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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