Japan complains to Mongolia over Tavan Tolgoi bidding

Fri Jul 22, 2011

TOKYO, July 22 (Reuters) - Japan has joined South Korea in filing a complaint with Mongolia over the bidding process for part of its massive Tavan Tolgoi coal development project, as firms from both countries appear to have been excluded from the winners.

Mongolia this month said it had picked U.S. miner Peabody Energy , China's Shenhua and a Russian Railway- Mongolia consortium out of six preferred bidders to develop the west Tsankhi deposit but later added the decision was not final.

Japanese and Korean firms were not mentioned in the announcement even though they are part of the consortium that includes Russian Railway. Instead the announcement says that Russian Railway is now part of a consortium with Mongolian firms but it is not clear what firms are being referred to.

Trading firm Mitsui & Co was also not mentioned although it is a partner with China's Shenhua.

The complaint said Mongolia's President Tsakhia Elbegdorj `in a visit last November called on Japan to help with the development of its resources, saying that bilateral partnerships in minerals development would be mutually beneficial.

"If it transpires that Japanese firms are not included in the winning camps, it would go against what the two governments have been working towards", the complaint said.

"It would be extremely regrettable."

South Korea has called the bidding process "unclear and unfair."

Company sources also said that the four Japanese trading firms in the consortium with Russian Railways -- Itochu Corp , Sumitomo Corp , Marubeni Corp and Sojitz Corp -- have also jointly filed a complaint with Mongolia but have yet to get an official response, sources said.

The west Tsankhi block of Mongolia's Tavan Tolgoi coal deposit which holds approximately 1.2 billion tonnes of mostly high-priced coking coal used in steel making.

Read more news about Tavan Tolgoi coal development project
Mongolia's Tavan Tolgoi coal resources could reach 7.5 bln T

Citic Group undecided on counterbid for Macarthur Coal -exec

Wed Jul 20, 2011

HONG KONG, July 20 (Reuters) - China's Citic Group has not decided whether to launch a counterbid for Australia's Macarthur Coal , which is subject to a $5 billion takeover offer, a top Citic official said on Wednesday.

"We are weighing all options," Tinghu Guo, managing director of Citic Australia, told Reuters, when asked if Citic was considering a counterbid for Macarthur. China's Citic Group owns 24 percent stake of Macarthur. Citic Australia is a unit of state-owned Citic Group.

"We are still looking at the situation. There is no decision yet," Guo added.

The MCC stake in held jointly by Citic Group and its Hong Kong-listed unit Citic Resources .

Last week, Peabody Energy and ArcelorMittal made a joint bid for MCC valuing the company at $5 billion.

(By Reuters)

Peabody Energy and Xinjiang ink pact for 50 million tonne coal mine

Friday, 15 Jul 2011

Peabody Energy and the government of the Xinjiang Uyghur Autonomous Region entered into a framework agreement to pursue development of a state of the art 50 million tonne per year surface mine that would operate over multiple decades.

The agreement was signed during a ceremony in the Xinjiang capital of Urumqi with Peabody chairman & CEO Mr Gregory H Boyce, Peabody senior VP Mr Fredrick D Palmer, Peabody president of Asia Mr Zhenchun Shi and senior Xinjiang government officers. Party members involved in creating the agreement include Party Secretary Mr Zhang Chunxian, Governor Mr Nuer Baikeli and Vice Governor Mr Kurexi Maihasuti.

Under terms of the agreement, Peabody would construct, manage and operate the mine, which would be one of the largest surface mines in China, using best practices in safety, training, productivity, resource recovery, environmental standards and land restoration.

Mr Boyce said “Peabody is honored to work with the government of Xinjiang to advance a world class large scale surface mine in the world's largest and fastest growing coal market. Together we can unlock the full benefits of Xinjiang's vast energy resources to supply essential energy and benefit the region through job creation, economic development and social responsibility.”

The Xinjiang Region is China's largest administrative region with vast reserves of coal estimated to account for approximately 40% of China's reserves. The government expects Xinjiang's coal output will increase from approximately 100 million tonnes in 2010 to more than 1 billion tonnes.

Macarthur Coal gets $5 bln bid from Peabody, Arcelor Mittal

Mon Jul 11, 2011

SYDNEY, July 11 (Reuters) - Peabody Energy and Arcelor Mittal have offered to buy Australian coal miner Macarthur Coal valuing the firm at A$4.7 billion $5.05 billion) or at a 40 percent premium to Monday's close.

Macarthur said the proposal was conditional on receiving regulatory nod and getting 50.01 percent stake.

Macarthur asked shareholders to take no action and added it would speak with Peabody and Arcelor Mittal on price and terms.

The offer would be made at A$15.50 a share minus the final dividend. The stock closed at A$11.08 on Monday.

Macarthur is being advised by JPMorgan and Corrs Chambers Westgarth ($1 = 0.930 Australian Dollars)

Vale, ArcelorMittal compete for Mongolia coal mine

Mar7, 2011 |Reuters

ArcelorMittal , the world's largest steelmaker, Brazil's Vale and a Korea Resources consortium, are among six short-listed bidders to develop Mongolia's Tavan Tolgoi mine, the world's biggest untapped coking coal deposit, South Korea said.

