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Buoyant Coal Market Stokes Up Share Prices, Merger Activity

BUOYANT conditions in the coal industry have spurred some spectacular share price appreciation and merger and acquisition activity in the past year. 

Coal producer and washer Wescoal said last week that the industry was "experiencing the most buoyant market conditions for many years and this is expected to continue in the short to medium term due to worldwide energy demand." 

A week before, black empowered ferrochrome producer Merafe Resources and mining services company Scharrig Mining announced a joint venture, Merafe Coal, to exploit their coal properties in Mpumalanga.
Last year, empowered, diversified mining group African Rainbow Minerals (ARM) also established a joint venture coal company, ARMCoal, with Xstrata. The contribution from coal to the group's headline earnings was relatively small in the latest financial period but ARM expects 76% growth in attributable saleable tons of coal from this investment in the next five years. 

Demand for coal has risen in response to an increased need for energy both locally and globally. Electricity utility Eskom plans to bring three mothballed coal-fired power stations back on line and build another two in Limpopo and Mpumalanga. 

Steel, aluminium and ferrochrome producers have also needed more energy and metallurgical coal. These customers have helped push the domestic price of coal up to the same level producers can realise by exporting . 

But exports are also surging. The Richards Bay Coal Terminal is busy with a R1,1bn expansion programme to increase export capacity to 91-million tons a year by 2009. 

Exxaro , the biggest coal group on the JSE and the fourth-largest producer in SA, listed in November after the separation of Kumba Resources' iron-ore and coal businesses. Its shares have risen from R57,50 in January to a recent peak of R71,50. 

Petmin has almost doubled to 260c from 140c in the past year, while GVM Metals, which took a secondary listing on the JSE at about 250c late last year, has almost trebled to 690c. 

The main factor boosting Exxaro's share price this year was its long-awaited agreement on pricing and terms to supply Eskom's new power station at Lephalele from its Grootgeluk mine. It has also benefited from the recent award of another 2,5-million ton export entitlement through Richards Bay , which will bring its total export allowance to 5,3-million tons a year. 

Petmin has benefited from management's focus on bringing its Somkhele mine into production as well as further speculative interest because the group is engaged in price-sensitive negotiations. Last December it took a secondary quotation on London's AIM, which helped to attract international interest in the shares. 

A series of acquisitions this year has lifted the shares of GVM Metals, listed in Australia, the UK and SA, as it follows a strategy of becoming a significant coal producer. It has bought stakes in the Baobab joint venture, Holfontein, more prospecting rights in Limpopo and Coal of Africa, which owns a project close to the recommissioned Camden power station and the RBCT rail line. 

But there are smaller coal companies that have performed less well. Wescoal, whose share price soared to 130c last October from 70c in midyear, is trading at 69c after its plans to make an acquisition collapsed. 

Yomhlaba, which is undergoing a restructuring, remains suspended. 

Hwange Colliery, which produces coal in Zimbabwe, has lurched between 70c and 999c in the past 12 months, but its shares are influenced by different factors from the other South African coal companies.