Coal prospects

Coal Asia Holdings, holder of the country’s second largest coal reserves and with the potential to become the biggest producer of high-grade bituminous coal, has filed an application with the Securities and Exchange Commission to conduct an initial public offering of its shares late this year.

The company plans to list its shares, 800 million of them, on the Philippine Stock Exchange’s first board. 

Coal Asia’s IPO will be priced at par value of P1 per share. Investors are therefore afforded the rare opportunity of buying into the company at the same price as the incorporators unlike other companies which list at a price several multiples of its potential or current earnings.

The P726.87 million net proceeds from the IPO is earmarked to bring its Davao Oriental mine into production by 2014 and its Zamboanga Sibugay mine by 2015.

Of the proceeds from the IPO, P100 million will be spent for the completion of the exploration and feasibility study of the Davao Oriental mine, P400 million for the development of the Davao mine, and the balance for continued exploration at the Zamboanga Sibugay mine and for working capital requirements.

Coal Asia Holdings is the parent company of Titan Mining and Energy Corporation (TMEC) which owns mining exploration and development rights in Davao Oriental and Zamboanga Sibugay,

Titan is expected to be the second largest coal producer (next to Semirara) in the country with reportedly coal assets worth P12.5 billion based on an independent valuation report prepared by Multinational Investment Bancorporation last May.

The company’s mine developments are on track with commercial production of 600,000 metric tons of high grade coal per year scheduled for the first quarter of 2014.

The coal mining firm holds three COCs with total coal resources at 13,000 hectares in the provinces of Davao Oriental and Zamboanga, Sibugay. 

A June 2012 preliminary feasibility study on COC No. 159 in Davao Oriental (7,000-hectare area) covering a small 214-hectare area from Old Macopa to Batinan alone concluded the economic viability of the area with an observable coal reserves yield factor of 28,000 tons per hectare which translates to an estimated market value of P23.8 billion.

An earlier Philippine Mineral Reporting Code standard geological report, done in April 2012, on COC Nos.159, 166 and 167 in Davao Oriental and Zamboanga Sibugay identified total potential coal resource of 120 million metric tons.

Coal Asia officials said they are keen on ensuring the timely development of its high-grade bituminous coal mines as they are strategically located in Mindanao where there is a rush to establish critically needed power capacity, giving the company a leg up on opportunities for long-term supply agreements for thermal coal in the region.

Coal Asia has already bagged off-take contracts both here and abroad but is also eyeing the export market including India, Japan, Taiwan, Hong Kong and Vietnam.

The company’s higher grade coal sources are located in Mindanao. It is in the right place at the right time with the expected explosion in demand by large scale energy producers racing to establish their coal-fired energy generating plants as well as for cement plants already in place in the region as they too prepare for the impending growth of Mindanao through the government’s plans to establish key economic zones in the country’s southern-most region.

The lack of power capacity in Mindanao has also prompted the government to push for the construction of power plants to augment the power requirement of the Mindanao power grid.

As one of the few major coal mining players in the area, Coal Asia has established a key position by initiating discussions with the energy department and other power companies that plan to expand operations in the southern part of the country for long-term supply agreements..

The company is likewise drawing interest from potential strategic and financial investors from the power generation and cement industries as well as investment funds with the objective of owning a stake in Coal Asia as a means to ensure continuous supply of coal and possibly hedge against another potential significant run-up in coal prices.

Coal Asia can also supply steam-grade coal to the country’s cement plants, canneries, and manufacturing plants that have converted their diesel-powered plants into coal-powered plants to mitigate costs.

By 2014, the projected domestic coal demand is 15.28 million metric tons with the power sector consuming 85 percent of the output. The local industries of cement and other sectors are also coal markets.

The Philippines major consumers of coal would remain coal-import dependent according to the DOE. Data from 1998 to 2011 showed that coal imports accounted for 76 percent of coal supply and this trend is expected to continue from 2012 to 2014, with coal imports accounting for 60 percent of coal supply.

Meanwhile, Titan is bullish that it will play a strategic role in meeting the growing demand for coal supply in the domestic market.

The Philippines domestic coal production reached 7.6 MMT in 2011 with the biggest coal mining producer contributing 96 percent of coal output last year. 

The coal industry has been robust in the past three years with DOE data reporting that from a historical average of 2.2 MMT in local production, this output tripled to an average of 6.7 MMT in the last three years. 

Imports of coal also increased in the last three years hitting an all-time high of 11 MMT in 2011. 

The local demand was estimated at 14.23 MMT, of which 85 percent accounted for the consumption of the energy generating sector. 

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