Emergent coal miner TerraCom (ASX: TER) is on course to complete a strong financial year on the back of upbeat performance at its fully operational Blair Athol thermal coal mine in central Queensland.
The recently acquired mine has been forecast to provide positive cash flow through a low overhead structure and operational efficiencies.
For Q1 of the 2019 financial year, TerraCom says it has secured sales for 520,000 tonnes at a forecast average price of US$92 per tonne.
The coal miner hopes to lock in a further 130,000 tonnes “in the coming weeks” to complete the quarter forecast sales of 650,000 tonnes. Given current coal prices, this forecast average selling price should deliver a margin “in excess of AU$54 per tonne,” according to TerraCom.
TerraCom completed the acquisition of the Blair Athol coal mine in May 2017 including a mining lease, related licenses, land, site infrastructure, active contracts and all mining equipment.
The deal also included a “dragline” to deliver TerraCom’s forecast production schedule and the progressive rehabilitation schedule that’s enabling improvements in both production and operating margins.
Coal market strength
According to market analysts, the reasons underpinning TerraCom’s upbeat performance figures is recent strength in the Australian thermal coal market.
Australian thermal coal prices have hit their highest level since 2012 as the market receives growing demand across north Asia and China in particular.
According to Reuters, the Australian thermal coal benchmark, (the Newcastle Index) reached a high of $114.50 yesterday. Meanwhile, industry statistics show that China imported 104.5 million tonnes of coal from the seaborne market in the first five months of 2018, up 10% (10.7 million tonnes), from the same period in 2017.
The market for Australian thermal coal has shown considerable strength over the past two months, with a growing trend of buyers wishing to secure low total sulphur bituminous coal such as the product from Blair Athol.
“The sales portfolio continues to expand as old customers return looking to secure volume, and new customers to trial the product,” according to TerraCom.
The miner added that the Blair Athol brand is strong amongst Japanese and Korean buyers and has given precise geographical attributes to its customers – the mix of contracted customers in the September quarter is 33% from Japan, 46% from Korea, 12% from Indonesia and 9% from the rest of the world.
To facilitate its strong rates of production combined with competitive sales margins, TerraCom has completed over 50 hectares of site rehabilitation before bringing the mine back into production. The mine at Blair Athol is expected to deliver approximately 2 million tonnes per year over 9 years amidst “ongoing progressive rehabilitation.”
In addition to Blair Athol, TerraCom has also set its sights on developing two further coal projects in Queensland – the Northern Galilee thermal coal project and the Springsure “high energy prime thermal coal” project.
TerraCom has also turned its eye overseas into a low-cost coal production area close to China, typically a large consumer of thermal coal.
The company has said it has commissioned the Baruun Noyon Uul (BNU) coking coal mine in the southern Gobi desert in Mongolia where export shipments over the course of the next 5 years have commenced on schedule.
The overarching aim is to become a globally significant coal producer with both its Australian and Mongolian operations to provide the main thrust of its ambitious expansions plans. In a statement, TerraCom said its goal is to “become one of the largest and highest quality coking coal producers in Mongolia.”
Following today’s improved forecast regarding its Q2 and Q3 performance in 2018, TerraCom shares were up 19% at $0.44, valuing the coal miner at around A$130 million by market capitalisation.