Mozambique Coking Coal – Are you getting every dollar you deserve?


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Mark Freed, Associate, Bryanston Resources gave this presentation at the 4th annual Mozambique Coal conference, the very first event to focus on the coal industry in the Mozambican region and has had the support from the Mozambique Government since the inaugural event in 2010.

With 300+ attendees each year, this event sees geographical delegate representation as diversed as Australia, South Africa, India, Bostwana, Canada, United-Kingdom, Egypt, Indonesia, Pakistan, United Arab Emirates USA, Singapore, Thailand, Japan, and of course Mozambique.

For more information about the annual event, please visit

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Mozambique Coking Coal – Are you getting every dollar you deserve?

  1. 1. Bryanston Resources GmbH * Bahnhofsplatz * 6300 Zug * Switzerland Mozambique Coal July 2013 International Mining and Metals Series
  2. 2. 1Copyright: Bryanston Our core expertise enables us to provide support across the full mining life cycle Our group is active across principle metals and mining investment and advisory Source: Bryanston analysis BRYANSTON HOLDING Mining Principal Investment Mining Technology Investments Expert Mining Consulting  Principal mining investment in Africa and Central Asia  Financial Advisory  Fund raising  Principal investment in mining technology and services  Management of investments & portfolio companies  Commercial excellence  Consulting suite: Strategy and operations Focus of this presentation
  3. 3. 2Copyright: Bryanston We have a global presence and can draw on international experience and best practice benchmarks Bryanston is on a continuous growth track leveraging its senior expert network Ca. 100 employees are serving clients globally – soon offices to cover all major mining regions Opening soon Recent projects Existing offices No activity so far Western Africa North America South America Southern Africa ANZ South East Asia Europe Asia London Zug Tel Aviv Lagos Johannesburg Shanghai Moscow Rio de Janeiro New Delhi Perth Munich Singapore
  4. 4. 3Copyright: Bryanston BM concentrates Platinum Cobalt Chromium Nickel Aluminum Lead Zinc Met Coal Iron Ore Thermal coal Copper Natural gas Crude oil Gold Hybrid markets Liquid markets Highly liquid markets Low liquidity markets Market liquidity Market size equivalent of 100$B in 2012 prices Low High >1 <1Paper vs. Physical traded volumes Thermal coal in sweet-spot: • Physical market sufficiently inefficient for arbitrages • Paper market to hedge positions; is mostly accessible to asset-backed players as derivatives are cash settled HighLow Possible Not possibleFinancial hedging Trading margins Commodity markets are becoming increasingly traded and liquid – coal is no exception Sources: Bryanston Resources Thermal Coal market has evolved much more over time than Met Coal
  5. 5. 4Copyright: Bryanston Financial markets are following the growing physical trade in the Pacific basin RB API#4 Pacific basinAtlantic basin ARA API#2 NEWC API#6 South Chinese CFR Initial contract month: October 2012 Steam coal FOB 5500 kcal/kg NAR Indonesian Sub-Bituminous Initial contract month: February 2011 Steam coal FOB 4,900 kcal/kg NAR 15 21 148 Export volumes in Mt, 2011 Paper trade markets 13 55 7 2 298 46 13 56 4 23 28 6 • Comprises major European importing countries • Participation of power utilities in coal trade • Two main prices: API#2 and API#4  Various other prices derived from these indices Recently introduced coal swaps • Made up of major importing countries in Asia/Pacific • Previously: benchmark prices set by Japan • Index linked sales on the rise due to increasing involvement of traders and market speculators 1. S. Africa decision to supply Pacific impact prices in the Atlantic ie. recent supply disruptions in Pacific market led SA coal to be diverted to the Pacific, causing higher prices in the Atlantic Sources: TEX; McCloskey, Macquarie Research, EON, globalCOAL; Energy policy, IEA However, coal prices in both basins are linked by the ability of producers to respond to price differentials
  6. 6. 5 Bryanston Resources - Copyright: Bryanston Net imports of Thermal Coal in China reached 136Mt in 2012 North-South and West-East railway constraint open opportunities for import to Southeast China 3,788 3,513 3,261 3,009 2,803 2,609 2,320 1,943 4,050 3,735 3,447 3,145 2,930 2,709 2,389 1,935 ’15e’14e’13e’12e’11’10’09’08 Local demandLocal supply -8 +69 +100 +127 +136 +186 +222 +262 All in Mt x Net import Source: J.P. Morgan China coal report 2012, SXCoal, Bryanston Research
  7. 7. 6 Bryanston Resources - Copyright: Bryanston Six provinces make up 75% of China total net imports Jiangsu 1.0-10Mt 0.1-1.0Mt < 0.1Mt Target provinces 2012e TC Net Imports Source: J.P. Morgan China coal report 2012, SXCoal, Bryanston Research 11,6 25.3% Net imports of rest of China 34,4 74.7% Net imports of target provinces 101,6 Shanghai 6,8 Guangdong 23,1 Zhejiang 16,4 Guangxi 21,7 Fujian 22,0 China total net imports 136,0
