" A question on this - why are we saying that the coke produced will be of high quality? Looking at the third last page on the investor presentations, it looks like the coal will have ash content of 41.1% (is this right? - it says ash % at 1% adm, and then 41.1)."
The last investor presentation is Passport Capital LLC ‐ Conference San Francisco, 5th November 2009.
Jeet, you are confusing different types of coal. The Benga and Zambeze tenements have both coking and thermal coal. The ash content you refer to is the thermal coal. I see your point with the table though. I read that as Mt with Ash content of 1%.
In any case, the thermal coal is of average quality:
" Thermal Coal quality:
Pilot scale combustion testing of the Benga thermal coal indicated that it would provide reasonable performance in typical base load power stations. The Benga coal had excellent ignitability and moderate to good flame stability and turn down performance over a typical operating range. The Benga thermal coals had lower burn out than competitor coals, but performance is in line with expectations.
Ash deposition testing was favourable showing slagging and fouling deposits will be able to be managed through normal soot blowing practices.
Sulphur Oxides (SOx) and Nitrogen Oxides (NOx) emissions were higher than average for competitor coals but well within the range of coals sold in international markets. Modern power stations utilise flue gas de-sulfurization and low NOx burners to significantly reduce emissions levels.
Trace elements that have been identified as being of major concern to power station operators were all below world coal averages."
The calorific value of the Benga coal is > 5,500 which is inline with the Churchill deposit, and other competing thermal coals.
(see RIVERSDALE MINING LIMITED - 30 SEPTEMBER 2009 - QUARTERLY ACTIVITIES REPORT - http://www.riversdalemining.com.au/media/announcements/2008/RIV_Quarterly_Sept09_-_MASTER.pdf )
(2) COKING COAL:
The coking coal quality is equal to the best that comes from the Bowen Basin in Queensland (which is a world benchmark). (refer page 22 - Riversdale Mining Steve Mallyon, M.D. Morgan Stanley, Sydney – 5 May 2009)
The coking coal CSR is 67-71. Benga coking coal tests hit 71. Premium hard coking coals typically have CSRs greater than 65. CSR is one of the key quality parameters used to assess coke quality. (refer - Mozambique Project - Coal Quality Update - http://www.riversdalemining.com.au/media/announcements/2008/ASX_Ann_090318_-_Coal_Quality_Update.pdf)
The thermal coal is a mere sideshow to the coking coal resource. Coking coal av. price for the past year has been $130 Mt; thermal coal has been $70 Mt.
The Churchill deposit is thermal coal only. Whilst coking coal sells for double the price of thermal, the profit margin is much higher, as the same mining costs are incurred.
(3) Valuation:
(i)You will have to make a significant increase in the cents/tonnes to account for the higher value coking coal, than that used in the Astaire Report on Churchill;
(ii) A power plant has been approved, to be build on Riversdale land, to take 50-70% of the thermal coal. No to-port tansport, no sea freight costs, would mean some sort of premium to RIV thermal coal;
(iii) You have not included the new Zambeze tenement in your tonnes-in-the-ground valuation. Zambeze already has 1.7Bt indicated. Again most of this is high quality coking coal. There have been estimates of 9Bts, once this is drilled out;
(iv) The Zambeze is 100% RIV owned.
Even at the announcement of the maiden resource, Mr O'Keeffe said:
"....another potential Tier One project with similar coal to Benga, yet likely to be a significantly larger scale operation." (refer - http://www.riversdalemining.com.au/media/announcements/2008/ASX_Ann_091012_-_Zambeze_Project_Coal_Resource.pdf)
So, if Benga is already 4.1Bt; what does significantly larger mean to you?
I have a slightly different valuation :) Have a look at a P/E valuation on full production. I used P/E of 10, being conservative when looking at peers.
Cheers, Skip
P.S.: UPDATE 1-Peabody sees strong growth, firmer coal prices in 2010:
