Looking for the next Grande Cache
Looking for the next Grande Cache
Up by nearly 1,000% in the past 12 months, this coal stock is just one of more than 100 listed around the world.
Author: Barry Sergeant
Posted: Thursday , 22 May 2008
JOHANNESBURG -
Grande Cache Coal Corporation, priced at less than C$1 a share just four months ago, has recently traded above C$7, as a beneficiary of one of the hottest sub-sub-mining sectors, metallurgical ("hard coking") coal, used mainly in steel smelters.
More than 100 stocks listed around the world offer exposure to coal, directly or indirectly or as part of a diversified portfolio. Coal miners produce mainly steam (thermal) coal (typically the feedstock for power stations), and/or metallurgical coal. Most coal is bound for inland markets; the smaller, seaborne, market is less easy to access and operate in, but is potentially more lucrative.
Price differentiation in coal can be significant. Inland steam coal suppliers may be tied into very long term fixed-price contracts with power utilities. Those operating in the seaborne market benefit - in rising price markets - from the annual setting of benchmark contracts by the majors, such as Xstrata (world's largest exporter of steam coal and a significant producer of metallurgical coal and semi-soft coal), BHP Billiton (operator and majority owner of Queensland Coal, world's leading supplier of high quality metallurgical for steel production).
Grande Cache seems to have it all: it mines metallurgical coal for the (booming) global steel sector and holds coal leases covering over 22,000 hectares in a relative mining haven, by world standards, in the Smoky River Coalfield in west central Alberta, Canada. The company operates several underground and surface mines, under four coal leases which it owns; it also owns 10 additional coal leases with exploration and development potential. Grande Cache's principal market is the seaborne market, into which it sold around 1m tons in the year to March 31 2007. For some context, BHP Billiton sold 38m tons of metallurgical, and 87m tons of steam, coal, in its 2007 financial year.
Listed coal stocks are rerating not only on commodity price action - seaborne metallurgical coal prices have roughly tripled in the past 12 months - but also on potential corporate activity in a world where downstream companies are keen to secure supplies. This week, for example, ArcelorMittal, a significant global steelmaker, announced that it had acquired a 14.9% stake in Australia's Macarthur Coal, which in its 2007 financial year produced 3.6m tons of saleable product. Its main merchandise is so-called low volatile (LV) pulverised coal injection (PCI) coal for use in the production of steel.