Overview:
Red Hill is a coal company in Mongolia. It currently has 2 sizable coal projects:
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Ulaan Ovoo, near the Russian Border in the North
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Chandgana Tal/Chandgana Kavtgai, 300km Southeast of Capital UlaanBaatar
Here is a summary of Red Hill with a coal focus since early 2006:
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Feb 27 2006: Ulaan Ovoo 43-101 coal resource of 136.4 million tonnes. Stock raced from 40 cents to $1.50
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July 27 2006: Ulaan Ovoo 43-101 coal resource increased to 154.3 million tonnes.
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Sep 6 2006: Ulaan Ovoo 43-101 coal resource increased to 206.2 million tonnes.
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Sep 10 2007: Ulaan Ovoo and Chandgana Tal 43-101 coal resource increased to 350.1 million tonnes.
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Oct 25 2007: Ulaan Ovoo, Chandgana Tal, Chandgana Khavtgai coal resource increased to over 1 billion tonnes
Recent Mega Discovery:
In the fall of 2007, RH conducted an 8-hole drill program on the newly acquired Chandgana Khavtgai property, which is located approximately 9 km southwest of Chandgana Tal. The two projects, along with Tethys Mining, make up the entire Nyalga Coal Basin. Tethys Mining is a 100% owned Mongolian subsidiary of international mining conglomerate CVRD (Companhia Vale do Rio Doce) of Brazil. Results turned Chandgana Khavtgai into a mega discovery where over 700 million tonnes of high quality thermal coal were found. Most of the resource is contained in 40 - 60 meter seams cropped to surface. The in-situ value of Chandgana Tal and Chandgana Khavtgai combined exceed $700 million.
Pictures above from Ulaan Ovoo.
The pictures above show 30 meters + thick seams cropping from surface at Ulaan Ovoo. This is going to be easy and low cost to extract.
The structure of Chandgana coal projects is similar to that of Ulaan. Thick single seam outcropped to surface.
The Coal Market:
Thermal Coal prices have been steadily going up over the last 5 years from below $30 to over $70. In November 2007, UBS raised its price forecasts for both coking and thermal coal. Thermal coal will average $90 a tonne in 2008 and $105 in 2009, up from previous predictions of $70 and $75.
Today, coal of similar quality to Ulaan and Chandgana’s is sold for upwards of $70/tonne. Major Korean, Taiwan, and Japanese importers were so eager to tie up coal supply that now they are willing to negotiate and pay for transportation costs from ports.
Processing:
There are no secrets to coal processing. The economics of a coal project largely depend on the coal quality, strip ratio, and transportation. There are no mills or refineries. Particularly in the case of Red Hill’s coal projects with an extremely low strip ratio, and where ash and sulfur content are low and require no washing, the only variable remains is transportation.
Red Hill has recruited two independent firms to study the various transportation scenarios to the port, and some interesting details may be obtained by contacting the company. (Tel: 604-642-COAL “2625” e-mail:
info@redhillenergy.com). According to the company, preliminary results will be made available in February.
Mongolia:
Mongolia is three times the size of France with a population not much bigger than that of Greater Vancouver. It is a democratic state with elected governing officials and a free press. Its southern neighbor, China, is the world’s largest consumer of copper and became a net coal importer last year.
The exploration boom that began with the introduction of new foreign-friendly mining laws in 1997, is stronger today than it ever has been. Recent world-class discoveries in Mongolia by Canada's Ivanhoe Mines Ltd. continue to fuel an exploration boom that appears to have no end in sight.
Mining is far and away Mongolia’s leading industry, accounting for 50 percent of industrial output and more than 40 percent of its export earnings. Gold production alone grew 13.7 percent between 1992 and 2002, with 10.6 metric tonnes produced in 2002.
Mineral laws in Mongolia are favorable to foreign corporations and provide equal rights to all investors, both foreign and domestic. Laws allow full foreign ownership of mineral licenses and operations, and there are no restrictions on the repatriation of dividends and profits. Currently a pro-mining president resides, pending a general election in June, the law may be re-drafted to allow a government stake in major projects.
Fundamental and Technical Evaluation:
In terms of in situ-value (i.e. value in ground), RH is in a league of its own. At merely $35 million market capitalization with over $7 billion coal, Red Hill investors are presented with maximum leverage to coal prices. Granted no two companies and deposits are the same, QGX’s flagship Baruun Naran property in Mongolia has 260 million tonnes of coal and a market capitalization of over $110 million ($2.5 x 46 million shares). This makes Red Hill’s current market capitalization seem extremely tantalizing both from fundamental value and peer comparison perspective.
Technically, the stock is at a two year low discounting for the Mongolia factor. We believe the risk and reward is very favorable at current prices. First target is 50 DMA of 84 cents (blue), then 200 DMA of 95 cents (red).
Last September, I shot an interview with CEO Ranjeet Sundher, which can be viewed at http://goldmau.com/rh.php
John Lee
johnlee@goldmau.com
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