COAL Prospectus At A Glance

Coal Asia Holdings Incorporated (the Company, COAL) was incorporated on June 11, 2012 as a holding company. The Company has only one subsidiary, Titan Mining and Energy Corporation (TMEC) and was incorporated on November 11, 2008.

TMEC is a holder of coal operating contracts (COC) in Davao and Zamboanga-Sibugay. All COCs are not yet in the development phase.

Below is the Company’s estimated resource: [1]

TMEC commissioned an independent mining engineer, Engr. Rafael R. Balalad, to conduct a pre-feasibility study in the Davao Oriental project. The result of this study states that the Davao Oriental has total reserves of 7 MMT, as follows:

In the past three years, TMEC generated revenue through sale of steam-grade coal purchased from small-scale mining conducted in its COC areas in the Zamboanga-Sibugay Project. All of TMEC’s sales were made to local canneries and food manufacturing companies.

Among the three COC that the company owns, the Davao Oriental project is at the most advanced stage. The Company plans to spend 74% of the net proceeds from their sale of 800 million IPO shares to put the Davao Oriental project in development and production phase by second half of 2013. The upgrade of TMEC’s COC from exploration to development and production phase depends on the approval of the Department of Energy (DOE) on TMEC’s work program and feasibility study and issuance by the Department of Environment and National Resources (DENR) of Environmental Compliance Certificate (ECC).[2] In order to mitigate this risk, the Company claims to have continually complied and fulfilled the conditions set by the DOE.

Executive Order 79 (EO 79) which states reforms from the old mining act of 1995 affected mining companies since its signing in July 2012. Although EO 79 pertains about mining, it does not cover coal mining operations as it is under Presidential Decree 972 (PD 972). Rendering coal miners immune from regulatory encumbrances currently encountered by their mineral counterpart.

TMEC claims to have high quality of coal deposits. See the values below:

Strip ratio or stripping ratio refers to the volume of waste materials required to be hauled in order to obtain one cubic meter of resource. In the case of TMEC, TMEC needs to move 10 cubic meters of waste materials in order to obtain 1 cubic meter of coal. The same goes with the Zamboanga-Sibugay operations.

Heating value is the amount of heat that would be produced upon complete combustion of the material. The energy given off is measured in British thermal unit (BTU). A single BTU is equivalent to the energy of one match. One pound or TMEC’s Davao coal is equivalent to lighting 9,500 matches.

Ash, sulfur, and moisture contents in coal affect boiler efficiency. Ash is a non-combustible component of coal. Coal ash consumes heat energy and reduces overall generating capacity of a power plant. The effect of moisture is the same as that of coal ash. Sulfur decreases boiler efficiency because of the need to maintain high temperature to avoid condensation of sulphuric acid that results to corrosion of power plant equipments.

To place the figures in perspective, Semirara Mining Corporation (SCC)’s coal quality are as follows:[3]

The Company believes that they have the advantage in coal quality in the domestic market particularly in the Zamboanga-Sibugay project which can be sold in raw form.

TMEC entered into a memorandum of agreement (MOA) with Huanzhou Fuyang Gaoquiao Thermal Power Plant Co. on January 28, 2010 where TMEC agreed to deliver 50,000 MT of coal every month or 600,000 MT per year. The delivery schedule will commence in January 2014.

Comments:

Assuming that the coal prices will not go below P3,000 / MT, the Company is bound to earn P1.8 billion revenue in 2014 and a profit of approximately P540 million [1.8 billion x 30%] assuming that TMEC will have the same profit margin as that of SCC’s coal operation. Current reserve only allows five years of commercial operations however, the management expects to realize the potential deposit feasible for extraction.

Note/Sources:
1.   There are two classifications of mineral deposits, namely: Mineral resources which are reasonable prospects for economic extraction and Mineral reserves which are valuable and feasible to extract.

