Coal Age

DEC 2012

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news continued Continued from pg 11... Menzhinsky coking coal mine in Ukraine has been extended to December 31, 2013. The tonnages have also been increased to 312,000 metric tons per year (mtpy) with a shipping volume of 26,000 mt per month starting from January 2013. Additionally, Metinvest has agreed to accept 12,000 mt of coal per month for November 2012 and December 2012 doubling its current off take. The coal has to comply with Metinvest's quality standards and will be priced at the then prevailing market prices. With the extension of the agreement, EastCoal has secured the sale of 100% of its planned production from the underground mining operations at the Menzhinsky mine. At current market prices, excluding VAT, this would result in excess of US$40 million of revenue. Falling Prices Hurt Indonesian Miners Several Indonesian coal miners are reporting lower profits at the end of the third quarter on declining average selling prices. According to The Jakarta Post, the nation's second-largest coal producer, PT Adaro Energy, said it booked $346.5 million in net profits in the first nine months of the year, down 7.9% compared to $376 million last year, which it attributed to lower sales volumes amid declining demand for coal. Adaro sold 34.7 million metric tons (mt) of coal between January and September, down 10% from the same period last year. The nation's third-largest coal producer, PT Berau Coal Energy, was the worst performer as of the end of September, booking a $22.2 million net loss in the first three quarters, down from a net profit of $132.4 million booked in the same period last year. The firm attributed the loss principally to lower revenue. Mongolia Pulls Plan Again to List Coal Mine Erdenes Tavan Tolgoi, a Mongolia state-owned developer of one of the world's five largest coal mining projects, has been forced to again delay its three city initial public offering that aimed to raise some $3 billion due to poor coal demand and prices. According to the South China Morning Post, the global shares offering and planned MongoliaHong Kong-London listing of the developer of a mine that aims to supply a quarter of Asia's coking coal is unlikely to happen before September next year. The IPO was originally slated for June this year. With its repeated delays, Erdenes will seek to raise at least $600 million potentially via loans and bonds to fund mining infrastructure construction. Other issues that will affect attractiveness of Erdenes' shares offer include how soon the Mongolian parliament will pass a new securities law to replace an outdated one. Marubeni to Add Coal Power Plant in Indonesia Marubeni Corp. has decided to add a large coal-fired power plant at an existing Indonesian electric generation facility operated by a group firm. According to The Nikkei, the project is expected to cost around 100 billion yen, with the new plant likely to go online as early as the end of 2016. The Japanese trading house aims to tap the potentially huge business opportunities in Indonesia, where high economic growth is making power supply-demand conditions tight. Canada Coal Evaluates Nunavut Coal Licenses Canada Coal Inc. has retained Tetra Tech Wardrop Inc. to assist the company in assessing options for arctic mining operations on its Continued on pg 21... 20 www.coalage.com full capacity, 6.2 to 6.6 million tons in 2014. By 2016, Alliance expects its annual production to rise from roughly 35 million tons to about 50 million tons. Japanese Utilities to Purchase U.S. Coal from Oxbow According to Bloomberg News, Japan's Kansai Electric Power Co. and Kyushu Electric Power Co. signed a one-year agreement to buy 1 million metric tons of thermal coal from U.S.-based Oxbow Carbon. The purchase will help both utilities diversify suppliers, as they currently purchase most of their thermal coal from Australia, said Eiji Maekawa, general manager of Kansai Electric's oil and coal purchasing group. Kansai Electric bought 3.9 million tons of thermal coal last fiscal year, about 71% of which was from Australia. About 66% of 6.2 million tons of thermal coal that Kyushu Electric bought in the year ended March came from Australia, and 22% came from Canada, according to Tetsuo Shuto, assistant manager in the business promotion group. Oxbow will likely supply this coal from the company's Elk Creek longwall mine in Somerset, Colo. The coal will likely be shipped by Oxbow from the company's southern California port facilities. Oxford Manages through the Trough While 2012 has not been the best of years for Oxford Resource Partners, the Columbus, Ohio-based coal producer believes a bevy of new mining permits bodes well for its prospects in 2013, that is, assuming the demand for high-sulfur steam coal by electric utilities in the United States improves. Oxford lost $3.3 million in the third quarter, reversing a modest $24,000 gain a year earlier. Coal sales for the Northern Appalachia and Illinois Basin producer fell to 1.9 million tons, from 2.3 million tons in the comparable period of 2011. Citing adverse conditions, Oxford elected not to pay a cash distribution on subordinated units for the three months ended September 30. Charles Ungurean, Oxford president and CEO, told analysts during a quarterly conference call in November that although current coal markets remain weak, "natural gas prices have been increasing, setting up for what we expect will be an increase in thermal coal demand." Analysts say a rise in gas prices above $3.50/MMBtu, and certainly over $4/mmBtu, should cause a switch back to coal by utilities that moved to gas in the past year. Given the company's capacity to boost production with ease, "Oxford is well-positioned to participate in a market rebound," he said. Until then, however, Ungurean said Oxford is "diligently pursuing the sale of our excess Illinois Basin equipment at acceptable values and further reducing capital expenditures to enhance our liquidity." For much of the past year, Oxford has been transitioning back to its home base in Northern App and, in particular, Ohio, where the company got its start more than three decades ago. Its belated entry into the western Kentucky coalfield appeared to be going well until a major customer, Big Rivers Electric Corp., dealt Oxford a severe blow by terminating an 800,000 tons/year coal supply contract earlier this year. Oxford responded by suing Big Rivers, a Henderson, Ky.based generation and transmission co-op, for breach of con- December 2012

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