U.S.-based Colombia Energy Resources (OTCBB: CERX), which is developing coal mining operations in Colombia, said May 22 that it anticipates transportation cost savings from a planned multi-billion dollar infrastructure renovation by the Colombian government and private industry.
As a direct benefit of the infrastructure investments being made, CERX expects to use both the railroad and river barge system to bring its metallurgical hard coking coals to international markets. Recently, the Colombian government released details of its plan to invest more than US$7.5bn to restore and expand the country’s rail system and improve the Magdalena River. Its objective is to strengthen these two main transportation routes to reduce long distances between the production and consumption centers and the seaports, thereby increasing exports.
Major coal producers in Colombia, like Drummond Co. and the jointly-owned Cerrejon mine, rely on integrated rail and export terminal facilities that aren’t generally open to outside coal shippers.
According to the Colombian Chamber of Infrastructure, the current lack of multimodal transportation adds an estimated 80% to the cost of transporting coal. The project calls for the restoration of 1,672 kilometers of existing rail lines, of which only 55% is currently in use, and for the construction of new systems and branches.
For the Magdalena River, Colombia and local municipalities plan to invest more than US$135m over four years in order to restore navigability to 1,500 kilometers of the river. This is expected to increase transportation capacity from 35 million tons annually to 90 million by 2018.
The improvements to the rail system are expected to allow half of the total coal production in the country to be moved by train, with the rest transported bia the river. The Colombian Mines and Energy Minister reportedly projects coal production to reach 124 million tons in 2014, climbing to 152 million by 2020.
Colombian Energy Resources CEO Ronald Stovash said: “The revitalized rail and river transportation system will be a tremendous boost to our outlook for long term growth and increasing profitability. Currently we can only make use of truck transport. While still economical for us, it is far less efficient and cost effective versus rail or water modes of transport. As CERX moves to more cost effective transportation, the savings will drop right to our bottom line. Eventually, we see the potential for Colombian metallurgical coal to be among the lowest cost production globally.”
CERX is exploring coal deposits and developing coal mines at company-controlled mining concessions. The company currently controls concessions underlying about 25,000 acres of land in Colombia, which is the world’s tenth largest producer and sixth largest exporter of coal. Stovash is a veteran of U.S. coal producers CONSOL Energy (NYSE: CNX) and PinnOak Resources.