The end of coal is fake news and these stocks are the evidence, say believers
Investors are returning to coal, with two companies successfully completing capital raisings and listing on the ASX in the past eight months — and others witnessing good share price appreciation.
That’s despite a report last week by Bloomberg’s New Energy Finance research arm that declared coal “the biggest loser in the long run” against a combination of wind, solar, gas and battery storage.
Bloomberg’s view does not seem to be convincing Australian investors at this stage, however.
Bowen Coking Coal’s (ASX:BCB) debut in October broke a six-year drought in new ASX coal listings.
That was followed up last week by Bounty Mining (ASX:B2Y) which joined the local bourse on Tuesday after successfully raising $18 million.
Around 13 of the nearly 60 ASX stocks with coal exposure have more than doubled their share price over the past year — and another dozen have made gains of 20 per cent or more.
>> Scroll down for a list of ASX stocks with coal exposure, courtesy of leading ASX data provider MakCorp
Bounty closed its IPO well oversubscribed and traded at a 23 per cent premium to its 35c issue price on its first day. It’s still trading above its IPO price at 39.5c.
“We’re probably two years into the next bull run,” Bounty chief Gary Cochrane told Stockhead just before Bounty lit up the boards last week.
“Although we’re a long way into the next cycle, there still has been a really slow uptake, as there often is, for not only investor confidence, but for new supply.
“And it could easily be more than two years, if not three years before there is any new significant supply – and the demand is steadily growing.”
Coking coal prospects are better
The growth is greater on the coking coal front, but thermal coal demand is also still growing.
David Thurtell, manager of resources economics for the federal government, said last week the prospects for the metallurgical (MET) coal industry were good, with 2 to 3 per cent annual growth in demand expected over the short to medium term.
Meanwhile, thermal coal is growing at a slower rate of around 1 per cent.
MET coal is a low-ash, low-sulphur and low-phosphorus coal that can be used to produce high-grade coking coal – an essential part of the steelmaking process.
“We’re seeing a divergent trend and MET coal looks much better than thermal coal,” Mr Thurtell said.
GDP growth in Japan, South Korea, India, Vietnam, Indonesia and China is driving demand for coking coal.
“The future is not so much China – it’s not falling away, it’s just not growing as quickly – but you’ve got India, which is 1.4 billion people and it’s about 15 to 20 years behind where China is now,” Mr Cochrane noted.
“So it’s just about to go through its massive growth curve, and you’ve even got South East Asia where there is a billion people, and the Chinese and Japanese are building steel mills in Vietnam.
“So Vietnam could potentially be a very significant importer in the next 10 years of raw materials, particularly coking coal and even thermal coal.”
End of coal is ‘fake news’
One US-based coal trader said last week at an industry event in Brisbane that the end of coal is “fake news” – to steal a popular phrase of US President Donald Trump.
Even thermal coal demand has not wavered over the past two decades.
“In 1998 coal represented 38 per cent of global power generation. In 2017 it represented 38 per cent of global power generation,” XCoal Energy and Resources boss Ernie Thrasher said.
“There is no change despite two decades of coal consumption.”
Pennsylvania-based XCoal markets MET, thermal and anthracite coal from the US, Canada, Australia and Indonesia, among others.
Here’s a list of Australia-focused thermal and coking coal stocks courtesy of leading ASX data provider MakCorp.
Scroll or swipe for full table. Click on headings to sort
Topping the list is Tolga Kumova-backed New Century Resources (ASX:NCZ) with a 564 per cent gain in its share price.
The six-bagger miner, which is trading around $1.30, is pretty much now just focused on a restart of the Century zinc mine in Queensland, but it still owns the Kodiak coking coal project in Alabama, US.
New Century is considering its options for the project, including financing, joint venture opportunities and a potential sale.
Kangaroo Resources (ASX:KRL), meanwhile, is up 242 per cent at 6.5c.
The company told investors last week that it banked $US4.4 million ($6 million) from the sale of 68,157 tonnes of thermal coal in Indonesia. The cash was used to pay down debt.
Junior explorer Stanmore Coal (ASX:SMR) is up 155 per cent at 84c, while the much larger Whitehaven Coal (ASX:WHC) has jumped about 106 per cent over the past year and is trading around $5.60.
Allegiance Coal (ASX:AHQ) has been dubbed a “quiet achiever” by resources analyst Gavin Wendt. The company’s share price was up 80 per cent at 4.5c on Friday.
“While coal mightn’t appear as sexy as battery materials, AHQ’s share price has doubled since we initiated coverage a year ago,” he said last week.
Allegiance is earning into the Telkwa metallurgical coal project in northwest British Columbia, Canada.
Mr Wendt said the project “boasts potential for low-cost production and strong earnings”.
Stockhead is proud to use MakCorp as a provider of great value, accurate and reliable data on ASX-listed mining stocks. For more information head to MakCorp’s website.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.