But Carter has a bigger point to make, and that is that the active pursuit of joint-venture arrangements can deliver much greater exposure to the sort of in-the-ground success that juniors need.
The alternative is for juniors to project-hug, and build a lifestyle for directors around a company’s activities rather maximise the potential for what it is all about: making a decent recovery.
Through its joint venture arrangements, Minotaur’s in-the-ground activity level is high compared with its junior peers. Carter reckons that of the 500 companies with a market value of sub-$100 million, Minotaur was in the top 5 per cent most active (by exploration expenditure in FY2016).
Apart from anything else it helps keep corporate costs low, which goes to the earlier rant about some juniors putting director lifestyles ahead of shareholder interests.
Carter said Minotaur’s self-funded administration expense was 26c for each $1 of exploration expense. That compares to the 500 average of $1 on administration for each $1 on exploration.
So it can be said that if investors want the biggest bang for their buck, they should be looking at explorers with a similar joint-venture strategy and cost structure that Carter has baked into Minotaur over time.
On the broader outlook, Carter said 2016 showed that risk-tolerant investors were returning to the junior mining sector. “Tellingly, large companies are again active in grassroots exploration in order to supplement their project pipeline through the years ahead.’’
And ever the promoter, Carter said there was no better example of that than the two joint ventures Minotaur has secured in the last year with its third-biggest shareholder, OZ Minerals, on Minotaur’s Eloise copper/gold tenements in Queensland, and around OZ’s Prominent Hill copper/gold mine in South Australia.


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