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Coal market reactions and Glencore's Canadian acquisition

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2024-07-08

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Coal industry traders ended the week moving away from coking coal, despite the enthusiasm on the ASX for coal stocks following the huge fire at Anglo America's Grosvenor underground metallurgical mine in Queensland's Bowen Basin.

The fire, which broke out at 6 am on June 29, caused the shares of listed miners to jump by 13% or more last week. However, coal traders saw it differently.

The surge was a fleeting phenomenon in the minds of Australian coal stock investors and not reflected in the actual coal market after the initial bounce had settled.

In fact, the price of premium Australian coking coal on the SGX trading platform in Asia ended the week at $US258 a tonne, down $US3 from the previous week's close. It had touched a high of $US278 a tonne on Tuesday before sliding over the next three sessions.

Not even news of a second fire in a coking coal mine on the US East Coast could help the price stay up. It's a completely different market anyway, with US East Coast coal sold mostly into northern Europe and some to India, as seen when the container ship Dali blocked the port of Baltimore for a couple of months and disrupted coal exports.

The Grosvenor fire continues to rage as work goes on to seal all six entrances to the mine and other areas where oxygen could potentially leak into a shaft and continue to feed the blaze.

A week onwards, it now looks increasingly obvious that the mine has been destroyed, and Anglo won't know for months what it will do.

Around 1,400 people employed at the mine—Queensland’s largest underground operation—will be paid by Anglo until July 15. The town of Moranbah, with its nearly 10,000 residents, will have to battle onwards and hope for support from the state and federal governments.

On the ASX on Friday, shares in Whitehaven Coal were up 0.3% to $8.97, for a weekly gain of 13.83%. Shares in Coronado rose 0.75% on Friday to $1.35 for an 11% weekly rise, and Stanmore Resources jumped 1.7% on Friday to $3.97, achieving a 9.37% rise for the week.

Shares in Yancoal, the NSW and Queensland thermal and soft coking coal exporter, were up more than 10% for the week as well. Shares in Southern Queensland and NSW producer New Hope crawled higher by just over 2% for the week, and BHP shares rose 3.8% for the week, despite worries about iron ore prices on Friday.

BHP owns half of the world’s biggest premium coking coal exporter, BMA (Mitsubishi owns the other 50%), which ships more than 20 million tonnes of premium coking coal a year from mines in the Bowen Basin.

Meanwhile, Glencore said on Friday it had received approval from Canada to acquire a 77% interest in Elk Valley Resources.

The acquisition will make Glencore the second-largest exporter of premium coking coal globally. It is already a significant exporter of soft coking coal (and so-called PCI coal) from NSW and Queensland mines.

Glencore will pay Teck Resources $US6.93 billion in cash for a series of mines and other facilities in Western Canada. The Canadian government gave final approval for the deal late last week, and it is now expected to close on Thursday this week. Teck sells more than 23 million tonnes of coking coal a year.

As part of the arrangement, Glencore said Teck had agreed with Japan's Nippon Steel Corp that its current 2.5% interest in Elkview Operations would be converted into equity in Elk Valley. Nippon Steel would also acquire additional equity in Elk Valley from Teck.

Upon closing of the Elk Valley deal, Nippon Steel would hold a 20% equity interest in the Elk Valley mine, based in southeast British Columbia, Canada.

At the same time, South Korean steel-making giant Posco Holdings will exchange its current 2.5% interest in Elkview Operations and its 20% interest in the Greenhills joint venture for a 3% stake in Elk Valley.

Upon closing the transaction, Glencore will acquire shareholder loans made to Elk Valley from Teck, Nippon Steel, and Posco.

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