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Trader bets on Poland mine despite coal price

A German coal trader is unfazed by decade-low coal prices that pushed producers into bankruptcy as it seeks to open Poland’s first mine in four decades.

HMS Bergbau planned to invest more than €100m to begin output from a mine in southern Poland by 2018, Dennis Schwindt, head of business development at the Berlin-based trader, said in an interview. The mine would be more competitive than state-backed peers and financing would be concluded after the company received a mining licence, he said.

Even as investors from JPMorgan Chase to Norway’s sovereign wealth fund are cutting or halting investments in coal projects and miners file for bankruptcy, HMS said the fuel would be needed in power generation for decades to come.

European prices fell for a fifth year in 2015, leading Poland’s government to urge state-controlled utilities to prop up the loss-making industry, which meets 84% of the nation’s electricity demand.

“Europe will operate coal-fired power plants for a long time still and this coal has to come from somewhere,” Lars Schernikau, a partner at HMS, said. “We believe we’ll be competitive in Europe because of our low cost, even though coal use will drop.”

Poland is the EU’s biggest producer of the fuel and the government of Prime Minister Beata Szydlo, a miner’s daughter, has promised to keep all production open in defiance of EU efforts to curb emissions of heat-trapping carbon dioxide and the industry’s mounting losses.

Poland has more than 100,000 coal and lignite miners, the most in the 28-nation bloc. The last mine to start producing the fuel was KWK Morcinek near the border with Czech Republic, where construction began in 1978.

HMS plans to open its mine in Orzesze in the Silesian coal basin about two years after it receives a licence. The company is in talks for financing that will consist of own equity, loans and possibly bonds. HMS was founded in 1995 and employs 30 staff in offices from Berlin to Jakarta. Its founder Hans Schernikau also used to operate a mine in SA.

The company benefited from having no liabilities from an existing workforce as in most Polish mines, and hoped to cut costs by agreeing a deal with JSW’s neighbouring Krupinski mine to use some above-ground equipment and its shaft, Schwindt said. That would save HMS from digging as deep as 1,000m to access the fuel that is still the world’s biggest source of electricity-generation.

State-controlled JSW said in November it was not considering Bergbau’s offer to invest.

The company had not changed its position and was not considering Bergbau’s offer since it had not decided on the future of Krupinski mine, Katarzyna Jablonska-Bajer, a company spokeswoman, said.

HMS was still in talks with JSW and there were alternatives to the co-operation, Schwindt said, without giving details.

Jerzy Markowski, a former deputy industry minister in charge of mining and a former miner, heads HMS’s Polish unit Silesian Coal. The unit aims to produce 3-million tonnes of steam and coking coal annually, or about 4% of Poland’s output in 2015.

It will be sold domestically and possibly to the Czech Republic, Germany and Austria.

While the German trader would be competing with state-backed miners that were benefiting from government support, HMS was not buying assets and hence did not see the project as political, Markowski said. “We don’t need support, what we need is just fair treatment vis-a-vis competitors.”

Australia’s Prairie Mining also plans to start a mine near Lublin in 2020. The company sold shares in its Polish unit to finance the project and forecasts that coal will rise to $76.40 a tonne by 2020, according to a presentation in March.

The benchmark European price traded at $58 a tonne on Tuesday, according to broker data compiled by Bloomberg.

The EU got 24% of its power from coal in 2014, down from 28% 10 years earlier. Use of the polluting fuel may decline as the bloc aims to cut greenhouse gas emissions by 40% by 2030 from 1990 levels.

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