mark freed, bryanston resources - financial markets and coal

Bryanston Resources GmbH * Bahnhofsplatz * 6300 Zug * Switzerland

Mozambique Coal

July 2013

International Mining and Metals Series

1 Copyright: Bryanston

Our core expertise enables us

to provide support across the full mining life cycle

Our group is active across principle metals and mining

investment and advisory

Source: Bryanston analysis

BRYANSTON HOLDING

Mining

Principal

Investment

Mining

Technology

Investments

Expert Mining

Consulting

Principal mining

investment in

Africa and

Central Asia

Financial

Advisory

Fund raising

Principal

investment in

mining

technology and

services

Management of

investments &

portfolio

companies

Commercial

excellence

Consulting suite:

Strategy and

operations

Focus of this

presentation


We have a global presence and can draw on international

experience and best practice benchmarks

Bryanston is on a continuous growth track leveraging its senior expert network

Ca. 100 employees are serving clients globally – soon offices to cover all major mining regions

Opening soon

Recent projects

Existing offices

No activity so far

Western

Africa

North America

South

America

Southern Africa

ANZ

South East Asia

Europe

Asia

London

Zug

Tel Aviv

Lagos

Johannesburg

Shanghai

Moscow

Rio de

Janeiro

New Delhi

Perth

Munich

Singapore


BM concentrates

Platinum

Cobalt

Chromium

Nickel

Aluminum

Lead

Zinc

Met Coal

Iron Ore

Thermal coal Copper

Natural gas

Crude oil

Gold

Hybrid markets

Liquid markets

Highly liquid markets

Low liquidity markets

Market

liquidity

Market size equivalent of

100$B in 2012 prices

Low

High

>1 <1 Paper vs. Physical traded volumes

Thermal coal in sweet-spot:

• Physical market sufficiently inefficient for arbitrages

• Paper market to hedge positions; is mostly accessible

to asset-backed players as derivatives are cash settled

High Low

Possible Not possible Financial hedging

Trading margins

Commodity markets are becoming increasingly traded and

liquid – coal is no exception

Sources: Bryanston Resources

Thermal Coal market has evolved

much more over time than Met Coal


Financial markets are following the growing physical trade in

the Pacific basin

RB

API#4

Pacific basin Atlantic basin

ARA

API#2

NEWC

API#6

South Chinese CFR

Initial contract month: October 2012

Steam coal FOB 5500 kcal/kg NAR

Indonesian Sub-Bituminous

Initial contract month: February 2011

Steam coal FOB 4,900 kcal/kg NAR

15

21

148

Export volumes in Mt, 2011

Paper trade markets

13 55

7 2 298

46 13

56

4

23

28

6

• Comprises major European importing countries

• Participation of power utilities in coal trade

• Two main prices: API#2 and API#4

Various other prices derived from these indices

Recently introduced coal swaps

• Made up of major importing countries in Asia/Pacific

• Previously: benchmark prices set by Japan

• Index linked sales on the rise due to increasing involvement

of traders and market speculators

1. S. Africa decision to supply Pacific impact prices in the Atlantic ie. recent supply disruptions in Pacific market led SA coal to be diverted to the Pacific, causing higher prices in the Atlantic Sources: TEX; McCloskey, Macquarie Research, EON, globalCOAL; Energy policy, IEA

However, coal prices in both basins are linked by the ability

of producers to respond to price differentials

5 Bryanston Resources -

Copyright: Bryanston

Net imports of Thermal Coal in China reached 136Mt in 2012 North-South and West-East railway constraint open opportunities for import to Southeast China

3,788

3,513

3,261

3,009

2,803

2,609

2,320

1,943

4,050

3,735

3,447

3,145

2,930

2,709

2,389

1,935

’15e ’14e ’13e ’12e ’11 ’10 ’09 ’08

Local demand Local supply

-8 +69 +100 +127 +136 +186 +222 +262

All in Mt x Net import

Source: J.P. Morgan China coal report 2012, SXCoal, Bryanston Research



Six provinces make up 75% of China total net imports

Jiangsu

1.0-10Mt

0.1-1.0Mt

< 0.1Mt

Target provinces

2012e TC Net Imports

Source: J.P. Morgan China coal report 2012, SXCoal, Bryanston Research

11,6

25.3% Net imports of

rest of China 34,4

74.7% Net imports of

target provinces 101,6

Shanghai 6,8

Guangdong 23,1

Zhejiang 16,4

Guangxi 21,7

Fujian 22,0

China total net imports 136,0



High CV thermal coal has significant share of import and is

mainly consumed by power and cement producers 2012 demand of different TC

by downstream domain

2012 demand of different TC

by local supply and net import

Note: Demand breakdown estimated through customer visits

160

465

217

Target

provinces

total demand

944

842

102

<5000

238

22

5000-5500

483

18

5500-6000

172

12

>6000

50

50

Local supply

Net import

All in Mt All in Mt

Net imports of TC

>5500kcal = 73Mt

17

585

295

<5000

238

61

34

143

Target

provinces

total demand

944

236

123

50

>6000

11 22

5500-6000

172

28 18

126

5000-5500

483

130

58

Others

Power

Cement

Demand driven by

power and cement

= 177Mt

How do we extract the maximum value for our product?

