Who said coal has no future? Aussie small cap coal stocks are up 35pc in 12 months
Link copied to
ASX small cap coal stocks with Australian operations have had a strong run in recent months.
With the future of coal being a hot discussion point in the federal election, Stockhead has analysed the performance of small cap coal stocks with operations in Australia. Collectively they have gained 20 per cent in 2019 and 35 per cent in the last 12 months.
At a glance it would seem either the reports of Australian coal’s decline have been greatly exaggerated, or no one has told investors. However, some of these companies have individual reasons for increasing.
One company that caught our eye was NuCoal (ASX: NCR). It had its licence at Doyle’s Creek cancelled after allegations then mining minister Ian Macdonald acted corruptly in granting the licence. Macdonald was eventually convicted and imprisoned.
But in March Macdonald’s conviction was quashed after it was found the jury was misdirected as to the state of mind they had to find Macdonald had.
This gave shareholders hope their project may begin again. In its quarterly the company reaffirmed it was seeking duress, telling shareholders, “now is the time to keep up the pressure and keep the NuCoal issue front of mind”.
While the company only told its shareholders to contact their state MPs, some US shareholders have bought a lawsuit against the government under the Australia-US Free Trade Agreement.
Another gainer was TerraCom (ASX: TER), formerly Guildford Coal. So far this year it has sold 827,000 tonnes of coal. It recently upgraded its estimated reserves to 28.7Mt which would expand the mine’s life by another two years, to eight years.
Last quarter, Stanmore Coal (ASX: SMR) produced 691,000 tonnes of saleable coal (which is an annualised rate of 2.7 million tonnes). The company is currently undertaking a share buyback of 10 per cent of its shares.
While the biggest 12 month gainer, Laneway Resources (ASX: LNY), has most of its interests in gold, it is about to commence a coking coal project at Ashford in northern New South Wales.
The rise of coal stocks has come in spite of coal being in the news every day, with the proposed Adani mine being a controversial topic for both opponents and advocates.
Whatever your views on coal, there is no shortage of it to go round. According to the BP Statistical Review, Australia has 145 billion tonnes of coal, which is the world’s third largest reserves. Total global reserves are sufficient to meet 134 years of global production.
While there have been concerns about China limiting Australian coal imports, China are hardly the only client. South Korea took nearly 44 million tonnes of Australian coal in 2018. Japan have also been a major buyer.
Arguably the most important factor will be coal prices. Deutsche Bank have told clients its expects (thermal) coal prices to remain around US$83 per tonne for the rest of the year, down from US$90 back in March.
Yet, there is no ‘spot price’ for coal, it is negotiated from contract to contract and much talk about ‘coal prices’ only refers to an average. Even within each deal, the price depends on the quality of the coal – especially in the case of coking coal.
Companies will usually tell you the average price. For example, Stanmore Coal sells its thermal coal at US$84 per tonne while its coking coal was sold at US$132 per tonne.
Coal miners will be watching the upcoming election with particular interest as both pro and anti coal groups call on voters to use the ballot box to tell politicians what they think of mining.
Nevertheless, the Adani mine (which has caused coal to become such a prominent issue in the election), will likely go ahead as both major parties don’t oppose it.