Archive for Coke

Mongolian Coal plan to Suppy the two Koreas may be a “boutique” market at best

Some news reports with grand headlines look more like political posturing than great commercial breakthroughs. What is the full story behind a press release?

This is the latest headline grabber, “Mongolian Coal Firm Signs Four-Nation Deal Including North Korea”.

The story was picked up by multiple news agencies, including Bloomberg as reported by Michael Kohn http://bloom.bg/1J75rG0

investors may require additional Independant due diligence about the rest of the story.

Here are a few professional observations based on my six years coverage of Mongolia’s railway exporting problems. The essential theme is that “distance matters”.

Getting to the Pacific Ports via the round about Russian connecting eastern Trans SIBERIAN rail route is physically possible. But at the distance involved, it may be a bad logistics route when costs per ton-km are calculated.

Plus, there may be too many SIBERIAN coal mine origins along the long route path to compete with these remote Mongolian origins. In the long run, Mongolian origins at best will likely be a marginal provider. If the route is too long. Is there enough volume to “show the flag”. Yes. Long term profit sustainable? Not unless the rail freight rate is priced as almost a donation.

Why would RUSSIA RZD “donate” scarce track access paths for !omgolian origin shippers that compete for export sales with a siberian mines? Geo-Resource politics might be a complex reason. Who can say?

From a publicity stand point, yes it appears that arranging the circuitous route can be “hailed as a major achievement” as stated to the news media by Batbaatar Bandan, the company’s chief executive officer. “For Mongolia to have four-country cooperation, I think it is historic,” he said at the signing of a memorandum of understanding. Note: this is a MOU. That is not a contract commitment.

The company would sell the coal to Mongol Sammok Logistics Co., a new joint venture between South Korea’s Sammok Shipping Co. It is also an arm of the Mongolian government says one source.

HOW FAR?

The coal has to moved more than 4,000 kilometers (2,500 miles) by train to the North Korean port in the city of Rason, via Russia. And then it has to rely on friendly rates and reliable train operation between the North and South Korean governments in order to cross North Korea into South Korea Sounds a bit risky.

Yes, they will likely move a trial load. But that proves little about long term reliable and sustainable route profitability. The shipper, Sharyn Gol, claims to reporters that it is “in a position to export several hundred thousand tons of coal per year.” From a due diligence view, that is a rail volume “niche market”.

Some claim a possible annual volume at some unknown future time of perhaps 300,000 metric tons of exports a year. But there is no pricing agreement yet.

Investors should probably check for “the rest of the story”. ———

The alternative is to take up the Chinese offer to use the China rail network via the Mongolian southern proposed rail gateways to reach the CHINESE Pacific ports and then use ocean barge or ocean ship to reach the Korean markets. That commercial offer was made almost a year ago by China and as of this point in the summer of 2015 appears “dead in the water”. There were limits I believe as to which rail inland gateways could be used, but all of the southern routes out of Mongolia are far shorter to reach the Pacific ports versus going through RUSSIA.

And distance does matter as a logistics cost. The Mongolians have collectively as a nation been wrestling with this rail access issue for almost a decade.

More evidence — This from PwC — of the global resource mine slowdown

Management consultants PwC have published another report about global trends in the mining industry.

Mine 2015 examines the 40 largest mining companies in the world.

Here are some tidbits.  Those 40 companies as a group are market valued today at about $800 billion. That represents a halving of their value calculated four years ago.

The report has the interesting name “The gloves are off”.

Pone take away is the mining Shareholders are literally “ticked off” about the estimated $27 billion in corporate write offs because of poor investment decisions made by overly aggressive managers between 2006 and 2013.

Under pressure from shareholders, many of the top 40 companies cut capital spending 20% in 2014. Many of the so called greenfield projects are the ones taking the biggest hit. The company exploration budgets have been particularly cut.

