Coking coal outlook a boon for Carabella

There has been further confirmation in the past few days that when looking at resource commodities, coking coal is the place to be to protect against the softness being experienced by the rest due to euro debt concerns.UBS has upgraded its coking coal forecasts by 3 to 10 per cent (its forecast for the first quarter of next year is $US230 a tonne), citing a combination of labour disputes in the world’s main source of supply, BHP Billiton’s Bowen Basin mines in Queensland, as well as the threat of another big wet there come December, and global production constraints surrounding the raw material.

In addition, BHP’s chief executive for ferrous and coal operations, Marcus Randolph, recently told a steel conference in Paris that BHP was more bearish about iron ore than coking coal. ”Between now and 2020 there is going to be a lot more iron ore supply coming into the market than coking coal and our expectation is that of the two, the scarcer over that period of time will be coking coal,” Randolph said.

Garimpeiro’s interest is what this means for ASX-listed companies with an exposure to coking coal. It is an industry dominated by the big diversified resources groups like BHP, Rio Tinto and their non-ASX counterparts, Anglo American, Xstrata and Peabody.

So while supply growth in coking coal over the next 10 years is expected to be more scarce than that for iron ore, pure coking coal plays on the stock exchange are even scarcer. Rare you might say. That’s why they are constantly said to be takeover targets.

Last year’s coking coal float, Carabella Resources (ASX:CLR), is a case in point.

In recent months the takeover talk surrounding the company has focused on the news that Gina Rinehart’s Hancock Prospecting – which has its own Queensland coal ambitions – had picked up a stake of 0.74 per cent in the company. The announcement by Carabella of the Hancock presence was interesting because it closely followed the resignation of Carabella’s tough but well-regarded managing director, Mitch Jakeman, due to that wonderful catch-all reason of ”irreconcilable differences” with the board.

The only illumination on that was a story on Jakeman’s departure by The Australian Financial Review’s Dan Hall, who remembered that Jakeman was formerly the head of Anglo American’s Queensland coal operations.

It quoted Carabella’s chairman, Andrew Amer, who said: ”[Jakeman] is a serious miner of large multi-site mine operations for a large global mining company and obviously he is used to getting things done, but this is about a management style that is suitable and an interaction with the board.”

Whether, as some suspect, Jakeman’s departure was because he was keen to court offers for Carabella at a time when mergers and acquisitions in the coal sector remained hot, we will never know. But that’s history now, with Carabella announcing last week it had a new managing director, Anthony Quin.

Quin does not have Jakeman’s hands-on experience. However he does have a commercial background which includes 14 years with BHP, the last two as the chief development officer of its coking coal business – the world’s biggest.

Quin reckons that if you want a successful company, you have to have a good resource. He believes that Carabella has that, with its Mabbin Creek project in the northern Bowen Basin, which sits hard up against mines operated by others there with all the attendant infrastructure requirements.

Mabbin Creek has a broad exploration target/potential in the order of 500 million tonnes, but hard numbers on the stock are based on the 95.3 million tonne coal resource outlined to date at the company’s Grosvenor West property.

A concept study into the development of Grosvenor West will be ready in December.

It’s too early to make a call on where this will all end up under Quin, but it is worth noting that one broker who has followed the stock since its listing, Intersuisse, has a ”buy” recommendation on Carabella and a $5.32-a-share valuation post Quin’s appointment. Carabella closed at $1.675 a share on Friday.

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