Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Strong interest in the Mongolian resource sector has provided shareholders in Hunnu Coal a 800% gain in only 18 months. Thailand’s Banpu announced Tuesday it is taking over the ASX-listed junior for $400 million or $1.80/share – Hunnu went public in February 2010 at 20c.
Hunnu may be the first of many firms with Mongolian coal assets to attract bidders with Ivanhoe Mines’ SouthGobi and TSX-V junior Prophecy Coal talked about as likely targets and a way in for smaller investors who are not be able to participate in Tavan Tolgoi’s $3 billion IPO slated for next year.
Business Day reports Hunnu (ASX:HUN) claims to have interests in as many as 15 potential deposits in the country, the largest being the Unst Khudag prospect, which may have 676 million tonnes of coal.
The FT reports Banpu hopes to exploit the hunger for energy in neighbouring China, which still relies on coal for 70% of its energy needs. Among Hunnu’s assets are prized reserves of coking coal to feed China’s steel-making industry.
Seeking Alpha makes the case for a takeover by Canadian heavyweight Teck of Ivanhoe Mine’s (NYSE:IVN) 57%-owned SouthGobi Resources (TSE:SGQ) which is already producing coal at an annual rate of 5.3mm metric tonnes and production continues to ramp up. Combined, Teck Resources (NYSE:TCK, TSE:TCK.B) and SGQ would be producing greater than 40mm tonnes of coking coal, keeping Teck comfortably in second place behind the BHP-Mitsubishi Alliance.
Another potential target is Prophecy Coal Corp. (TSX-V: PCY). The company announced at the end of August coal sales agreements with Russian and Mongolian buyers, totalling 92,000 tonnes from its 100%-owned Ulaan Ovoo coal deposit, located 430 kilometres from the the capital Ulaanbatar, and 17 kilometres from the Russian border. The mine has a measured and indicated resource estimate of approximately 209 million tonnes of low-ash, low-sulphur coal. It’s worth some $130 million on the Toronto venture exchange.
MINING.com reported last week Mongolia is likely to sell a stake in its Erdenes Tavan Tolgoi coal-mining company to the public next year, raising more than $3 billion. The Tavan Tolgoi deposit – mined since the 60s – in the South Gobi desert is the world’s largest with a 6 billion tonne resource of high-quality coking coal used in steelmaking. Metallurgical coal has been trading at record levels of $330/tonne this year. Tavan Tolgoi is the second largest mining investment in Mongolia behind the Oyu Tolgoi gold-copper mine being built by Canada’s Ivanhoe Mines.
Comments
Gobi
TT is not 6B tonnes of coking coal. Its 1.4BT of coking coal and the rest is thermal.