Goldman likes underground coal

GOLDMAN Sachs JBWere views underground coal mining as favourable to open cut mining in light of proposed carbon emissions policy and environmental factors.

Blair Price

Detailed in an investment research report, Goldman weighed in on Centennial Coal.

Despite having a “hold” rating for the company’s shares, Goldman can see Centennial inevitably shifting more to export markets for its thermal coal and also sees repricing potential in its domestic contracts.

Goldman even entered the open cut versus underground mining debate.

“We also favour underground coal mining methods from a structural unit cost basis as higher energy prices make underground mining more competitive versus open cut operations,” the firm said.

“We think underground operations could potentially benefit from both carbon emissions and environmental factors versus open cut operations in the future. Centennial’s skills in underground mining represent some hidden value.”

Earlier this year, GeoGas chief reservoir geologist Joan Esterle discussed with ILN the technical challenges of calculating carbon emissions in open cut coal mines, which include detecting and accurately measuring small gas volumes.

Another challenge was the assignment of gas content to “non-coal” stratigraphy and determining when or which rocks contained no gas and at what depths.

Last month Macarthur Coal chairman Keith De Lacy criticised the impact the proposed Carbon Pollution Reduction Scheme would have on the company’s competitiveness and viability.

Open cut coal mines haven’t had to test for gas emissions before, with De Lacy saying Macarthur couldn’t measure or capture emissions yet.

But Goldman gave Macarthur shares a “buy” rating due to its expectation of a possible spike in pulverised coal injection coal prices in 2010.

Whitehaven Coal was also given a buy rating, based on the PCI coal expected from the upcoming North Narrabri mine.

The broker placed a hold rating on Riversdale Mining and said the key for the company’s success was how fast it could market the coking coal from its Benga project in Mozambique.

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