Opportunity, Stock Thoughts: VLL, ORE, COAL

Opportunity

Assuming you are still in high school. What if your parents would request you to move heavy pots of flowers from the backyard to the front yard in the Morning and at noon you are tasked to move the same heavy pots back to the backyard? You are to do these tasks every day. How would you react to it?

Would you complain?

Or

Would you just do it?

Or

Would you innovate? Use a wheelbarrow to make the task easier.

Or

Would you innovate and attempt to eliminate the task by knowing the objective of their request? You put a net over the flowers since the objective of moving the flowers is to avoid direct sunlight.

The world is full of circumstances that you can complain about. Why not accept the world as it is and exploit the opportunities that it presents?

 

VLL

Made a quick glance on VLL here:

https://fundamentalenthusiast.wordpress.com/2013/02/11/quick-glance-vista-land-and-lifescapes-inc-pse-vll/

I will post more “quick glance” stock coverage rather than the usual comprehensive stock reports. Comprehensive stock reports will still be posted weekly.

Thanks to a reader for the heads up on VLL.  He gave me A LOT of ideas and will try to cover it all. 🙂

 

ORE

ORE on the rise?

More on ORE here:

https://fundamentalenthusiast.wordpress.com/2013/01/04/oriental-peninsula-resources-group-inc-pse-ore/

Be aware that nickel prices are mainly driven by demand from China. When China sneezes, nickel producers get sick too.

 

COAL

COAL up on news that it is accelerating commercial production:

http://www.bworldonline.com/content.php?section=Corporate&title=Commercial-start-advanced&id=65652

Extraction of coal requires (Certificate of Compliance) COC from DOE and Environmental Compliance Certificate (ECC) from the DENR. Currently COAL COC is at exploration. In order to extract commercially, COAL has to get COC for development.

DOE granting that COC might be a good catalyst for the market to value COAL at P1.35.

More here:

https://fundamentalenthusiast.wordpress.com/category/stock-ideas/coal-stock-ideas/

 

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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.

Everything About Philex

Philex Mining Corporation (PX) was incorporated on July 19, 1955 and went public on November 25, 1956. The company derives its revenues from sale of gold, copper, silver, and petroleum. Gold, copper, and silver contributes 96% of the Company’s revenues net of marketing charges through their operation of Padcal Mine in Benguet. Petroleum which provides approximately 4% of the Company’s revenue is sourced from their interest in the Galoc oil field through their interest in Philex Petroleum Corporation. Below is the Company’s corporate structure:

PX’s Padcal Mine in Padcal, Tuba, Benguet Province produces copper concentrates containing copper, gold, and silver.  The Company has an existing long-term gold and copper concentrates sales agreement with Pan Pacific where at least 60% of the total annual production is committed since 2009. The uncommitted balance was subject to a contract with Louis Dreyfus Commodities Metal Suisse S.A. The value of the shipments is initially determined based on prices during the final quotation period.

The final quotation period for gold and silver is one month after month of arrival in Japan while quotation period for copper are two months after month of arrival in Japan for the period April 2010 to March 2011 and three months after month of arrival in Japan for the period April 2011 to March 2012.

Padcal mine is covered by two mineral production sharing agreement (MPSA), MPSA 156-2000-CAR and MPSA 276-2009-CAR valid up to 2025 and 2034 respectively.

As of December 31, 2011, the Padcal Mine’s mineral resources and proved reserves are estimated as follows:

In August 2011, the economic life of Padcal Mine was extended to year 2020 from 2017. A total area of 13,729 hectares within the municipalities of Tuba and Itogon in Benguet is covered by the following mining agreements:

The Company spent P324.2 million and P271.7 million in 2011 and 2010 respectively for environmental compliance.  The Company and its subsidiaries have been consistent winners in environmental contests. Padcal mine has been ISO14001 Certified since 2002 for Environmental Management System and won several environmental contest namely, Best Mining Forest first runner-up in 2010 and 2009, and champion in 2008, 2007 and 2011[1].

The Company is currently exploring and developing mine sites which is done internally or through drilling contractors incurring P2.022 billion, 1.246 billion and P855 million for 2011, 2010, and 2009 respectively.

The Silangan Project which is owned by the company through Silangan Mindanao Mining Co., Inc. (SMMCI) covers Boyongan and Bayugo deposits in Surigao which are currently under pre-feasibility stage. Anglo American Exploration (Anglo) completed a prefeasibility study of the Boyongan deposit in December 2007 and concluded the project to be not feasible which PX disagree. In November 2008, Anglo offered to sell their 50% interest in the project. In February 2009, Anglo’s interest in the project was purchased by PX for $55 million.

As of August 5, 2011, Boyongan and Bayugo which is covered by MPSA-149-99-XIII (to expire on 2024) and EP-XIII-03 Lot-B located in Surigao de Norte has the following estimated mineral resources:

In May 2011, the Company executed a Farm-In Agreement with Manila Mining Corporation through the purchase of 5% interest in Kalayaan Gold-Copper Resources Inc. (KGCRI) for $25 million[2] where the Company should conduct exploration activities in the Kalayaan properties (adjacent to Bayugo deposits) for three years. Should it declare commercial feasibility within the period, PX will have the right to increase their holdings in KGCRI to 60%.

Other mining projects of the Company that are at advance stages are the Bulawan mine in Negros and Sibutad mine in Mindanao. Bulawan mine and Sibutad mine operated on 1996 and 1997 respectively and both ceased their operations in 2002 due to unfavourable metal prices. As of December 2011, the Company is contemplating in reopening the Bulawan mine and conducted diamond drilling to come out with a resource estimate. Sibutad mine which has a remaining resource of 17.1 million tonnes with 0.84 g/t is temporarily at standby due to the standing open-pit ban in the province that they are operating.

Another source for revenue for the Company is the sale petroleum. Petroleum revenues came from their ownership of Philex Petroleum Corporation (PXP) which has a minority interest in Galoc oil field. An interesting business development for the Company is the commencement in commercial operation of their subsidiary Brixton Energy & Mining Corporation (BEMC) in 2010. BEMC previously engaged in buying coal products from small producers and selling it by bulk since 2005.  On January 16, 2012, BEMC entered into purchase agreement with Republic Cement Corporation for the delivery of 50,000 MT with a base price of P3,200/MT. On May 21, 2012, PXP expressed their confidence to be able to sell 100% of BEMC’s output of 100,000 MT of coal and plans to expand operations through bidding for the six coal blocks near existing Brixton coal project. [3]

Other Data

Source:
1.   “MINING FOREST PROGRAM REFORESTS 88% OF DISTURBED MINING AREAS”; http://www.mgb.gov.ph/art.aspx?artid=320
2.   “Agreement with MA for exploration and development of Kalayaan Project; Lifting of trading suspension” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3577_PX.pdf
3.   Clarification of news article: “Philex expects to sell off full Brixton output” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3916_PXP.pdf

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