RE: Postive On CEC? Seriously? My first point was that today's price for thermal coal is coming close to the cost of production as set out in the PAH report. There are two parts to this issue - the coal price, and the internal rate of return (IRR).
1. Coal Price. The thermal price used in the report was $135.14/tonne. The Wood Mackenzie price forecast for thermal dropped from that 2011 high average to around $105 and then continued on a very slow upward trend, not getting back to $135 until 2031. Yesterday's Newcastle price (the benchmark used by Wood Mackenzie) was $88.60.
If the Wood Mackenzie forecast is that far off the the actual price, only 15 months after completing the report, what confidence should an investor take that the accuracy of the forecast will get better for the future years?
Also, the forecast shows a long steady but very slow increase over 20 years. If in fact Wood Mackenzie is correct about that trend, but now the slow increase is starting from a base of $88.60 instead of $105, then it's going to be well after 2031 that the thermal price gets back to that $135 used in the PAH report.
And since the mine is projected to have a "productive" (I use that word ironically, in the context of this discussion) life of only 16 years, it won't matter what happens after 2031 anyway, because the mine will be exhausted.
2. The IRR. The PAH report also showed an average cost of production for thermal coal of $64.35/t. $88 is still higher than $64, and straight subtraction from that $135 price per tonne gets an impressive gross earnings. But that is earnings before interest, taxes and amortization. Take those costs into account, and as Emirel would say, "Bam!" - there goes your IRR, if not all the way to zero, probably close enough that an investor with a few hundred million to sink into a coal mine, will almost certainly find something more fruitful to do with his money.
This may be a calculation that Itochu has done, and hence its decision to bail on topping up the project with more cash.
Thanks, by the way, 2guys, for being civil in these conversations, and for staying on topic. Even when we disagree, we can all learn stuff, and who knows, maybe one day we will see a post on this bullboard that says, "Thanks, bocaman. I sold my CEC stock, and it changed my life."
Then the guy will say, "I bought into RIM instead, and now I'm going to shoot myself. You too if I can find you."