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February 8, 2011 Dear Friend,
Our motive is to
study possible values of the many billions of tonnes
of coal reserves and resources held by the Big Six
diversified mines, and refine our valuations of
them. While the Big Six diversified mines trade
near ten times earnings, their resources are vast as
well. For example, Xstrata holds about 205 mmt of
copper resources and about 40 billion tonnes of coal
resources. We estimate Teck has 4 billion barrels
of bitumen and 8.6 billion metric tonnes of mostly
metallurgical coal. Our sense is that the very
large mines are undervalued in relation to their
asset bases.
It is impossible
to arrive at a simple rule of thumb for coal
resources, comparable to $0.12 per lb for copper
resources in the ground, because of dozens of unique
attributes of coal properties.
We estimate
Massey Energy sold for $3.45 per tonne of coal
reserves, while it did not publish resources. Rio
Tinto paid $0.33 per tonne of coal resources for
Riversdale Mining, which was less developed and
located in Soth Africa and Mozambique.
For the time
being we will value coal resources at about 1% of
expected revenues, or about $2 per tonne for
metallurgical coal and $1 per tonne for thermal
coal. We expect 100% variations from these
parameters owing to specific characteristics of
particular individual mines.
Faithfully,
John C. Tumazos,
CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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