Cokal has conceded defeat in its negotiations for a fair price for its coal from a Chinese trader.

The company (ASX:CKA) had been trying to square away an agreement with Renjian International Trading (Shanghai) Co to supply 2.5 million tonnes of premium pulverised coal injection (PCI) coal from its Bumi Barito Mineral (BBM) project in Indonesia.

PCI is a method for improving the performance of a blast furnace used for smelting to produce industrial metals and alloys, generally iron, but also others such as lead or copper.

However, the proposed discounts requested by Renjian for Cokal to secure pre-funding to build the BBM project are “unacceptable”, the company said.

Investors were disappointed by the news, with Cokal shares tumbling 20 per cent to 5.6c in late morning trade on Tuesday.

CKA shares over the past six months. Source:
CKA shares over the past six months. Source:

While Cokal believes the proposed discounts are workable at the current Platts low volatility PCI price of US$146 ($183.53) per tonne, the company is concerned that this “unusually high price is most likely unsustainable”.

Cokal forecasts the discounts would result in losses over the 50-month period of the contract.

The company says it will not strike a deal based on the current terms and has asked Renjian to submit a “straight purchase price” for its coal.

Cokal, however, remains upbeat on its prospects of securing other supply contracts and funding.

“… Cokal believes that a number of possible funding options discussed to date allow it flexibility to conclude a funding arrangement that has a better result for shareholder value and has an acceptable level of risk with respect to the coal price over the four-year life of the PCI contract,” the company said.

Cokal is continuing talks with Japanese trading houses and steel mills.

Now that the funding discussions with Renjian have been terminated, Cokal will work with its Japanese contacts to assess its options for building the BBM operation, which is expected to produce around 50,000 tonnes each month of PCI coal.

Stockhead is seeking comment from Cokal.