  8. 8. 7 Bryanston Resources - Copyright: Bryanston High CV thermal coal has significant share of import and is mainly consumed by power and cement producers 2012 demand of different TC by downstream domain 2012 demand of different TC by local supply and net import Note: Demand breakdown estimated through customer visits 160 465 217 Target provinces total demand 944 842 102 <5000 238 22 5000-5500 483 18 5500-6000 172 12 >6000 50 50 Local supply Net import All in Mt All in Mt Net imports of TC >5500kcal = 73Mt 17 585 295 <5000 238 61 34 143 Target provinces total demand 944 236 123 50 >6000 11 22 5500-6000 172 28 18 126 5000-5500 483 130 58 Others Power Cement Demand driven by power and cement = 177Mt How do we extract the maximum value for our product?
  9. 9. Value-in-Use: Establish the technical and logistical value of your product for each customer End to end process to calculate Value-in-Use for your product Netback xx Rail transport Sea freight Duties and handling Inland logistics Your DDP xx Technical ViU DDP for Alt. supply xx Inland logistics Duties and handling Sea freight FOB Alternate supply xx Logistics TechnicalResult • Provides visibility of penalties and premiums applicable in contracts • Provides ammunition for negotiations • Typically accounts for 20% of value that can be extracted from customers Technical • Provides visibility on product’s journey to customers allowing better customer selection • Typically drives 80% of value derived from customers • Most effective with a large DDP customer base Logistics
  10. 10. 9 Bryanston Resources - Copyright: Bryanston VIU coal: you need to understand your customers' coal blend • Different coal types have different impact on technical and commercial parameters of plants • Each plant requires a different coal matrix to optimally manage the trade- off between technical and commercial optimization • Key parameters for defi- nition of coal matrix e.g., – Calorific value – Ash content – Sulphur content – Moisture content – Volatiles Unloading and storing of single coal types Coal inventory at station or storage Mongolia South Africa Specific coal blend by power station Australia China domestic Indonesia
  11. 11. 10 Bryanston Resources - Copyright: Bryanston RMB/t 1) Qinhuangdao port: >150kt ship capacity From port to plant: 54RMB/t (Parent owns 50% of the transportation co.) Northern China • Yitai group • Zhongmei group • Shenhua group Indonesia CV 5000kcal Calorie 5000kcal VM 35-43 Ash 6% M 20-25% S<1% • S0.5% M16% Ash12% • S1.2% M11% Ash 6% • S0.4% M14% Ash12% Avg. blend mix 2012 4.0Mt 33% 25% 43% CV 5500kcal VM 25-28 Shanxi Inn Mongolia Panamax Cape size 2) Beilun/Zhoushan port: 150kt ship capacity From port to plant: 12-15RMB/t 3) Yingkou port: 45-55kt ship capacity From port to plant: 57RMB/t (This price is 3RMB+QHD shipping index) Panamax Cape size TransportationPriceSourceSpecsBlend • 620 • 603 • 598 DDP 550-570 DDP 5352 CIF Panamax Cape size Example: Southern Chinese Utility - Typical buying patter
  12. 12. 11 Bryanston Resources - Copyright: Bryanston Value in use helps establish a fair price based on detailed technical calculations Bulk energy cost Total annual cost Total energy send out Capital charges Operating and Maintenance cost Fuel cost Waste disposal cost Generator output Auxiliary power consumption Load factor Coal handling Pulverising Boiler plant ESP FGD Ash handling / Ash deposition Average load factor - x + Quartz content, Coal flow Coal flow Ash content, Coal flow Sulphur content, Coal flow Ash content, Coal flow Availability x Ash composition f Total cost of energy generation Coal quality related cost drivers Pulverising Boiler plant ESP FGD Ash handling By generator design Depends on Plant design Ash handling Ash content, Coal flowFly Ash Ash handling Sulphur content, Coal flowGypsum Load/operating limits Pollutant content, Ash content, Coal flow Coal handling Pulverising ESP FGD Ash handling Coal flow HGI, Coal flow Ash content, Coal flow Sulphur content, Coal flow Ash content, Coal flow Pulverising ESP FGD Ash handling Ash handling Chemistry, Coal flowDraft plant Depends on Plant design Coal flow Boiler efficiency Net Calorific Value Fuel ratio Chemistry Gross CV H2O
  13. 13. 12 Bryanston Resources - Copyright: Bryanston Example: Southern Chinese Utility - A fair premium of 7 USD/t possible Specs Unit Reference Thermal coal Customer Comparable supply VIU Ratio Total VIU CV Kcal/kg 6000 5500 0.11 RMB/kcal2 55 RMB/t VM % 26.2 25-28 n/a RMB/t S % 0.64 0.5 -2 RMB/0.1%2 2 RMB/t M % 10 16 n/a RMB/t HGI - 52 >50* n/a RMB/t Al2O3 1 % (Ash) 31.6 - RMB/t Total VIU: 53 0 0 0 2 0 55
  14. 14. 13 Copyright: Bryanston Resources GmbH Methodology: Determine the best customers and the optimal price/volume relationship Source: Bryanston We analyze every potential customer and specifically on blast furnace/coke oven level Brazilian customer Chinese customer European customer Indian customer 300 250 200 150 100 50 0 1,8001,1001,000900 Potential sales price (basis: exWorks) in USD/t 700600500400300100 800 xxx $/t (positive case) xxx USD/t (base case) Potential sales volume in kt 400 350 2000 Sales potential at xxx$/t Sales potential at xxx $/t exWorks production cost:
  15. 15. 14 Copyright: Bryanston Mark Freed Associate Bryanston Resources GmbH Bahnhofplatz 6300 Zug Switzerland Tel. +27 83 564 5455 Bryanston Thank you for your attention!