Two mid-sized deals in the last month are further evidence that global mining firms are showing a renewed interest in B.C.’s black rock resources.
On August 17, U.K.-based mining giant Anglo American (LSE:AAL) announced a deal to take full control of the Peace River Coal Partnership, which operates the Trend mine near Tumbler Ridge.
A week earlier, Switzerland-based diversified miner Xstrata (LSE:XTA) paid $147 million to buy privately held First Coal Corp. and take control of its exploration properties in northeast B.C.
“They see the potential, particularly in British Columbia; there are huge opportunities there,” commented Allen Wright, president and CEO of the Coal Association of Canada.
Both deals revolve around high-quality metallurgical coal used to make steel, and come amid ongoing demand for the mineral from growing economies such as China.
“The supply-demand picture right now is tight,” said Wright. “I just don’t see the demand lessening over the next little while.”
Mike Plaster, a coal analyst at Salman Partners in Vancouver, agreed.
“From what we’ve seen the fundamentals for the coal markets are still fairly robust, and on the metallurgical coal side of things the spot prices have held in there fairly well despite the recent [market] concerns,” said Plaster.
Earlier this month, spot coal prices topped out at US$304 per tonne for premium-grade steel-making coal.
Although Plaster said that’s lower than the quarterly contract rate of US$315 per tonne, it’s still far above a US$225 price per tonne during the same period last year.
Wright and Plaster agreed the Anglo and Xstrata deals are likely opening salvos in what could be long-term investment in the province.
Anglo’s decisions to buy full control of Peace River Coal represents a significant about-face for the company, which only a year ago had put its 75% stake in the partnership up for sale.
Meantime, Xstrata, which has interests in more than 30 operating coal mines, told Business in Vancouver the First Coal deal represents “an opportunity to grow Xstrata Coal’s coking coal assets within Canada, an attractive investment destination with a relatively stable regulatory and fiscal regime.”
Both deals come less than a year after U.S.-based Walter Energy (TSX:WLT) bought Western Coal for $3.3 billion, acquiring three mines near Tumbler Ridge and paving the way for it to become the world’s largest pure-play metallurgical coal producer.
B.C.’s reigning coal producer, Teck Resources (TSX:TCK.B), also has plans to expand its portfolio in the province.
The company, which already operates five coal mines in southeastern B.C., is working on a feasibility study to reopen its Quintette mine near Tumbler Ridge.
Teck said in July that, assuming permits are received soon and development proceeds as planned, Quintette could be back in production in 2013.
Other players such as the U.K.’s Anglo Pacific Group, London, Ontario’s Fortune Minerals (TSX:FT) and Vancouver-based Compliance Energy (TSX-V:CEC) are advancing coal projects elsewhere in B.C.
Said Wright: “If you add up all the companies that say they are going to develop mines, you could easily double the production in the province.”