Value-in-Use: Establish the technical and logistical value of

your product for each customer

End to end process to calculate Value-in-Use for your product

Netback

xx

Rail

transport

Sea

freight

Duties

and

handling

Inland

logistics

Your

DDP

xx

Technical

ViU

DDP for

Alt. supply

xx

Inland

logistics

Duties

and

handling

Sea

freight

FOB

Alternate

supply

xx

Logistics Technical Result

• Provides visibility of penalties and premiums

applicable in contracts

• Provides ammunition for negotiations

• Typically accounts for 20% of value that can be

extracted from customers

Technical

• Provides visibility on product’s journey to customers

allowing better customer selection

• Typically drives 80% of value derived from

customers

• Most effective with a large DDP customer base

Logistics



VIU coal: you need to understand your customers' coal blend

• Different coal types have

different impact on technical

and commercial parameters

of plants

• Each plant requires a

different coal matrix to

optimally manage the trade-

off between technical and

commercial optimization

• Key parameters for defi-

nition of coal matrix e.g.,

– Calorific value

– Ash content

– Sulphur content

– Moisture content

– Volatiles

Unloading

and storing

of single

coal types

Coal inventory at station or storage

Mongolia

South

Africa

Specific coal blend

by power station

Australia

China domestic

Indonesia



RMB/t

1) Qinhuangdao port: >150kt ship capacity

From port to plant: 54RMB/t

(Parent owns 50% of the transportation co.)

Northern China

• Yitai group

• Zhongmei group

• Shenhua group

Indonesia

CV 5000kcal

Calorie 5000kcal

VM 35-43 Ash 6%

M 20-25% S<1%

• S0.5% M16% Ash12%

• S1.2% M11% Ash 6%

• S0.4% M14% Ash12%

Avg. blend

mix 2012

4.0Mt

33%

25%

43%

CV 5500kcal

VM 25-28

Shanxi

Inn Mongolia

Panamax

Cape size

2) Beilun/Zhoushan port: 150kt ship capacity

From port to plant: 12-15RMB/t

3) Yingkou port: 45-55kt ship capacity

From port to plant: 57RMB/t

(This price is 3RMB+QHD shipping index)

Panamax

Cape size

Transportation Price Source Specs Blend

• 620

• 603

• 598

DDP

550-570

DDP

5352

CIF

Panamax

Cape size

Example: Southern Chinese Utility - Typical buying patter



Value in use helps establish a fair price based on detailed

technical calculations

Bulk

energy cost

Total

annual cost

Total energy

send out

Capital charges

Operating and

Maintenance cost

Fuel cost

Waste disposal

cost

Generator output

Auxiliary power

consumption

Load factor

Coal handling

Pulverising

Boiler plant

ESP

FGD

Ash handling

/

Ash deposition

Average load factor

-

x

+

Quartz content, Coal flow

Coal flow

Ash content, Coal flow

Sulphur content, Coal flow


Availability

x

Ash composition

f

Total cost of energy generation Coal quality related cost drivers

Pulverising

Boiler plant

ESP

FGD

Ash handling

By generator design

Depends on Plant design

Ash handling Ash content, Coal flow Fly Ash

Ash handling Sulphur content, Coal flow Gypsum

Load/operating limits Pollutant content, Ash content, Coal flow

Coal handling

Pulverising

ESP

FGD

Ash handling

Coal flow

HGI, Coal flow


Sulphur content, Coal flow


Pulverising

ESP

FGD

Ash handling

Ash handling Chemistry, Coal flow Draft plant

Depends on Plant design

Coal flow

Boiler efficiency Net Calorific Value

Fuel ratio Chemistry Gross CV H2O



Example: Southern Chinese Utility - A fair premium of 7 USD/t

possible

Specs Unit Reference

Thermal coal

Customer

Comparable supply VIU Ratio Total VIU

CV Kcal/kg 6000 5500 0.11 RMB/kcal2 55 RMB/t

VM % 26.2 25-28 n/a RMB/t

S % 0.64 0.5 -2 RMB/0.1%2 2 RMB/t

M % 10 16 n/a RMB/t

HGI - 52 >50* n/a RMB/t

Al2O31

% (Ash) 31.6 - RMB/t

Total VIU: 53

0

0

0

2

0

55

13 Copyright: Bryanston Resources GmbH

Methodology: Determine the best customers and the optimal

price/volume relationship

Source: Bryanston

We analyze every potential customer and specifically on

blast furnace/coke oven level

Brazilian

customer

Chinese

customer

European

customer

Indian

customer

300

250

200

150

100

50

0

1,800 1,100 1,000 900

Potential sales price (basis: exWorks) in USD/t

700 600 500 400 300 100 800

xxx $/t

(positive case)

xxx USD/t

(base case)

Potential

sales volume in kt

400

350

200 0

Sales potential at

xxx$/t

Sales potential at

xxx $/t

exWorks production cost:


Mark Freed

Associate

Bryanston Resources GmbH

Bahnhofplatz

6300 Zug

Switzerland

Tel. +27 83 564 5455

www.bryanston.ch

[email protected]

Bryanston

Thank you for your attention!

http://www.bryanston.ch

mark freed, bryanston resources - financial markets and coal

Business

bryanston analysis bryanston

bryanston viu coal

bryanston rmbt

potential customer

international mining

different coal matrix

mining life

customer end