Over the last 2 years, “the majors cut back their exploration spending by more than half to about $4.9 billion in 2014. The drop was from about $6.3 billion spent in 2013 and $12 billion spent in 2012. This is consistent with trends reported by multiple otyerbnewscsources.

The report makes note that the so called junior miners in this list of 40 has witnessed the worst in terms of their ability as a market group to raise greenfield exploration capital.

Obviously, many of the supporting rail and port projects have also been hurt, suspended, or dropped.

Contact PwC for more details.

More evidence of Mounting Risks to Keep Africa Growing

Still largely a very poor region, Africa faces economic hurdles is its hopes for growth

A Bloomberg report on 2 June shows evidence that African nations are facing mounting risks as they seek to extend two decades of stellar economic growth.

Stellar but uneven.

To read the entire Bloomberg report, go to http://bloom.bg/1RHYdJ

 

Here are some important points for my associates in the African rail industry.

In May The International Monetary Fund lowered its 2015 growth outlook for sub-Saharan Africa by 1.25 percentage points to 4.5%

Based on multiple sources of evidence, economic growth in both Nigeria and South Africa is clearly slowing. “Sustaining Africa’s growth is going to prove increasingly challenging,” says Peter Attard Montalto (an economist at Nomura International Plc in London) in a conversation with Bloomberg reporters. Montalto points out that “competition for trade and investment within the continent is increasing. All countries will need to step up their game.”

THE NEED TO STEP UP THEIR GAME

Are the key government leaders, policy makers and company executives from companies meeting at this week’s World Economic Forum in Cape Town paying attention?

The forum will discuss growth in the context of a continent where 72% of the Sub Saharan population still lives in or at the brink of poverty (UN data). In numbers, that is a staggering 585,000,000 estimated souls.

IF (actually very likely) global commodity prices remain low or worse even decline further — then the African governments will have to go increasingly to a Plan B government budget cut approach. Most are not use to that tactic.

On the positive side, There is still selective growth in Africa.

Ernst & Young released a report to the public this week that shows Africa attracted $128 billion in foreign direct investment during 2014. That marked an increase year over year. However, the number of projects dropped by 8.4%.

On the negative side, a large number of mine and rail and port projects are on hold. Many indefinitely. My readers and clients have discussed this pattern before. Tonight’s report is just another confirmation of the pattern.

Where and on What?

E&Y found that 44% of the investment went to projects in the real estate, hospitality and construction industries 25% went for oil, natural gas and coal 9 of the world’s 15 fastest-growing economies are in Africa

SLOWING INVESTOR CONFIDENCE

EY surveyed more than 500 business executives in 30 countries Growth could slow they felt because of a combination of factors

Those identified include: 1) Africa’s political instability, 2) Corruption 3) Poor security 4) Lack of infrastructure including transport and electricity These plus a scarcity of skilled labor are the biggest deterrents to investors.

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What will come out of this week’s forum?

What leaders will leave with a sense of urgency and change?

Stay tuned and we can discuss later when more facts emerge.

Sent from Jim’s iPad

Long term ten year challenge of lower iron ore prices for rail planners

From Mongolia to South Africa and Brazil to West Africa the “go go” former strategic outlook for big new rail and port projects that bet on iron ore NEED SERIOUS DUE DILIGENCE rethinking.

This is an economic message I have been beating the drum about with my customers, friends, and readers for the past three years.

Only the strongest and lowest cost per ton-km railroad supply chains will be the sustainable economic competitors if the Citigroup strategic projections are correct

That translate to big train heavy axle technology if you as a rail and port logistics chain want to be winners going forward. Who is up for this challenge? ————-

From a Bloomberg report on May 26, 2015 “Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup Inc.”

This independent due diligence estimate marks a long-run price forecast for the raw material by 32 percent.

To read the entire article, go to http://bloom.bg/1PLH5Fs

Here is below added background from a multiple of sources on this subject from my previous experience and files.

