JOHANNESBURG (Business Day) -- Shares in junior coal mining companies have lagged behind bigger peers after recent spikes caused by expectations they would benefit from Eskom's call for more coal from the domestic market and buoyant international prices.
Eskom said last month it would need another 45 million tonnes of coal in the next two years to meet electricity demand, compared with 110 million tonnes bought last year.
An analyst said that single-commodity producers had probably benefited a few weeks ago from the good outlook for thermal coal prices in South Africa and internationally.
Since then, though, prices of other commodities such as iron ore, manganese and platinum had risen sharply, giving the diversified producers more resilience to turbulent market conditions.
While Exxaro Resources [JSE:EXX], the biggest listed coal producer, which also has interests in iron ore, has fallen only 10% from its recent peak to about R120.50 last week, most of the junior companies have dropped by as much as 25% to 28% from their 12-month highs.
Old Mutual Investment Group head of resources Anwaar Wagner said investors interested in junior coal producers should look carefully at issues such as the proportion of coal being sold in South Africa and exported, asset quality, management track records and the terms of any contracts with Eskom.
Where a company had a contract to supply Eskom on a cost-plus basis, it would have less leverage due to rising demand than one to supply higher volumes at market-related prices.
Some junior coal mining companies have recently highlighted their challenges, including tackling logistical issues and obtaining licences and offtake agreements.
Silica and anthracite producer Petmin [AIM:PTMN; JSE:PET] is trading about 12% below the 12-month high of 465 rand cents touched late last month, attributable at least partly to expectations of a good financial performance for the year to December.
Petmin said exports had been delayed by power outages, but there was no sign of lower domestic demand and if demand in South Africa for anthracite did fall, it would be diverted to the export market.
SA Coal Mining Holdings, 28% below its 12-month peak of 450 cents reached in October, said last week it had negotiated a three-year offtake deal with Eskom and secured 706,000 tonnes of export allocation through the Richards Bay Coal Terminal. It had also met production targets ahead of schedule. It said it was investing in ways to alleviate logistical risks and streamline the movement of its product.
Coal of Africa [LSE:CZA; JSE:CZA] formerly GVM Metals, is expected to start production at its Mooiplaats coal deposit later this year and said last week it was holding discussions with customers, including Eskom, about off-take agreements.
It was also busy securing logistical arrangements to export coal through Richards Bay and Maputo. Coal of Africa is only 2.8% below its recent peak of R15.75.
Another early-stage coal development company, Miranda Minerals [JSE:MMH], is trading at about 114 cents, 25% below its 152 cents peak. Miranda is exploring coal properties in KwaZulu-Natal and awaits permission for a licence conversion enabling its joint venture partner, Ihlosi Mining, to mine coal and anthracite at Sesikhona Kliprand Colliery.
Wescoal [JSE:WSL], the AltX-listed coal producer, is trading under a cautionary. Its shares are at 95 cents, 14% below October's peak of 110 cents.