A new era of coal is upon us...
As the Gulf population soars, demand for electricity has reached crisis point - so much so, they’re being forced to divert valuable oil meant for sale to the West, to domestic use... and it’s hitting their profits.
Nuclear power is the long-term objective... but until then coal will bridge the gap.
And one little-known company is perfectly placed to benefit from this imminent wave of investment...
A power crunch in the Gulf States has been brewing for years - and it’s reaching crisis point.
As their economies rapidly develop and populations soar, demand for power is rising at a double-digit annual rate.
This demand means profitable oil and gas meant for export has to be burnt to generate domestic electricity - instead of being sold on the open market for record prices.
To maximise the profits from their energy resources, Gulf States will go nuclear. Talks have been held with the US and France and deals have been signed.
But here’s the thing...
vIt takes time to build and develop a nuclear power station, and something needs to fill the gap until then… and, according to today’s Times, it looks like it is going to be coal.
‘King Coal’ to replace oil - a great medium-term profit play
According to the newspaper, oil-rich Gulf States are planning to start importing coal.
Oman Power and Water Procurement Company indicated in December that a planned 700-megawatt power and water desalination plant may need to be fuelled by coal instead of natural gas.
Last summer Abu Dhabi’s oil output fell by 600,000 barrels per day as natural gas was diverted from injection into oil wells to power stations to meet peak demand for electricity.
I’ve been bullish about the price of coal for some time. Despite its reputation as a dirty fuel, there is simply no alternative.
Overnight, two of Canada's major coal producers announced a large jump in metallurgical coal prices for 2008.
Fording Canadian coal trust settled contracts at $275/tonne for all coal projects, compared with $93/tonne in 2007. Western Canadian Coal negotiated a majority of is 2008 coal year contracts for hard coking coal at an average above $300/tonne, an increase of 365% over 2007.
There has been supply disruption in South Africa because of the electricity crisis, in China because of heavy snow and now the earthquake, with mines in Australia flooded by heavy rain. Indonesia, the world's biggest coal exporter, says most of its output for 2008 is already sold!
The outlook is pretty clear to me: Demand is higher than ever, supply is squeezed to the brink.
And I believe I’ve found the perfect stock to profit from the return of ‘King Coal’...
Up 17% since October ‘07 and there’s a long, long way to go yet!
I first recommended my readers get into the coal story back in October 2007... Since then it’s risen 17% and I reckon it has much further to go.
Why? Let me explain.
Besides global demand for the "dirty" fuel at record levels, I expect this unique coal profit play to do very well regardless.
You see, unlike its rivals, the company currently generates revenue from two sources - BHP Billiton’s Crinum underground coking coal mine and Rio Tinto’s Kestrel open cut operation, both in Queensland, Australia.
Their objective is to expand its strategic mining and royalty interests through investment in mineral exploration and mining projects. As an active shareholder, it aims to develop an involved relationship with the companies in which it invests and provides strategic and corporate finance advice.
Management leverages its contacts in the mining industry to find suitable investment opportunities, and liaises with an advisory panel to assess the technical aspects of potential future projects.
Cashflow from the existing royalty streams is either re-invested in new mining interests, or paid out to shareholders.
Great for the share price... and even better for dividends too!
It really is a rare gem in a sector that’s had some troubles of late.
Setbacks due to liquidity problems in the overall market continue to make mining finance difficult to raise from conventional lenders.
As a result, this company - with its strong balance sheet and experienced management team - is well positioned to provide finance for projects that can secure new royalty flows and develop its mining interests.
With coal looking set to fill the gap until the new nuclear revolution happens, there’s plenty more royalties to be had.
Management has proven that it knows what it is doing and tightness in credit markets means the company has lots of investment opportunities from which to choose.
Regards
Garry White
Editor
Smart Commodities UK
(This promotion contains past performance and forecasts. Past performance and forecasts are not a reliable indicators of future results.)
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