1) Global iron ore demand will contract as steel consumption growth in China peaks over the next decade according to Citigroup Inc.

2) The long-run deliver iron ore price estimate was cut to $55 a metric ton from $81 as the world’s major mining companies will add overtime to the global over supply. The expert prediction is by analyst Ivan Szpakowski. He suggests that from 2016 to 2018, prices may average $40.

3) SUPER CYCLE REVERSE “The next decade is shaping up to be a complete reversal of the past decade,” Citigroup said.

4) Marginal higher cost per ton producers and supply chains are the ones most threatened In this commercial scenario, the marginal producers will likely falter Small train higher operating cost railways won’t cut it in that kind of global competition shift. This will particularly impact planners who continue to hold onto rail design plans that use light weight less than 33 metric ton axle loads and short trains.

As one specific example, Mongolian Gobi rail planners need to wake up and adjust to a Plan B big train engineering design that some of us suggested in 2006. Twenty five or less tons per wagon axle just will not get the job done against stronger global supply chain comoetition.

5) “Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability,’ the bank said. ‘ ‘As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s.’’

6) New Growth Predictions out towards 2025 Demand for seaborne iron ore in China will likely slump to 982 million tons in 2025 That marks a decline from the revised expected high market demand that will likely peak around an estimated 1.2 billion tons in 2020 according to this Citigroup forecast.

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Long supply chains feeding ore towards China and India by seaborne delivery to ports by rail will over the next decade see a drop over the period.

7) In the short term, prices for the ore at a 62% content at Qingdao will likely see periods of up and down movement. As an example, iron ore recently was paying around $47 a dry ton in April for delivery but then rose to about $63 a ton this week reports Bloomberg. Most suppliers need to get paid more than $90 in order to be financially sustainable as unsubsidized iron ore businesses.

THE STRONGEST MAY PROSPER. OTHERS WILL STRUGGLE

‘‘The two lowest-cost producers per ton of iron ore are Rio Tinto and BHP”… Other sources like Goldman Sachs have previously reported this. These two giant mone companies have a pipeline of extremely low-cost mostly brownfield capital projects “that should see their combined production exceed 900 million tons by 2025”. These two source suppliers would under these calculations account for “roughly 70 percent of global import demand,” Citigroup predicts.

For the other 30%, including a big chunk from VALE, the other grand projects may struggle to see if their logistics chains can compete.

This fundamental predicted market demand and supply model means that a bunch of rail and port blueprints around the world “need a Plan B”.

Are they holding or to their old Plan A or adapting?

Those who reach out for help and change will be the ones to prosper.

What do you think?

Sent from Jim’s iPhone

More than 60% of megaprojects mines face cost overruns –. LIKELY for rail also

WHERE IS THE DUE DILIGENCE on these ambitious project feasibility cost estimates?

This was a timely report on the internet business news

A 60% rate of large project cost over runs reported from a after the fact due diligence review.

What executives were “watching out for the investors’ interests”?

Where was the pre-project due diligence review?

As exuberance over China “go-go” growth cools down now to more realistic levels, some formerly free wheeling mine executives are probably going to be reassigned or worse.

Likely a similar fate awaits many project rail planners.

The cited EY study below is not focused on the supporting railway projects. But this significant mining failure implies similar rail project cost over run impacts from Mongolia to South Africa and from Mali to India.

Mongolia’s rail plan execution failure out of the Gobi Desert TT fields is probably a close parallel to this report’s conclusions. Almost now a decade in only partial construction, the Mongolian project is a similar “failure to execute” on time and on budget. But here, the blames rests on government rather than executives.

MASSIVE MISS IN ESTIMATING THE TRUE PROJECT COSTS

How can so many screw up so badly?

COSTS as identified in the EY evidence were on average 60% or more over the initial predictions.

Who did the original diligence checking?

Where was the investor/banking over sight?

60% is what most of us who are economist refer to as the conceptual level accuracy of costs. That is terrible for an actual post project delivery audit..

