Santa delivers a price bonus as Russian coal comes on stream – 27 December 2016

Home / Views / Santa delivers a price bonus as Russian coal comes on stream – 27 December 2016

Supporters of Tigers Realm Coal (TIG) have received an early Xmas Present. Coal from Project F in Pacific Russia has begun rolling down to the port.

The road from the open pit to the port was completed early this month, along with new infrastructure (workshop, office and laboratory) and upgrades to the accommodation camp. A small amount of waste pre‐strip has been excavated and coal is being produced

Plans are to steadily ramp up production over 2017 with the aim of reaching 600,000 tonnes a year of mainly coking coal before the end of 2018. That should provide cash flows to support development to one million-tonnes-a-year coking coal capacity.

Given the resources and the basin wide tenements the company holds, there’s a great deal of blue sky beyond that.

What has got everybody talking of course is the timing. Coal production is coming on stream hard on the heels of steady price rises over 2016, particularly for metallurgical (coking) coal, making earlier profit assumptions look decidedly conservative.

We’ll take the plaudits for good timing, of course, but in truth the real triumph has been to execute a long-term vision and strategy undeterred by market fads and cycles.

The hard work was put in when market conditions seemed less promising, but the team now led by Peter Balka always had faith that fundamentals would prevail. They had access to very large deposits of quality metallurgical coal, in a region close to the great steelmaking centres of China, South Korea and Japan. It was a matter of working through the challenges, including raising funds for development in a region that was both unfashionable in market circles and not well understood. The past tensions between the US and Russia added another complication.

They developed a good working relationship with the Chukotka provincial administration, attracted additional funding from both Baring Vostok and the Russian Direct Development Fund and Australian investors and, most important, got on with the technical work.

It is that work which is now paying off.

The team developed a plan that would make coal exports viable even at the depressed prices of recent years. They were always confident that prices would return to something nearer normality, but they certainly did not rely on a climb from the US$80 a tonne coking coal was fetching a year ago to the current rates of around US$300. That is a welcome bonus, but not an essential; target production costs are below US$50 a tonne, providing a very substantial cushion against any future market fluctuations.

The current goal is a million tonnes a year from Project F, but given the extent of the deposits at Amman and Amman North there’s the potential for sustainable exports many times that. The long term aim is to develop the region into a significant global supplier.

To date the team has ticked every box along the way. It has been a triumph of clear vision and quiet persistence and now, in sunnier market conditions, it should bring all the stakeholders some well-deserved rewards.