By Alex MacDonald
LONDON -(MarketWatch)- Three of the U.K.’s largest listed miners and equal shareholders in the Colombian Cerrejon thermal coal mine approved a $1.3 billion project to expand the coal mine’s production capacity by 25%.
Xstrata Coal, a unit of Xstrata PLC (XTA.LN), BHP Billiton Ltd
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, and Anglo American PLC (AAL.LN) each own a 33.3% stake in the mine and will invest $437 million each to expand the mine.
The three shareholders said in separate statements that the project will increase saleable coal output and export capacity by 8 million tons a year to 40 million tons a year from 32 million tons a year currently. Construction is set to start in the third quarter of this year and will be completed by 2013, with production progressively ramping up to 40 million tons by 2015.
The project was approved at a time when demand for the coal used in power stations continues to rise due to massive investment in coal-fired power generation that is needed to help many emerging markets such as China support fast-paced industrialization and urbanization.
China, the world’s largest consumer of many basic commodities, depends on thermal coal for about 70% of its electricity needs and expects to expand its coal-fired power generation capacity by 52% between 2010 and 2020, according to a Citigroup note from July.
Fast paced economic growth, however, means China’s domestic coal output, forecast at nearly 3 billion tons this year, hasn’t been enough to keep pace with demand, Citigroup said. As a result China is expected to import nearly 100 million tons of thermal coal this year, and increase its import requirements to 144 million tons in 2020, according to Citigroup.
The approved Cerrejon project will expand the mine, coal handling facilities and the fully-owned Puerto Bolivar port, in addition to adding an extra loading berth.
Cerrejon, located in La Guajira, has a resource base of about 5 billion tons, of which 2.1 billion tons are currently measured and indicated to be of export quality. Xstrata said it is one of the largest coal deposits in the world.
Improvements to road, rail and supply chain infrastructure are also within the scope of the project and a significant number of new jobs for Cerrejon employees and contractors will be created.
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