High oil prices to boost use of coal-fired power facilities

Local coal mining firm Sultan Mining & Energy Development Corp. (SMEDC) expects an increase in the utilization of its coal-fired facilities with the continuing rise in the prices of bunker fuel oil.

Sultan vice president for sales Michael Morales said they are cashing in on the rising cost of bunker fuel which is creating a new market for coal among manufacturers in Mindanao such as tuna canneries, paper and textile firms.

Morales noted that many manufacturers in Mindanao are now refitting their power plants to burn coal instead of bunker fuel because bunker fuel is now three times more expensive than local coal.

“They spend an initial P25 million to P30 million to buy new coal-fired boilers but are able to recoup this investment in less than a year from savings due to the huge difference between the costs of coal and bunker oil,” he said.

Morales said this new non-traditional market for coal is providing Sultan with a strong base for growth on top of its traditional customers in the power generation and cement industries.

Currently, SMEDC is supplying Philbest Canning Corp., General Tuna Corp., and PICOP Resources, Inc. with coal from its open pit mine in Bislig, Surigao.

Morales said the non-traditional market continues to grow as rising oil prices make the shift to local coal more viable. He said two more canneries in General Santos City are expected to start using coal later this year and another two are in the process of shifting and should start consuming coal by next year.

Aside from General Santos City’s tuna canneries, Morales said SMEDC is also looking at the sardine canneries in Zamboanga City. Since its coal mine is the biggest in Mindanao, Sultan is in the best position to supply the coal requirements of manufacturing plants in the South.

One advantage of Sultan’s Bislig coal mine is the firm’s investment in a coal preparation or washing plant which allows the company to boost quality and the flexibility to customize the type of coal produced to suit the individual requirements of various boilers of its customers.

Morales said each cannery is seen to consume at least 20,000 metric tons of coal a year and sales to this non-traditional market is seen to grow its share in SMEDC’s revenues as more firms shift to coal.

Local coal is preferred over imported coal since buyers save on shipping costs, import duties value added tax payments. Buying coal locally also assures customers of security of supply and insulates them from foreign exchange fluctuations.

Aside from exploiting its open pit reserves, Sultan Mining expects to begin the development of its underground mines at Bislig with the first underground mine starting commercial operations by late 2010.

SMEDC is set to undertake a P480-million initial public (IPO) offering this quarter to raise funds to finance its exploration activities and the ramping up of current production from its Surigao del Sur mine site.

The firm has tapped Asian Alliance Investment Corp. to be the lead underwriter for the IPO. SMEDC shareholder Maxinvent Trading Corp. has also granted Asian Alliance an option to purchase or place up to P48 million worth of SMEDC shares for the purpose of covering over-allotments.

SMEDC, through wholly-owned subsidiary MG Mining and Energy Corp., holds or exercises rights over Coal Operating Contracts with the Department of Energy. These COCs cover fully explored coal bearing area in Bislig and Lingig, Surigao del Sur.