August 8, 2012 / 1:12 PM / 5 years ago

Gunvor open to Asian stakes in U.S. coal mine

4 Min Read

* Signal Peak coal sales profitable despite price slump-Gunvor

* Low mine costs draw investor interest

* U.S. cargoes sold to Europe, Latin America and Asia

By Jacqueline Cowhig

LONDON, Aug 8 (Reuters) - Energy trader Gunvor is considering selling equity stakes in the U.S. Signal Peak coal mine, after approaches by several Asian end users, a senior company executive said.

"We have a profitable bituminous coal mine with the lowest cash costs in the U.S. and long-term port capacity - two important criteria for U.S. coal investments," said the executive, who declined to be named.

Almost all U.S. coal mines have been compelled to chase export sales during the past year because of the slump in domestic demand due to record low gas prices.

South Korean state utilities and steelmills, and Japanese trade houses and power generators have sought equity in thermal and coking coal mines to secure long-term supply.

Japanese trader Itochu last year linked up with Drummond Coal to sell 7 million tonnes of Colombian coal into the Asian market. Trade house Mitsui and several South Korean end-users have bought into Australian coal miner Cockatoo.

The Gunvor executive said large coal buyers seeking to diversify supply and buy equity in Signal Peak had recently visited the Montana mine.

Gunvor, whose Pinesdale LLC subsidiary paid $400 million in October 2011 for a one third stake in the mine, utility FirstEnergy and privately-owned Boich Companies, market through a long-term offtake agreement.

"With big groups like Glencore dropping more than 40 percent in value this year alone, it's easy to gripe at any recent investment in the commodities space, but the value is there for the longer-term", the executive said.

"The only real short-term negative since (Gunvor) bought is that the coal market is down a bit," said Wayne M. Boich, Chief Executive Officer of the Boich Group.

Gunvor has been trading coal for several years and has invested in mines in South Africa and the Kolmar coking coal mine in Yakutia, Russia, as part of a plan to become a diversified trading shop.

"Gunvor's purchase of an interest in the mine added a partner with robust exposure to the international market," Boich said.

A stake in Signal Peak could be a hedge against possible headwinds such as fresh changes to Indonesian mineral laws or Australian extreme weather which can hit mines, Boich added.

Despite the slide in thermal coal benchmark prices from over $100 a tonne delivered into Europe to a two-year low of just over $80 in June and widespread defaults in the market by Chinese buyers, Signal Peak sales were profitable and demand remains strong, the Gunvor executive said..

Gunvor ships Signal Peak coal to Europe and Latin America as well as China and other Asian countries.

"We've just shipped two vessels to China and both were paid for," he said.

U.S. thermal coal exports are expected to hit a record of over 40 million tonnes this year, but the slide in international prices has already forced production cuts and losses among miners with the highest costs and poorest quality coal .

"We are one of the highest-producing, lowest-cost underground mines in the country," Boich said.

The U.S. and Russia are the world's highest-cost exporters but costs in the U.S. vary enormously from under $40-$100 a tonne.

"This is a long-term deal for us - we're getting more and more customers trying to lock in coal supply for 10-15 years," said the Gunvor executive.

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