Kaiser Bottom Fish OnlineFree trialNew StuffHow It WorksContact UsTerms of UseHome
Specializing in Canadian Stocks
SearchAdvanced Search
Welcome Guest User   (more...)
Home / Works Archive / Trackers
 Fri Jan 6, 2023
KW Excerpt: Kaiser Watch January 6, 2023: Colonial Coal International Corp (CAD-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2023 John A. Kaiser

Colonial Coal International Corp (CAD-V: $1.530)

Kaiser Watch January 6, 2023: Introducing the 2023 Favorites
See Entire KW Episode Blog

Direct YouTube Link for Entire Episode
(0:17:59): If you are so keen about the energy transition, why do you have Colonial Coal in your 2023 Favorites?

Thermal coal had a fabulous year as countries switched back to burning coal for electricity, a setback for energy transition goals. But these were emergency measures in response to natural gas supply disruption caused by Russia's invasion of Ukraine. The long term shift away from burning thermal coal remains intact. Colonial Coal owns two properties in northeastern British Columbia called Hugenout and Flatbed which together host 700 million tonnes of both open pit and underground coal resources for which PEAs were completed several years ago. The coal is "metallurgical" coal, a harder, cleaner burning coal than thermal coal whose most valuable use involves heating it to produce a residue called coke which can be used as a fuel but is mainly used in blast furnaces that smelt iron ore. Some of the carbon remains in the steel which makes it stronger, but most of the carbon combines with the oxygen in the iron oxide ore and blows off as carbon dioxide. While metallurgical coal is a significant contributor to global warming, like cement there is no cheap alternative while there are alternatives to burning thermal coal to generate electricity. As a pragmatist I have no issue supporting a metallurgical coal play despite my eagerness to see the energy transition become reality. The coal mines in this part of British Columbia produce metallurgical coal. The world is not going to stop using steel any time soon and coking coal is the cheapest way to make steel, so it is not really threatened by the energy transition.

Colonial Coal wants to be bought out by a group which seeks a long term supply of metallurgical coal from a secure jurisdiction. The stock was hammered in December when the BC government rejected Glencore's application to mine the Sukunka project located between Chetwynd and Tumbler Ridge on grounds it will disturb local caribou herds. At the same time Teck sold its mothballed Quintette Mine just south of Tumbler Ridge where Colonial Coal's projects are located to Conuma for $120 million implying a price of $3/lb for the remaining 40 million tonne resource. David Austin is hoping to see a $1-$2 billion offer for Colonial Coal based on a similar metric, which is why the goal is a buyout between $5-$10 per share. Chinese and Indian steelmakers are the prime candidates to buy the company, but efforts to get a deal done were undermined by the Covid pandemic which in particular chilled Chinese global travel thanks to Xi Jinping's insane quarantine requirements. Now that China has given up on its zero-covid policy there is hope that negotiations will accelerate in 2023 once the covid rampage is over and China gets back to growing its economy.

The Sukunka decision was unhelpful because Glencore has been working on its permit for a decade, jumping through all the government hoops, only to be blocked by what looks like a long ago foregone conclusion. Is this a sign Canada does not want any new coal mines, including metallurgical coal feeding the global steel industry? It may be that the Sukunka property footprint was just too small to allow adequate areas to be set aside for caribou that would be displaced; Colonial Coal has large land positions with room for habitat reserve negotiations should caribou become a permitting issue. The other concern is the hostile attitude Ottawa has adopted toward Chinese investment in Canadian resources, but this applies to critical minerals such as lithium which are in short supply relative to projected demand growth. Canada does not need to hoard metallurgical coal for domestic consumption; its only destiny is export markets. The wild card is India whose steelmakers seem to have retreated to the sidelines. India has the potential to hit a super cycle tipping point by 2030, undergoing a development boom similar in scale to what China accomplished in 2000 onwards. In an indirect way Colonial Coal is a bet that India will grow more confident in its super-cycle potential and act quickly to secure Canadian metallurgical coal supply.


You can return to the Top of this page

Copyright © 2024 Kaiser Research Online, All Rights Reserved