Intra Energy Corporation
Coal stocks have been punished on the Australian Securities Exchange lately, especially after the price of thermal coal coming off an all-time high of $US192.86 per tonne in July 2008 to hit a recent price of US$93.44 per tonne.
China has recently become the price setter for thermal coal, overtaking the other large importer, Japan.
Therefore, a change in how China prices the commodity is set to affect both Australia and Indonesia, who together supplied more than half of China’s 150 million tonnes of coal imports in the first eight months of the year.
Thermal coal provides more than two-thirds of China’s power needs, and China expects thermal coal prices to fall further from the current prices.
It costs Indonesia’s large miners between US$30 and US$55 to produce a tonne of coal and transport it to ports.
These low costs are only matched by some South African mines, while Australia’s large miners spend at least US$80 per tonne.
This new paradigm for coal prices presents opportunities for other geographic regions.
Intra Energy Corporation (ASX:IEC) is a coal explorer and operator based in Tanzania, on the east coast of Africa.
As such, it is not affected by international coal prices.
It is a small scale coal producer on the east coast of Africa, a location that affords it an advantage in dealing directly to customers in that region.
The company’s project, the Mbalawala mine, is located in the Ngaka coalfield, and is operated through a holding 70 per cent interest in Tancoal Energy Limited.
Mbalawala mine pit
Tancoal owns six coal tenements that are located 40 kilometres to Lake Nyasa, and 650 kilometres to the port of Mtwara.
The deposit is land locked, however the company is selling to local concrete businesses, tobacco companies and breweries.
The ‘big ticket’ item for the company will be supplying future power stations.
During 2012, IEC signed a Memorandum of Understanding with Tanzania Electric Supply Company for the development of a 120 megawatt (nett) coal fired power station in close proximity to the Tancaol mine.
Tancoal expects to supply approximately 400,000 tonnes of coal per annum to the power station.
That is a large increase on the company’s current sales of just over 26,000 tonnes for the year.
The company is well placed to increase production, with all equipment owned, and has capacity to move to 30,000 tonnes per month very quickly.
The major upside is the power station though, and there is speculation a Price Purchase Agreement should be announced before the end of 2012.
This would give the market an understanding of capital requirements, and potential revenue from the power station.
The current cash costs are very low, with US$14 per tonne to dig the black stuff out of the ground, an internationally competitive cost.
Labour costs are low compared to other coal producing countries; however infrastructure remains a significant hurdle.
These infrastructure issues are being worked on by management, which comprises a main executive of Australians who are well-experienced in start-up coal projects.
Intra Energy is a company with large ambitions, and has been relatively quiet about its intentions.
It is a coal stock to watch while the others are battling high labour costs, high capex and lower international prices.
Peter Hayes
Investment Manager
