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
2 Copyright: Bryanston
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
3 Copyright: Bryanston
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
4 Copyright: Bryanston
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
6 Bryanston Resources -
Copyright: Bryanston
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
7 Bryanston Resources -
Copyright: Bryanston
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
9 Bryanston Resources -
Copyright: Bryanston
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
10 Bryanston Resources -
Copyright: Bryanston
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
11 Bryanston Resources -
Copyright: Bryanston
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
Ash 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
Ash content, Coal flow
Sulphur content, Coal flow
Ash 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
12 Bryanston Resources -
Copyright: Bryanston
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:
14 Copyright: Bryanston
Mark Freed
Associate
Bryanston Resources GmbH
Bahnhofplatz
6300 Zug
Switzerland
Tel. +27 83 564 5455
www.bryanston.ch
Bryanston
Thank you for your attention!