You won’t find it in the mainstream press, but coal is undergoing a massive boom.
China is the biggest burner of coal on earth, accounting for 50% of all coal consumed.
The Middle Kingdom — in an effort to have clean air — has put restrictions on its dirty brown coal.
This means that, despite having large reserves of poor-quality coal, it is now a voracious importer of high-grade coal, used to fire its power plants and make steel.
Chinese imports have risen more than 13 percent per year for the last decade.
India
India is on a coal-buying binge as well.
India imports most of its ever-growing coal needs and 70 percent of the high-quality stuff needed to make steel.
India’s blue chip coal miner, Steel Authority of India Ltd., is looking to buy two coaking mines in Mongolia.
Mongolia, as I’ve been writing for more than a year, has the world’s largest deposits for coaking coal…
According to Bloomberg: “Steel Authority, in talks to build a $3 billion factory in the land-locked North Asian country, aims to buy one mine itself and another through a venture with other state-run metal and energy companies.”
Mongolia has an estimated 6 billion metric tons of coal in the Gobi desert, and as much as 70 percent of the deposit may be coking coal.
The price is flying
Already this year, Tata Steel of India is paying 66 percent more for fuel than it did last year.
Forbes recently wrote about U.S. coal producer Massey Energy (MEE), saying “The firm’s revenue per ton has increased from $37 in 2005 to $54 in 2009, and we expect this positive trend to continue going forward led by increasing demand for coal in emerging countries like India and China.”
The producers have so much juice these days that BHP told the Japanese steelmakers they were going to price coal every month, instead every quarter, going forward…
It was only last year when the prices went to every quarter from every year.
The last quarterly price was set at $120 a ton — double last year’s price.
Bloomberg is reporting three big coal companies are headed for record profits. “BHP, Vale SA, and Rio Tinto Group, the world’s three largest mining companies, are set for record profit totaling $52 billion as they raise prices for their biggest customers.”
Mongolia
I’ve been writing about Mongolian resources for almost two years now. In that time, I’ve recommended three Mongolian coal companies.
The first is up 825%. The second has doubled in a month. The third, South Gobi Energy, is up more than 60% since I wrote it up.
Mongolia coal is on fire
Mongolian coal is so hot as an investment, it could be the IPO of the year.
A massive Mongolian state-owned coal company, Erdenes Tavan Tolgoi, is in talks to go public.
According to the Wall Street Journal, it’s the world’s largest coking coal deposit. The initial public offering would value the company at between $10 and $15 billion.
Bankers are fighting over the deal.
The plan is to sell 30 percent to international investors, 10 percent to professional Mongolian investors, and 10 percent to Mongolian citizens.
The Financial Times is calling this the biggest IPO in Asia this year…
The Mongolian government is struggling to cope with the number of pitches it has received or even understand the financial intricacies of the proposals — leaving the playing field wide open.
Some suggest that Morgan Stanley may have an edge because the son of Sukhbaatar Batbold, Mongolia’s prime minister, works for the company (as an analyst in Chicago). Then there is the fact that John Mack, Morgan Stanley chairman, visited Ulan Bator last Autumn and met Batbold.
The Tavan Tolgoi deposit in the south Gobi desert, 270 kilometres (165 miles) from the border with China, contains 6.4 billion tonnes of coal, making it one of the largest coal fields in the world.
Alexander Molyneux, chairman of SouthGobi Energy Resources, a unit of Ivanhoe, said last September that 39 percent of China’s coal imports were expected to come from Mongolia in 2010, up from just 11 percent in 2009.
A year ago, no one was talking about Mongolia…
Now, all of the global players are fighting over it.
This is obviously great news for our Mongolian coal plays, owned by Crisis & Opportunity members.
If you would like to take advantage of these and other resource deals — including my favorite undervalued oil company — please join us.
As it is, expect coal to continue to go up until the next global crisis.
Even then, the people want their lights on.
Have a great Presidents’ Day,
Christian DeHaemer
Editor, Wealth Daily