The Company presented mineral resources estimate, mineral resources can be sub-classified as:
I.   Indicated resources are estimates that can be relied on at a reasonable confidence.
II.   Measured resources are acceptable estimates that can be relied upon at a high degree of confidence.
III.   Inferred resources are estimates that can be relied upon at a low level of confidence.

Mineral resource classification,
http://en.wikipedia.org/wiki/Mineral_resource_classification

2.   Coal Model Contract,
http://www.doe.gov.ph/PECR4/coal/coal%20operating%20contract/COAL%20MODEL%20CONTRACT.pdf

3.   Semirara Mining Corporation Coal Product,
http://www.semiraramining.com/CoalProduct.php

Disclosure: This article is published with the permission of the client. No position in any stock mentioned.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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27 thoughts on “COAL Prospectus At A Glance

  1. I continue to pick up cheap shares on the way down. Especially at 1.02 and 1.03. I am looking for big things to happen in 2014.

    Reply
    • I agree. They already have a contract signed with Huanzhou Fuyang Gaoquiao Thermal Power Plant guaranteeing their revenues for 2014. I expect them to present a .135 EPS for 2014 assuming there are no issuance of additional shares.

      Reply
  2. You have a very interesting blog, Renzie. Kindly enlighten me on how these big mining company works in the provinces.

    What do you think of a situation like this for example: suppose a big mining company like Titan Mining and Energy Corporation (TMEC) looks for a property in say, Davao Oriental, and offers to buy hectares of land presumably for a pier. They have a deadline to launch by Sept.- Oct 2013. The owners of the property are given intent to buy and consequently a draft of the absolute deed of sale for full payment. Clean titles have been prepared as well as requirements for certification of land transfer. Confident that the negotiation is about to be sealed, the owners are suddenly offered a verbal negotiation of settlement within a span of 4 years, with a flimsy excuse that they cannot pay in full at the moment. Is four years a fair offer? Even in the midst of the “negotiation”, the owners find out that these reps have also gone elsewhere trying to convince another property owner on a lease contract in a nearby alternative site, without so much as a notice, courtesy or respect. Is this a standard procedure?

    What does that make of the company? Do they really have investors? Or are they trying to haggle a cheap deal out of the owners? And considering the life span of mining projects, what would you have done if you were the property owner left hanging in the most dubious negotiation? I would very much like to know your very honest and straightforward opinion on this. Thank you very much.

    Reply
    • Hello very curious,

      In my opinion, the seller of the land should not agree on anything that is not in writing to avoid disagreements in the future. Anything that is not in the contract will not be enforceable by law.

      Regarding the ability of COAL to settle real estate purchases, COAL expects to be in commercial operation in September 2013. Currently COAL has no substantial cash flows thus COAL’s financial capability depends on:
      1. DOE granting them the rights to proceed in commercial operations
      2. COAL’s reserve to last more than 7 years (current reserve will last only for 7 years)
      3. Price of coal

      If I am the property owner, I would rather enter into a lease agreement not more than 5 years for the following reasons:
      1. My idle (if idle) property will be utilized
      2. There is no transfer of ownership and risk of default will not matter
      3. COAL will have the capacity to pay within 5 years

      All in my opinion.

      Regards,

      Renzie

      Reply
  3. Good Day Sir ! I’m currently holding COAL shares right now and I’m beginning to worry why there is no press release of their anticipated production this October…and recently JTKC equities have bought COAL to include in their portfolio…and I’m thinking if Tiu Family have the credibility to really mined this out…also they have already spent 350 on the equipment and infrastructure according to PSE disclosure…If they extend the opening by Nov. what would investors think of their upcoming DICOVERY IPO…

    Reply
    • Hello,

      COAL is still waiting for the approval of DENR to convert their coal operating contract (COC) for EXPLORATION to COC for DEVELOPMENT. They are expecting it to be on this year. Investors like you will have to wait for that news. 🙂

      With regards to COAL management, I am not in the position to judge them because i dont know them.

