Thermal Coal In Mongolia: The Next Boom

POSTED ON April 10, 2014 BY Thom Calandra
CATEGORY Canadian Business, Commodities, Prophecy Coal,

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[PCY | KOL | ANK | DSR | GSV]

Coal, thermal coal for our purposes, is fired up. Does not look it, when you scan financial media on this arcane commodity. But it is. Or will be. We've been talking thermal coal since TCR's visit to northern Mongolia -- and briefly, Russia -- 8 weeks ago.

Market Vectors Coal fund, or index, is making its biggest up-arrow move since June 2013. KOL (ticker in USA) represents 10 coal producers, led by China's China Shenhua Energy Company Limited H Shares.

Coal prices, which are challenging to quote real time. The metric ton price, in dollars, depends on source location, shipment size and KCAl count -- also percentage of sulphur, ash and other nasties. Also: tariffs if going cross border. Plus: user conditions for the mix. Is the carbon going straight into the smelter, so to speak? Or is the user blending the good stuff -- 4,000 KCAl/kg and higher - with the mediocre stuff? On the profits side of the sheet: transportation costs for rail, ship and truck are a big deal.

The great recent year for thermal coal, which is No. 1 on the list of the world's electricity fuels, was 2011. That is when so-called Newcastle coal rose to $140 per ton. It's down to about $80: Australia, Colombia and South Africa are flooding the market, supposedly, with their thermal coal exports. That average price, assembled by World Bank, in actuality is 20 percent or more higher than what many producers outside of Australia, Colombia and South Africa get for their thermal. Signs of life? India's 12 state-owned ports report thermal coal imports up 22 percent, to 71.6 million metric tons, for fiscal year 2013-14 that closed March 31.

India will have used in that fiscal year about 125 million or more tons of the high-quality coal, mainly for power plants, cement plants, steel plants, and even individual villages and small towns. Vietnam this year said it will be importing more thermal coal. Southern Russia is a white knight for the black hydrocarbon. Bordering Mongolia and into Russia, thermal coal is so valuable, it ranks almost up there with Olympic bronze and silver (but not yet gold) Olympics Games medals.

Several large coal producers' shares are rising sharply in recent weeks. Recall that thermal coal is one of the few commodities that has yet to enjoy a resurrected price in the new century. TCR subscribers know that if we were not heading to Cambodia on Thursday for a priority review of Angkor Gold's gold mine, which is under rapid development with an India partner, I today would be in southern Russia. (Brief addition on Angkor and its non-profit foundation at close of this report***.) I would be touring possible new buyers of thermal coal and dropping into Lake Baikal, the world's oldest fresh water lake, for a brisk dip. The invitation, at my expense, is from John Lee at Prophecy Coal -- the two-mine owner in Mongolia that I reviewed earlier in this year of 2014.

This second visit to Mongolia to see Prophecy (and fifth overall to that nation) defers to Cambodia. Mr. Lee appears to be working through Prophecy's challenges. The shares (PCY in Canada) this week were removed from the British Columbia Securities Commission's default list. The financial are out in full. The management discussion is in the filing. Yes, there is a long way to go on improved cash flow from the Ulaan Ovoo Mine, which appears to my eyes, as a writer and researcher, I remind you, to be experiencing gains in production, gains in resource and gains in quality levels for the thermal coal. Also: selective stockpiling of grades, marked by KCAL grade -- photos, my own, on request. Prophecy is working with Mongolia's Ministry of Finance on a customs clearing zone at Ulaan Ovoo to facilitate exports into Russia.

Mr. Lee on previous trips has signed more than one Russia buyer for the company's high-KCAl coal and fewer than five, by my count. I also have witnessed plans to lay in fresh road from UO across the three dozen or so kilometers required to reach Russia paved roads, and also interior rail head. He has his critics, mostly because of a salary that at times approaches yearly half-million dollars. This is all on top of sales already to Mongolia cement and power plant operators via existing rail. (I will leave out for now the second component of Prophecy Coal: an ambitious undertaking at its Chandgana south of UO.) I am purchasing shares of Prophecy as I can. I will be adding today after this report is released. It is once again PCY in Canada. I attach a link that has six map slides detailing markets in Mongolia and Russia and Prophecy properties. I think that reveals the strategy as well as anything I can put on paper here -- or reported several weeks ago to our TCR audience.

Notes: Sysorex Globlal Holdings, our Bulletin Board USA-listed comuter services company from California, is share-halted pending a listing on NASDAQ National Market. SYRX (in USA) as planned has linked the listing with a significant raise of funds. See: NASDAQ data on SYRX. I own it, sold some at a boggling $5, more at $6 or so, and now await the NASDAQ IPO. I expect the most recently quarterly sales and potentially profits statement to be out soon, and to be vibrant. I know the prinicipals in northern California. ... In the works: formatting changes and font alterations for TCR, after receiving guidance on the subject of presentation from several entities, including my colleagues at Equities.com, CEO.ca and InvestorIntel. Also from friend and spouse, Maura. Says she, "Just because you like to sacrifice visuals for speed of delivery is no reason not to get both in the hopper." ... I will, ideally before departure to Phnom Penh via Taipei, get in the hopper in a PDF portable document another review of Desert Star Resources's Arizona prospects, just visited. See earlier report. In meantime, please see CEO.ca's Copper Belt article. I expect further reporting on Desert Star and another Superior-area company, Curis Resources (which I did not visit) -- from CEO.ca's Tommy Humphreys and Travis McPherson and from 321Gold.com's Robert Moriarty. Hint? I now own 30,000 shares of Desert Star -- DSR.

Sales: I intend to purchase more Prophecy, more Desert Star and, ahead of a general company conference call Thursday, more Stellar Biotechnologies (SBOTF in USA and KLH in Canada). In response to questions from our audience: Yes, I am revising our TCR 8. I likely will drop one and perhaps two for starters. I continue to own each of the 8; I suggest to those seeking capital for payment of taxes or to shift investment monies into fresh sectors to consider selling -- at a loss I am ashamed to say -- a portion of their Gold Standard Ventures (GSV in USA and Canada). The Nevada properties are worthy, and the management team is on the road yet again seeking fresh buyers. Still, our TCR 8 has a healthy serving of Nevada gold and silver via Pilot Gold and NuLegacy Gold. I might eject 10 percent of my GSV in favor of the three that began this list.

(***Angkor Gold in Cambodia starting Saturday for 9 days: 14-year-old Gemma, a major financial newsletter writer and several investors will accompany TCR as we conduct a fourth review of ANK prospecting at five gold, copper and moly properties, or concessions, the Canada-listed company holds in that nation -- all in Ratanakiri Povince. In the cards for Angkor: a royalty on that India-ventured Cambodia gold mine by late 2014 or early 2015; also, national oil rights? Finally: teaching and classroom building time with Angkor staff and others to benefit the company's at-arm's-length non-profit ANK Foundation in Ban Lung and the village of Okalla.)

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Thom Calandra

NEVER MISS AN EDITION OF THE CALANDRA REPORT - SUBSCRIBE BY PAYPAL... Thom Calandra is the editor of The Calandra Report, an investment newsletter. He previously co-founded and was founding editor of CBS Marketwatch, one of the world's largest financial Web sites. He also co-founded Ticker Trax for Stockhouse. Thom has a wife and two children, and is based in Tiburon, California. TCR, the newsletter, is a paid report: The Calandra Report for Paypal information. More →

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Thom Calandra

Twitter: @http://twitter.com/thomcalandra

thom.calandra@gmail.com

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