Coal miner leads Canadian IPO returns

In a rebound year for Canadian coal, it was no surprise that Grande Cache Coal topped the performance list of companies that made initial public offerings in 2004.

Bolstered by a threefold rise in the price of metallurgical coal, the Alberta-based company posted a 523 percent share gain after going public in May and reaping total proceeds of C$57.2 million.

It easily outpaced the rest of the IPO field, with second place going to Blizzard Energy, an oil and gas exploration and production junior, which posted a 102 percent gain following its late May IPO.

Formed in 2000 to reactivate coal mining in the Grande Cache area of west-central Alberta, the company started production in summer 2004 on leases that cover 37,000 acres.

Contract for 1.3 million tonnes

In mid-December it locked into contracts to sell 1.3 million tonnes of hard coking coal at US$125 per tonne to POSCO of Korea and a group of Japanese steel industry customers.

That deal covers more than two-thirds of its planned production for the coal year starting April 1 and discussions with other steel mills are expected to cover the remaining one-third at similar prices.

Further reinforcing the outlook was word in December that BHP Billiton Mitsubishi Alliance finalized pricing into Brazil at US$125 per tonne for high-grade coking coal, up 116 percent from a contract BHP reached a year earlier. (BHP has also announced plans to double its worldwide capacity to 100 million tonnes a year by 2010).

Some analysts are now forecasting prices of US$110-$130 per tonne for the 2005 year, which Fording Canadian Coal Trust President Jim Popowich said are beyond his "wildest dreams," considering the prevailing price of US$45 a tonne when the trust was formed in 2003.

Fording units have recently been hovering around C$90 on the Toronto Stock Exchange, about a 90 percent increase over the past year.

Some cautionary flags

But some cautionary flags are being waved.

Jim Bartlett, an Odlum Brown analyst, said the tight market is expected to loosen in 2007, while rising energy prices could fuel inflation and trigger an economic slowdown over the longer term.

For now, Popowich said China's demand allows Fording to take a serious look at expansion possibilities or developing a new mine.

One of those options is a reopening of the Quintette mine in northeastern British Columbia that was closed in 2000 by Luscar.

Gary Livingstone, president of Western Canadian Coal based in Vancouver, is encouraged by the fact that new mining companies are no longer relying on inflated-price, long-term contracts, unlike the original approach taken by Quintette which needed heavy government backing for rail and port infrastructure, which many in the industry viewed at the time as distorting the market.

Western Canadian Coal, along with Grande Cache and Pine Valley Mining are among the new players who are giving fresh hope to coal seams discovered as far back as the 1970s.

British Columbia Minister of State for Mining Pat Bell said the new approach is a "huge opportunity" for the province, forecasting that northeastern British Columbia could be producing up to 10 million tonnes a year by 2008, generating 100 direct and 500 indirect jobs for every 1 million tonnes.