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Our loss is Indonesia's gain as China cleans up

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    Our loss is Indonesia's gain as China cleans up

    Bromby, Robin
    The Australian
    22 Sep 2014

    ABOUT 55 per cent of Australia's thermal coal export mining capacity complies with China's tough new coal import regulations, 29 per cent does not comply and 16 per cent partly complies.
    Colombia and Indonesia, with low ash and sulphur coal, are best placed to gain from the Chinese move to ban so-called "dirty" coal being imported, followed by Australia and South Africa. Russia and Mongolia have the highest rates of non-complying mines.

    Amid all the confusion and speculation over the week following the announcements by the National Development and Reform Commission, we fortunately have some precision -- the above breakdown -- from Commonwealth Bank commodity analysts Lachlan Shaw and Vivek Dhar.
    The new rules, which come into effect on January 1 and are aimed at improving air quality, will ban imported coal with high ash and sulphur levels and impose even tougher restrictions for any imported or domestic coal used in the worst polluted coastal and northern cities.

    About 52 per cent of thermal coal in China goes into power plants; this use is not affected by the new policy (at least in the short term). About 22 per cent of coal consumed (750 million tonnes a year) goes into factory boilers, furnaces and household appliances. This will be affected by the import ban; this market is being switched over to using reticulated gas.

    The CBA report urges caution in estimating China's future import coal demand due to what the analysts describe as a slowing economy and the concerted move to reduce pollution by expanding natural gas and LNG supplies. In addition, China's own coalmines might lift output of higher-grade coals to increase their market share.

    Write Shaw and Dhar: "It is difficult for us to see how China's overall thermal coal demand will grow strongly when one-fifth of the consumption base is contracting." Indonesia might be the main beneficiary (its coal having ash content between 5 per cent and 7 per cent and 1 per cent sulphur content). "Might" is the key word: the CBA analysts say it is not clear Indonesia will allow additional exports. Australian miners could soften the blow by switching non-compliant coals to other markets such as South Korea, Japan and Taiwan.

    Aspire's hopes up NOT that the thermal coal worries concern Aspire Mining (AKM), which last week raised $2.2 million via a placement. It has a coking coal deposit in northern Mongolia and, while the country's appeal to miners has somewhat diminished, Aspire has hung on there -- unlike one of the first Australian juniors into that country, Voyager Resources (VOR), which is exiting its Mongolian projects and now hunting copper in Brazil (and will soon be known as Carajas Copper). Aspire's shares reflect the long haul that Mongolia has been: down from around $1 in 2011 to 5.2c on Friday. But it now seems the pieces are beginning to fall into place for the Ovoot coking coal project. The company has Asia's largest listed commodity trader, Noble Group, on its register, and the two have now begun drilling another coking coal prospect, Nuurstei, in the same region.

    The transport problem for a stranded Ovoot may be resolved following the recent visit to Ulan Bator by Vladimir Putin. One agreement reached was that Mongolia and Russian Railways will look at duplicating and electrifying Mongolia's main railway running from the Russian border to the crossing into China. There is also talk of a new route passing Ovoot and connecting with the Trans-Siberian Railway, allowing the coking coal to be shipped out of Siberian ports to Asian markets.
    Juniors active A CRITICAL measure of the health and wellbeing of the junior sector is the level of exploration activity. Our impression is that plenty of companies are confident enough to crack on with projects. There's plenty of activity happening at Fraser Range in Western Australia where the huge Nova nickel-copper discovery was made. Segue Resources (SEG) has announced drilling of several conductors at its Plumridge project while, in the same area, Classic Minerals (CLZ), which has ground 40km from Nova, reported hitting mineralisation with its deep drilling program.
    In NSW, Elysium Resources (EYM) began drilling at Burraga, south of Bathurst, on ground which hosted the old Lloyds copper mine, active between 1880 and 1920. Helix Resources (HLX) is active at two projects in NSW's Central West, with maiden drilling at the Browns gold project and soil sampling at Collerina, which hosted copper mining in the early 1900s.

    Core Resources (CXO) is drilling at the Inkheart and Blueys prospects 100km from Alice Springs. Sampling of an anomaly at Inkheart returned assays of 345 grams/tonne, silver, 11 per cent lead and 6.51 per cent zinc. And Orrex Resources (ORX) is taking a two-pronged attack: drilling at its Golden Mile South ground near Kalgoorlie while casting around for a more advanced gold or copper-gold project that might get the junior into mining operations sooner.

    Rare earth hunt ORION Metals (ORM), one of the early movers when rare-earth excitement began four years ago, has recently picked up ground near Rockhampton prospective for heavy rare earths to add to its long-held Tanami West project in WA. To keep the show running, chairman Conglin Hue, who has a background of mining in China, is putting up another $820,000, with Jien Mining throwing in $179,300. Conglin Hue is also executive chairman and an important source of finance for Northern Mining (NTU), a company with advanced heavy rare-earth projects in WA.

    [email protected] No investment advice is implied and investors should seek professional guidance. The writer does not own shares in any company mentioned.

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