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China warms to B.C. coal

China warms to B.C. coal

Transportation problems in Australia create opportunity for West Coast producers
Joanne Lee-Young, Vancouver Sun
Published: Monday, June 04, 2007

China's steel-makers are hungry for coal as the world's fastest-growing economy continues to overheat, and that is fuelling Chinese interest in B.C.'s coal resources, which have traditionally served Asian markets other than China.

Right now, B.C. exports most of its coal to Japan, Korea, Taiwan, North America and Europe, in that order by volume. The amount of B.C. coal shipped to China doesn't even register on BC Stats' exports list.

But Michael McPhie, CEO of the Mining Association of B.C., said in an interview that he's now getting calls from Asian investors, "often Chinese . . . out of the blue, who say that they need five million tonnes of coal. Many are steel mills that want long-term secured contracts."

The phone has been ringing at Vancouver-based Western Canadian Coal in the last few weeks too, said Paul Brent, vice-president of business development. "After nine months of cold shoulder, there is more interest right now.

"Chinese steel companies are asking us to supply coal for trial with the idea of establishing longer relationships."

McPhie said: "It's all about securing new markets. The key to that is developing China. The way the coal markets work is that we are constantly battling for share against, for example, the Australians, who are much larger exporters of coal than B.C. and Canada."

But Brent pointed out that one reason B.C. is hearing from China is that choked transportation networks in Australia are bottlenecking supply.

Chinese companies are known to have invested hundreds of millions of dollars in Australian coal-mining operations, but since around the beginning of the year there has been a backlog of ships off the coast of Queensland waiting to load coal that is stuck on rails.

Now Vancouver-based Canadian Dehua International Mines Group is making headlines with its proposal to staff a B.C. coal project with 400 workers from China.

In official filings Dehua says that its chairman, a Vancouver resident, also runs a decade-plus-old Beijing company that supplies one of China's largest steelmakers with 600,000 tonnes of coal a year.

Dehua names this state-backed steel-making giant, Shougang Iron and Steel, as a partner in developing its Gething coal project near Hudson's Hope in northeastern B.C.

McPhie said that B.C. coal exports are sourced mainly from the southeastern part of the province, but that the northeast is becoming more important.

"This represents quite a rebound because the last time the northeast was important, it was when we had much greater exports to Japan. That fell apart (with the prolonged economic downturn in Japan.)"

Now, there is a fair bit of exploration and development again in the northeast. The proposal by Dehua is one, but there are others, like Western Canadian Coal's Wolverine project, which started production last July.

McPhie says this revival is definitely tied to demand from China.
This show of interest in B.C. comes at a time when producers here are watching China's coal demand soar.

Mark Mobius, a Singapore-based fund manager who oversees $30 billion at Templeton Asset Management, recently told Bloomberg that Chinese demand could drive up Asian coal prices by 42 per cent over the next five years.

Mobius predicted that the current coal price at about $54 US a tonne could reach $78 by 2012.

But B.C. producers are cautious when it comes to China. David Slater, CEO at Hillsborough Resources, which mines coal near Campbell River on Vancouver Island, thinks about tackling China, but says prices in Japan and Korea are strong.

"There is a lot of talk about China, but there aren't many concrete contracts. I would rather focus elsewhere," said Slater.

Richard Mundie, who is based in Beijing for Teck Cominco, said that coal prices in Japan and Korea are better.

"Others will pay more. It's not worth our interest to ship coal to China," Mundie said.

But the B.C. mining industry remains committed to finding new markets in China.
It is returning there in November to meet and greet companies there. "It looks like it will take more work," said McPhie.

"In B.C., we have a few hundred years left in reserves, so we could increase production if the markets could bear it. There is a lot of upside for us."


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