China coal miner Blackgold International (ASX:BGG) has had a stellar year with coal production hitting a record of 1.3 million tonnes for the nine months ending 31 July 2013, 35% higher than same period last year.
Importantly, Blackgold sells all its thermal coal internally within mainland China where demand for Blackgold’s product is still healthy and its proximity to the Yangtze River allows it to transport coal to customers at low cost..
In fact, Blackgold sells the majority of its coal to major power generation customers in Shanghai, where existing demand is for more than three times the amount of coal that Blackgold can produce.
On our estimates, we believed the company earned between A$40-$44 million for the nine months.
It currently owns four existing underground thermal coal mines, the Caotang Mine and the Heiwan Mine in Fengjie Country, Chongqing, the Baolong Mine in Wushan County, Chongqing and the Changhong Mine in the area bordering Xishui County of Guizhou and QiJiang County of Chongqing.
A key financial advantage for Blackgold is the strong logistics infrastructure and its proximity to the Yangtze River which enables it to transport coal to customers at low cost.
So it is not a surprise that Blackgold does not see any clouds on the horizon.
Blackgold's trading arm also had a healthy year selling 1,986,800 tonnes of coal for the nine months ending 31 July 2013, an increase of 326.2% compared to the 9 months ended 31 July 2012.
China’s coal industry has traditionally been fragmented among large state-owned coal mines, local state-owned coal mines and many thousands of small scale town and village operated mines.
These smaller mines are regarded as inefficient, with minimal capital, outdated equipment and poor safety records. During the past several years China has closed down between numerous small coal mines in an effort to consolidate the industry, increase efficiency and promote acceptable safety standards.
So despite a generally weakened demand for coal in FY2012 in traditional markets, coal demand in Chongqing is still strong due to the shift of manufacturing firms into interior regions. This creates added demand for coal in these areas that includes Chongqing.
Singapore Stock Exchange listing
Blackgold is aiming for a listing on the Singapore Stock Exchange for the end of 4Q 2013 to add to its Australian Stock Exchange listing.
The listing in Singapore should bring additional investors from Asian markets in keeping with the location of Blackgold's coal mines and be a valuation adding event.
Which is all very bullish for Blackgold's future prospects as it is under the radar from many Australian investors providing an opportunity.
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