Glencore ramps up coal production in Colombia

Total coal production in 2011 at the Prodeco coal mining operation in Colombia was 14.6 million tonnes, an increase of 46% compared to 10 million tonnes in 2010, said international commodities trader and producer Glencore International in a 2011 annual report released on April 10.

Colombia is a major exporter of coal into the seaborne market, including to U.S. power generators along the Gulf and Atlantic coasts.

The substantial increase in Prodeco output last year was largely attributable to an expansion project that is forecast to increase production to 21 million tonnes by the fourth quarter of 2013.

At the Calenturitas mine at Prodeco, Sector A has been opened contributing 4.3 million tonnes of the 7.6 million tonnes produced in 2011, a 46% increase from 5.2 million tonnes in 2010. Production at the La Jagua mine was 7 million tonnes, a 46% increase compared to 4.8 million tonnes in 2010.

The increased production at Prodeco’s mines was somewhat constrained by the previously communicated delays in delivery of mining equipment from Japan in the aftermath of the early 2011 tsunami as well as the downtime of 21 rain days in excess of budget, primarily due to exceptionally heavy rains in October and November 2011.

The largest capital expenditure project currently underway is the construction of the new direct loading port (Puerto Nuevo in Cienaga), which will provide Prodeco with higher annual throughput capacity and a lower operating cost, compared with the current port at Puerto Prodeco (Zuñiga). The project is on schedule and expected to be commissioned in the first quarter of 2013.

During the first half of 2011, international demand for coal was strongly supported by cold weather related demand, combined with supply shortages due to Australian flooding and adverse weather conditions in Colombia, which left the traded market relatively tight, the annual report said. The effect of the Japanese earthquake and tsunami on nuclear generation also played a role in increasing demand for coal, especially in the environmentally sensitive Atlantic markets.

“Thereafter, the global financial crisis and uncertainty surrounding consumption patterns led to many players taking a cautious approach towards longer term commitments and a move to a more spot price oriented market,” the report added. “This resulted in lower demand and prices. Prices fell further towards the end of the year, impacted by mild weather and robust coal supplies, especially from the US, which affected the Atlantic markets, whereas the Asian markets remained more robust and resilient, although the general trend was also lower.”

Glencore Chairman Simon Murray used his “Chairman’s statement” section of the annual report to pitch the proposed merger of Glencore and Xstrata, a major international producer of coal and other commodities.

“On 7 February 2012, the Boards of Glencore and Xstrata agreed an all-share merger of equals, to create a unique $90 billion natural resources group,” Murray wrote. “The Board has unanimously agreed that the merger is in the best interests of Glencore Shareholders. It builds upon the long-standing relationship between Xstrata and Glencore to the greater benefit of both companies and their shareholders. Since Xstrata was created by Glencore and then spun-out in 2002, these two entrepreneurial companies have grown separately into leaders in the commodity industry, each with a different but highly complementary focus. Together these two companies will create a group with the capabilities and scale to play a leading role in meeting the growing global demand for commodities, whilst helping resource holding countries create value from their natural endowments.”

Notable is that Glencore, long a secretive, privately-held commodities dealer, went public in a big IPO in May 2011, leading to a lot more public disclosure about its operations and finances.

Glencore is listed in London and Hong Kong, registered in Jersey and headquartered in Baar, Switzerland. It has a global network of 50 offices in 40 countries throughout Europe, North, Central and South America, the CIS, Asia, Australia, Africa and the Middle East. Close to 3,000 people work in Glencore’s marketing operations alone.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.