      With regards, to their discovery ipo, i have not read their prospectus.hehehehe

      Regards,

      Renzie

      Reply
      • Thanks a lot Renzie, very valuable insight indeed. I initially thought that COAL Management is not that serious in bringing the mine up…I’ll wait it out for COC Dev. since knowing how our Govt works…

        Also, I really like your point of view of stocks..for me fundamental approach is still the best way to value a stock…

        Thanks again, More interesting insight and god bless !

        Btw, I’m trying to look up for any LRI/HLCM insight on your blog. 🙂

  4. It takes someone from the inside to know the real picture of how COAL is doing at the moment; bottom line is, COAL can’t produce even a thousand tonnes of coal even by mid 2014 and I can prove it.

    Reply
    • Hello,

      thanks for the info. I am only depending on publicly available information. Currently, they are prohibited by law to exploit the coal deposits covered by their license. what they are doing now is buying the coal produce of small scale miners in the area which is understandably small.

      My comment on their reserves is that it would only last for 7 years, assuming no new deposits are discovered.

      renzie

      Reply
  5. COAL’s permit to buy & sell coal from small scale miners in Zamboanga-Sibugay area was stopped and suspended by DOE months ago, and this can easily verified from DOE, so practically COAL is not earning for months now. Their Exploration permit for Manay, Davao Oriental (COC 159) expired last September 15, 2013 with no extension granted by DOE, so any exploration activity by COAL in Davao Oriental at the moment is deemed illegal.
    Two things are needed for a mining company to go into development and production, namely 1). Economically viable ore reserve and 2).Permit for Development & Operation. Only DOE can issue this permit to COAL, however certain requirements have to be complied first by COAL before it can get the development/operation permit from DOE and this is the reason why COAL can’t start their development phase even by mid 2014.

    Reply
    • Hello Renzie and Acer… I guess that answers my previous question on why they didn’t pursue buying our property in Davao Oriental, despite a show of legal papers and documentations prepared since last year. I wonder what “explorations” they did in those months of going over our property presumably for “samplings” and study. I hope our governor is aware of this. Several mining companies are coming in, we don’t know which are legit with sincere intentions.

      Reply
      • Thank you acer for the information! the information you shared were not available in their SEC filings (i did not read in the news either) it would surely benefit COAL investors or those who are planning to invest in COAL. 🙂

        Thank you Jojie for corroborating the information. 🙂

  6. Hi Acer, you’re info are hard facts…if that is true, Tiu Family name is on the line here? Do they really care sa mga stockholders nila ? it seems TKC is not earning as well. They should stop the DISCOVERY IPO then ? they are milking the investing public for years…Mukhang malakas ang Tiu kay Hans Sicat !!!…would you mind emailing me the details of COAL in brickroad_088@yahoo.com….Salamat sir

    Reply
  7. One needs only to buy a ticket from manila to Davao city, (take the evening flight so you can stay overnight in the city) and for 7k pesos you can hire a 4×4 vehicle (you’ll cover the fuel) and drive all the way to San Ignacio, Manay, Davao Oriental (a good 3 hours drive on concrete roads if you start at dawn), from San Ignacio take a 15kms drive to Bgy. Old Macopa (30 minutes) on gravel road and there at bgy Old Macopa you can see for yourself the ‘grand minesite’ of COAL, where the company is trying to prop up the image of the company in the media. You can see for yourself the condition and latest works of COAL. People there are hospitable, mostly of Mandaya tribe (indigenous people) so you can ask them whats the latest and you’ll find out the REAL TRUTH to this much published DISCOVERY IPO. If you’ leave Davao at dawn you can be back before 5 pm to take the 8 pm flight back to manila. Good luck. -BTW Mr. Impatient, I’ll email you the details soon. – Acer

