Colonial Coal International Corp (CAD-V: $1.820)
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Kaiser Watch January 3, 2025: The KRO 2025 Favorites Collection Part 1
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(0:20:58): Why did you continue Colonial Coal International Corp as a 2025 Favorite?
Colonial Coal International Corp is a 2025 Favorite because it continues to be a buyout target for east Asian steelmakers seeking a secure supply of metallurgical coal also known as coking coal. Colonial Coal was the 2024 Favorite star performer until August thanks to a decision by CitiBank take on the role of seeking a buyer for the company. The junior owns two major coal deposits in northeastern British Columbia where all the existing land is now owned by major producers. Colonial Coal completed a PEA in 2018 for the Flatbed deposit as an underground mine and in 2020 for Huguenot as a combination open pit and underground mine. Coking coal prices soared above $600 per tonne in early 2022 but have since retreated to the USD $200/tonne level which is above the $174/t base case price used for Huguenot and $160.50/t used for Flatbed which generated NPVs of USD $1,027,000,000 and $691 million respectively at a 7.5% discount rate. Since then there has been 20%-30% cost inflation which is partly offset by the higher coking coal price. The combined value is about USD $1.7 billion or about CAD $2.4 billion at 1.44:1 exchange rate which would translate into an NPV per share value of CAD $12.55 for Colonial Coal. The hoped for outcome is a bid in the $5-$10 range, possibly higher if a competitive auction broke out. Indian steelmakers who lost out a decade ago when they were early bidders for coal assets are expected to be major bidders this time around, especially given India's ambition to drive the next China style super cycle. The situation got a bit confusing in 2024 when BHP took a failed run at Anglo American which to protect itself decided to sell its coal assets in Australia and British Columbia. In addition the market waited to see if Ottawa would approve Teck's sale of its coal assets to Glencore whose plan to develop Sukunka was shot down a couple years ago on caribou impact concerns. The Teck sale has been approved and there have been changes involving Conuma Coal's holdings in the Peace River area. Colonial Coal's price slumped during Q4 of 2024 as the market backed off amid uncertainty about the outcome of the US election. That outcome is now known and the world is braced for a trade war. One global response could be for nations to retaliate against the United States with their own tariffs but start trading among each other without such tariffs. This scenario could inject new urgency into Asian steelmakers to acquire the last two major coking coal deposits left in the Peace River region not controlled by a producer. Coal mined in this region would be railed to Prince Rupert for shipping across the Pacific. While the underlying fundamental story has not changed the geopolitical context is now in flux, so I am keeping Colonial Coal as a 2025 Favorite.
Colonial Coal International Corp as a coking coal buyout play

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