60% is a flunking grade if judged logically.

60% suggests that there was never a serious project feasibility assessment of the market and economics.

Will this lesson learned be used by project leaders going forward now that feasibility may be even more difficult if the resources super cycle is behind us?

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The report title is: ‘Opportunities to Enhance Capital Productivity’

Here are a few highlights.

1) EY found that “an average budget overrun of 62% was reported on the 108 megaprojects investigated.”

2) “The projects considered were at various stages across the investment and project delivery life-cycle.”

3) “The projects were geographically diverse and related to the development of copper, iron-ore, gold, coal, nickel and other commodities.”

4) Cumulatively, “the projects represented global investment of $367-billion.”

5) “An estimated 50% of projects were reporting schedule delays even after remedial acceleration initiatives had been applied.”

The study spokesperson at EY is its global mining and metals advisory leader Paul Mitchell.

Mine company leaders now admit to their shareholders that with the good old high growth China days behind them… … the project managers need to be much more precise with their due diligence in order to achieve the promised investment margins. There is now a lot less room for error.

The report cites that total capital expenditure for the subject projects examined “have dropped from $142-billion in 2012 to an estimated $96-billion this year”.

For more details, please go to the Mining Weekly report from an Earnst Young special study at: http://www.miningweekly.com/article/more-than-two-thirds-of-megaprojects-face-cost-overruns-ey-report-2015-05-21

How would you score the report card based on the E&Y report?

Sent from Jim’s iPad

INNOVATIVE TECHNOLOGY EXTENDS RAIL Heavy Haul BRIDGE LIFE

This business case story below represents very innovative use of inexpensive smart technology to determine cost effective rail bridge capital budgets. Published case study in ASLRRA’s Tech Tracks –  “Short Line Railroad Saves CAPEX Funds with modern bridge stress and strain monitoring structural technology”

The Indiana Rail Road engaged an engineering consultant to provide a calculated load rating for a 100 year old multi-span bridge located in southwest Indiana. After a thorough visual inspection and a load rating analysis that uses AREMA visual inspection guidelines, the bridge was rated as unsatisfactory for the intended live loads. Report recommended rehabilitation of a number of main steel girders to achieve the required load rating. The consultant also suggested train speeds be reduced from 40 mph to a maximum of 10 mph.

Indiana Rail Road estimated the cost of the rehab to be approximately $2 million dollars. This bridge had been providing its customers with heavy axle freight service (32.5 metric tons per axle) with profitable revenues to the rail company. A critical business issue.

Indiana Rail Road asked for a second due diligence opinion.  Working  with Parsons, LifeSpan from Atlanta installed approximately 12 of its unique sensors on key structural elements. Next, the railroad ran known loads across the bridge to calculate a load rating based on actual structural response instead of just visual inspection. Data was collected on each run and the sensor peak channel manually re-set between runs.

DATA CAPTURED:

The technology  captures both compression & tensile displacements/strain

Can measure up to 11mm of displacement (up to  95mm with special sensor)

With a resolution of 3 to 4 micron range (average human hair is 80 microns)

Capture crack width/propagation, displacement/strain, out-of-plane bending, deflection

Captures peak strain data without power source

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RESULTS showed total stresses where within the allowable limits (AREMA).

The business lesson is that the use of advanced condition sensor technology can make a huge financial difference in a railroad’s capital budget.  In this example, $2 million.

Is your railway using this scientific approach to optimize your engineering budgets yet?

Using modern sensors to measure bridge risks

Using modern sensors to measure bridge risks

International Railway Journal features my commentary on investment trends in mineral-related transport projects

My commentary, “Emerging market mineral railway boom isn’t set in stone,” appears in the September 6 issue of International Railway Journal. It’s on their website here.

My bottom line is that rail projects might get delayed as investors lose their interest in transport projects related to mineral resources.

What do you think?