    Reply
    • Hi Acer, this is becoming interesting…If I have known you 6 months ago…I could have save money and have a vacation in Davao as well…the public should know the real score about COAL…Well the PSE should also investigate if the real money disbursement is really going to the project…This is People’s Money !!! Janet Napoles is a stockholder of TKC Steel saw her name in the 100 top stockholder list for mar. 2012 or 2013…(can’t remember)…I have a wild speculation that the MONEY in the IPO of TIU’s is being used by STERLING BANK to bankroll their finance on personal lending and others..while the investing public wait in the air…saw the DISCOVERY IPO it says there that YOU HAVE TO WAIT FOR 2015 before everything will be in production..(AGAIN)….what a way to bankroll those 500m…

      Reply
  8. That’s precisely the reason why I’m spilling the beans about this scam of COAL. If you want to expose this to the gullible public investors before they sink their hard earned money to COAL, I believe you have to bring in the media and environmental groups i.e. Gina Lopez or the Ateneo group. However, you can’t just finger point to the top management of COAL, all the activities of Titan Mining and Energy Corp (TMEC) are controlled by the VP-Exploration Mr. Enrique Payawal and his Geographic Information System (GIS) Manager Ms.Gizela Gonzales. and technically speaking are the ones responsible for the data/information needed by the top honchos of COAL for them to announced these incredible assumptions about TMEC’s coal resources. One should ask this question; ” How can they have this additional discovery of coal deposit when their Exploration permit for COC159 in Davao Oriental expired last September 15, 2013? where did they get their latest data?”. Your guess is as good as mine, and since I’m still working for the company, I can only ‘leak’ these info.

    Reply
    • I am not sure if they had announced any “additional discovery” after Sept. 15 2013.. but if they had done so, that doesn’t mean they had continued their “exploration” beyond the said date.. please understand that after drilling, obtaining and transporting the core samples to a lab may be time consuming, you add that to the processing, interpreting and analyzing of the log data may take weeks or maybe months..

      Reply
      • I told you mr. impatient, there’s simply no mineable coal in the area, yes there is coal deposit but mineable at a profit? there is simply no way. It is the responsibility of the VP for Exploration & mining, Mr. Enrique Payawal and the GIS Manager, Ms Gizela Gonzales to disclose the TRUE COAL RESOURCE of the property. Top management relies heavity on these 2 persons when it comes to determining the real coal resource of the company. Any problems with regards to obtaining development/operation permits can be resolved, but if you don’t have an economically mineable coal reserve, then no amount of coverings/excuses can ,help COAL. It’s only a matter of time that the investing public will know the real picture that they were taken for a ride. tsk tsk tsk.

  9. eds, you go to the area Sitio Sagasa Dos, Bgy. Old Macopa , municipality of Manay, Davao Oriental and all the people there will tell you that COAL was able to continue drilling and completed an additional nine (9) drillholes averaging 120 meters from Sept.15 to first week of November. So this is basically a ‘breach’ of exploration permit. How can COAL continue drilling beyond September 15, 2013 when their exploration permit expired last sept. 15, 2013 . I don’t if this drilling activity can’t be called ‘exploration’

    Reply
  10. I sold out my shares at .95 , that was when Acer spilled out the info, I’m not against COAL Management but they should disclosed an update on what is happening , IMAGINE , the press release in FEB and APR and JUNE that everything is on TRACK this OCTOBER and it’s already DEC. going into 2014.

    They owe it to the investing public , well if there’s a delay fine but don’t FOOL people.

    To those holding DWC shares right now, I’m so sorry but I don’t think Tiu Family cares about it’s shareholders. As long as they have the IPO (Other’s People Money) Money and they revolved it around the STERLING BANK . (As most of the IPO Money is on escrow account with Sterling Bank).

    So beware in the future if Sterling Bank will file for an IPO and maybe who knows the JTKC equities also.

    Also, it seems Tiu Family has a lot of inside connection in PSE ( no wonder it’s so easy for them to raise money via IPO I-Remit, TKC Steel, Coal) and look at now their current price from their IPO price.

    NOTE : This is my own personal opinion only

    Reply

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