Coal news and updates

Up Energy Development Group said it has picked the bottom of the coking coal market after the Hong Kong company agreed to buy control of a Canadian mine from its two owners by paying them US$1 each.

 

Grande Cache Coal Corp comes with liabilities, the bulk of which are a US$350 million loan from China Minsheng Banking Corp due by the end of this year, and the sellers retain the right to market much of its output.

 

Up Energy chairman and chief executive Qin Jun said prices for the coal used to make steel are near their global cost of production and he is betting output cuts at other mines could drive up prices by 50 per cent within two years. He said he was looking for more deals in North America and Australia.

 

Three mines in Australia and at least eight in the US have shut as prices fell to their lowest since 2008. With more mines likely to close or cut output, Qin, a former bureaucrat in China's Ministry of Machinery and Electronics, says now is the time to transform nine-year-old Up Energy from a Chinese coal business into a global mining and trading operation.

 

"It looks like the bottom for prices," he said. "We're positive on coking coal, especially on seaborne hard coking coal. We hope to internationalise and to become a global supplier."

 

He has started off by announcing last month plans to take control of Grande Cache, which the previous owners, Marubeni Corp and Winsway Enterprises Holdings, valued at about US$1 billion when they bought it in 2011.

 

Marubeni said it signed an accord to sell its 40 per cent in Grande Cache to Up Energy for US$1. Winsway will also get US$1 for handing over a stake of a little more than 40 per cent. Winsway will hold onto 17.3 per cent and retains the right with Marubeni to buy back some of Grande Cache shares within five years.

 

"We've taken many factors into consideration" and decided to sell, said a Marubeni spokeswoman, who asked not to be identified. Winsway said last month it had decided to cut its dependence on coal and diversify into services for other bulk commodities. An email to Winsway's media centre was not immediately answered.

 

Qin said he expects to close the deal in three to four months and plans to restructure the mine's loan to Minsheng bank as a 10-year facility. Up Energy counts a unit of China's Baosteel Group Corp and US hedge fund Ospraie Management among its shareholders.

 

Coking coal prices have more than halved from three years ago as steel output growth in mainland China slowed amid an oversupply of raw materials. More coal production cuts globally should stabilise prices by the end of the year, Bank of America Merrill Lynch Global Research said earlier this week.

 

 

Source: http://www.scmp.com/