Welcome to our NEWS PAGE, these articles are all written by members of our investment team.
Please CLICK HERE to register for OUR WEEKLY NEWSLETTER.

Steel Driving the Next Coal Boom

Author: Sam Green/Wednesday, September 6, 2017/Categories: Mikes Blog

Rate this article:
4.5

When you mention coal to someone, it’s usually a safe bet that they assume that you mean thermal coal; the kind of coal that is burned en masse to boil water, turn steam turbines, and generate power.

Much has been written about the need to reduce our reliance on thermal coal, but regardless of what your beliefs on this are, it is hard to argue against the bright future of the other type of coal: coking coal.

Coking coal is currently trading at roughly twice the price of thermal coal, and coking coal producers are therefore enjoying high margins, and in many cases, strong profits. Coking coal is an essential component in the production of steel, and this is why demand for it is likely to continue to flourish.

Global steel production is booming thanks to ongoing development in Asia, particularly from China and India, and Australia is well placed to capitalise on the surging demand for steel’s raw ingredients. According to the World Steel Association, global steel production has roughly doubled over the past 20 years, and is expected to grow further.

Despite, China’s reputation as the most important customer for Australian minerals, it is actually India that is scheduled to be the biggest customer for Australian coking coal according to Vivek Dhar, mining and energy analyst at the Commonwealth Bank.

“India’s promising steel production growth offers more opportunities in coking coal than iron ore,” he says. “India has enough local iron ore to help expand domestic steel output, which is growing at a world-leading pace.

“An absence of good-quality coking coal will mean that India will likely become the main consumer of Australian coking coal in coming years.”

Freight rail firm Aurizon agrees, stating that Australia has one of the lowest freight costs from mine mouth to customers in Asia compared to competing seaborne coking coal suppliers.

It is against this backdrop that coking coal prices are rising. After trading below $US100/t for parts of 2016, prices are now trading near $US200/t.

Indeed, early this week, Macquarie bank lifted its Q1 and Q2 2018 price forecasts for coking coal by 32 and 40 percent respectively, which they say is due to Chinese re-stocking and a tightening coal supply.

This may be why Anglo American has reversed its decision to divest from Australian coking coal, and why Peabody energy’s Australian coal business (predominantly coking coal) is the largest profit contributor to its bottom line.

With the fundamentals looking great for Australian coking coal, a new entrant to the sector is acquiring interests in Queensland coking coal projects.

Cabral resources (to be renamed Bowen Coking Coal) is taking ownership of a host of coking coal assets in the world renowned Bowen in Queensland, an area with a long history of successful coal mining, with significant geographical advantages and infrastructure for export to the Asian region. Almost all of Queensland’s prime hard coking coal is found in the Bowen Basin, and ownership of coking coal tenure has traditionally been dominated by large corporations such as BHP, Rio Tinto, Anglo American, Glencore, Peabody and other listed entities.

The main assets that Cabral is acquiring were purchased by exercising options. They are well explored with Attributable 187M tonne 2012 JORC compliant Resource. They lie in close proximity to rail infrastructure and mines operated by the major Coking coal producers of the Bowen basin.

It is for this reason that Cabral is seeking to raise up to $5million AUD through an ASX reverse takeover listing. They have had the great fortune of holding assets with strong potential upside, at an attractive valuation, with significant re-rating potential.

Cabral’s is well poised to capitalise on the opportunity in Australian coking coal, given their assets and their people. They plan to generate value for their shareholders by developing their Bowen sites and achieving an ASX listing.

For more information, visit http://www.ozfinancial.com.au/IPO/Cabral-LP.aspx to download the prospectus and apply.

Back to Articles

Number of views (316)/Comments (0)

Please login or register to post comments.

Name:
Email:
Subject:
Message:
x