After a year of unprecedented industrial unrest, the Colombian Government believes that it will, insofar as is relevant to the operations of its coal mining sector, not only be able to retain its ranking as the world’s fourth largest exporter-producer, but also be able to punch above its weight.
Majors show confidence
A major show of confidence in Colombia’s coal future was the opening in Q3 2013 of the Puerto Nuevo terminal.
The terminal was financed and will be used by Colombia’s three major coal exporters that own and operate the Cerrejon mines: Anglo American, BHP Billiton and Glencore Xstrata; the Drummond mines; and Prodeco. The three account for 80% of the country’s total production and export. All are increasing output and expanding infrastructure. Top of the list is Cerrejon’s US$ 1.3 billion P40 energy coal project, which will increase saleable thermal coal production by 8 million tpa to approximately 40 million tpa. Anglo American says the project is 62% complete. Over 2012 Cerrejon exported 32.8 million t of coal out of the 34.6 million t produced. This was 2.5% above target.
Pacific Coal Resources’ Colombia mines, La Caypa and Cerro Largo, have reported Q3 production of 395 499 t against 398 865 t in Q2 and a 27% increase over the quarterly average in H1 2013. The company is working to expand production at La Caypa and, with Q3 2013 production at 315 933 t, was 5% over its own target. This level of production is the highest since 2011. Cerro Largo, however, was far short of the company’s forecast, producing 79 566 t, “well below” what was expected. The company did not publish an actual forecast figure.
Batista mines saved
The two Colombia coal projects owned by CCX Carvao da Colombia SA, a subsidiary of Eiko Batista’s EBX Group and in limbo after Batista’s imminent bankruptcy, will continue to operate. Valued at around US$ 450 million, they are – subject to final due diligence and negotiation – to be sold to Turkey’s Yildirim Holding AS. The mines in question are the Canaverales and Papayal opencast mines, for which the preliminarily agreed price is around US$ 50 million, and the San Juan underground mine and logistic project, for which CCX is asking US$ 400 million. The projects are being sold to raise funds for Batista. The deal over the two opencast mines is expected to be completed by the end of the year, while the sale of San Juan will likely be completed by the end of April 2014.
Canaverales has a reserve of 27.3 million t; Papayal one of 15.6 million t. The San Juan underground mine is over a reserve of 671.8 million t.
Early in 2013, the Colombian Government extended its contract with Brazil’s metallurgical coal producer, Votorantim, by 20 years to 2039. The contract, covering operations by MinasPazdelRio SA, Votorantim's Colombian subsidiary, was due to end in 2019.
The company produces around 200 000 tpa but has plans to increase this to 2.5 million t. However, royalties will increase by 33% to 15% and be set at 10% on volumes over that.
It seems more than likely that the extension came as the result of Votorantim agreeing to join the government in a partnership to develop the long-delayed Carare railway project, which would link mines in the Boyaca province – where the company’s project is based – with the main railway to the coast.
Low cost efficiency is a drawcard
New coal business is attracted to Colombia because it is perceived as a low-cost, efficient (and therefore very profitable) operating environment.
Prospecting juniors, soured by what they see as the highest mining costs in the world in one of their major stomping grounds, Australia, are turning to other countries. While they remain cautious over investment in Colombia, they have most certainly not written it off.
Glencore Xstrata has reported cost savings from its investments in Colombia. “Restructuring our businesses in Colombia and South Africa has saved us US$ 20 million-plus,” says Peter Freyberg, head of the coal division. “Colombia is now one of the three operating geographies underpinned by our global marketing footprint. We have been able to increase output across the business more than we expected and with far fewer people.”
He estimates the average productivity per employee in Colombia is increasing 21% year-on-year. “We have seen output levels rise 18% in use and 50% in output,” he said.
Colombia’s coal has also attracted the interest of India’s Tata Power Co. Turning away from acquisition prospects in South Africa, where the company has concerns over infrastructure, director Anil Sardana said: “We just want cheap coal.” Colombia, Canada and the US were the top of Tata’s acquisition list as surging shale gas supplies in North America continued to bring coal prices down. “There are coal assets looking for buyers.” Sardana said.
Ascot Resources has commenced drilling at the El Basal concession of its Titiribi project in Colombia. Preliminary results indicate multiple coal seams of significant thicknesses – from 7.3 m to 30 m. The company says there is potential for a metallurgical coal product.
Samples have tested with very low raw phosphorus content and with ash value, total moisture and volatile matter as currently traded in the metallurgical market. “The low phosphorus will give us a potential market advantage,” the company said. “We see potentially low capital expenditure with a likely opencast operation strategically located within close proximity to existing infrastructure that offers a simple supply chain to target both domestic and export markets.” The company is working towards a JORC compliant resource and scoping study and aiming for fast-track development with initial production by the middle of 2014 at a rate of 250 000 tpa.
This article first appeared in the December issue of World Coal. To read part 1 of the article, please click here.
Written by Barry Baxter.
Read the article online at: https://www.worldcoal.com/special-reports/17012014/weathering_the_storm_part_2_413/