Swiss miner Xstrata , U.S. coal miner Peabody and Japan's Mitsui & Co consortium are the other three preferred bidders to develop the west Tsankhi block of the mine, Korea Resources said in a statement.

It estimated a $7.3 billion initial investment to develop the Tsankhi block, which has 1.2 billion tonnes of coal reserves and can produce 15 million tonnes annually for 30 years.

Tavan Tolgoi has estimated reserves of 6 billion tonnes of coal, including the world's largest untapped deposit of coking coal, used by steelmakers.

Tags : Tsankhi block, steelmakers, raw material, Mitsui and Co. Itochu Corp

Best Bets in the Coal Sector

Investorsoapbox PM FRIDAY, JANUARY 14, 2011
FBR Capital Market

We are dialing beta modestly in the coal group despite increasing our metallurgical-coal price (5%-11%), estimates (10%) and price targets (6%), essentially taking a breather after the phenomenal run in the space over the past six- and one-month periods.

As a result, we are downgrading Patriot Coal (ticker: PCX) and Walters Energy (WLT) to Market Perform from Outperform and would advise investors to move toward the lower-beta names in the space in the meantime ( Peabody Energy (BTU), Consol Energy (CNX), Arch Coal (ACI), Alpha Natural Resources (ANR), Cliffs Natural Resources (CLF), and Cloud Peak Energy (CLD)).
The risk to our downgrade is that rains [floods in Australia] reemerge and take additional met coal off the market (now forecasted at 13 million metric tons (tonnes), from eight million tonnes), but the rails and ports are starting to come back while the rains take a break. We are leaning more toward steam, as steam-coal prices are rising and supply/demand tightness is deeper and should last for at least another year. We are trimming our fourth-quarter 2010 estimates, too, but believe most investors are more focused on the rains' impact than the short-term and the traditional volatile earnings season. Presently, the coal group trades at 2011-2013 enterprise value/earnings before interest, taxes, depreciation and amortization (EV/Ebitda) estimates of 7.5 times, 6.3 times and 5.5 times, respectively (a one times expansion despite higher-forecasted met-coal prices) and has about 10% upside after the recent performance.

Since July 6, 2010, Walters had a phenomenal run (true alpha generation), appreciating 124% (26% for S&P 500 and 89% for group). While we continue to like Walter Energy and Western Coal's combined asset base and believe that there is a scarcity value associated with such a premium, high-quality, met-coal pure-play, we believe that it is now fairly valued, given our commodity-price outlook. Furthermore, heightened met-coal euphoria may create unnecessary risk for the stock. However, we will review our ratings as time progresses and a better assessment of met-coal pricing surfaces.

Similarly, Patriot Coal had a phenomenal run over the past month, with the stock appreciating 62.5% (3% for S&P 500 and 21% for group) since our Dec. 20, 2010, upgrade, primarily driven by potential met-coal supply disruption in Australia due to rains. While we agree with the earnings leverage from met-coal pricing (which is getting reflected), we believe that investors also face normal-CAPP risks (rail, geology, natural gas).

We are raising our 2011-2013 met-coal prices to $250 per tonne, $225 per tonne and $220 per tonne, an increase of about 5%-11% from prior estimates. While the risk is still to the upside, we are raising our view of the met-coal price curve and taking a breather for now. As a result, we are raising our earnings-per-share and Ebitda estimates by 14% and 6%, respectively, but trimming the fourth-quarter 2010 by about 10% to account for recent press releases and rail issues. We are raising our met-coal supply disruption out of Australia to 13 million tonnes, from eight million tonnes, with an additional 8.5 million tonnes of steam coal off line.

The Australian rain issue is discounted in the stocks. Met-coal names have rallied on the back of media reports highlighting the impact on coal mines and supply infrastructure. While it could be too soon to gauge the total impact, we estimate that about 13 million tonnes (versus an eight million tonnes estimate on Jan. 3, 2011) of met-coal supply is likely removed from the market. We believe that this situation is now becoming better understood (hyped, in some cases) and discounted in the stocks. While things could get worse, since it is still the rainy/cyclone season, we believe a near-term peak has been reached. Furthermore, we expect coal producers to devise ways (crossover tons, running mines harder, etc.) to make up for lost profit. Furthermore, steelmakers will identify alternate sources of supply, such as U.S. Northern Appalachia (NAPP) coal (which is thermal coal).

Overall, we believe that the coal group is likely to announce fourth-quarter 2010 earnings below consensus (unless expectations are lowered); but investors may shrug this off, given underlying positive trends (supply disruptions, demand recovery, and rising prices). The key themes that could play out/foreshadow this earnings season: 1) rising exports -- steam and met; 2) increasing capital spending; 3) tightening spreads supporting export of crossover product; 4) strategic discussion, including mergers and acqusitions; and 5) production issues/constraints.
We note that some companies (Arch Coal, Peabody, Massey Energy (MEE) and Consol Energy) have already provided revised guidance/production expectations.
-- David M. Khani

-- Mitesh Thakkar