By Peter Murphy
BOGOTA (Reuters) - Goldman Sachs
Colombia's coal exports are expected to tumble by a third or more in the first few months of this year after a new law that took effect on January 1 banned the old crane and barge method of loading ships that has been outlawed because of the pollution it causes.
The government of the world's fourth biggest coal exporter on Wednesday ordered its No. 2 miner, U.S.-based Drummond, to halt loading until it installs a now legally required conveyor belt loader. That decision will cut shipments by about a third until Drummond's equipment is ready around March.
CNR, wholly owned by Goldman Sachs and with two mines in Colombia, its own port and a share in the joint-venture coal railway Fenoco, will only start building its conveyor in the next few weeks and will need 16 to 18 months to finish it, the source, who was not authorized to speak on the issue, said.
The source said the company was looking into the only viable alternative to continue exports - to pay nearby rival Prodeco, owned by Glencore, to use capacity at its port which is already equipped with legally compliant conveyor belt infrastructure.
"We are seeing what is best regarding coal prices and what they are offering. No decision has been taken," said the source, who could not ascertain what contact had taken place between the two companies or at what level.
CNR produced about 3.5 million tones of coal in 2013, only about 4 percent of the 82 million tones the mining ministry estimates was produced during the year. That means market impact from the loss of its output is likely to be minimal.
Loading coal by crane onto barges and then onto ships offshore causes some lumps of coal and dust to fall into the sea, polluting the water - a problem fully enclosed conveyor belts are expected to eliminate.
CNR's El Hatillo mine will keep producing for now and until on-site storage capacity is used up, the source said without being able to specify roughly how long it could keep running.
The company's other mine, La Francia, had reopened again late last year the source said, but it was producing a minimal amount in anticipation of disruption from the new loading law.
That mine had been shut down since January 2013 when the contractor running it on CNR's behalf walked away from the project and it had to be drained of water before the new operator could begin mining.
Both mines have a capacity to produce 3 million tones each per year when operating normally, the source said.
SHOCK FOR MARKET
Colombia's order on Wednesday that Drummond suspend loading took the coal market by surprise and pushed prices higher. The government said in December Drummond would be able to keep loading in violation of the new law by paying a daily fine for the privilege before making an unexplained U-turn on the issue.
Coal prices in Europe, where most of Colombia's exports are consumed, saw rises of more than $3 during trade on Wednesday and Thursday as the market factored in a tightening of supplies from the Andean nation for the coming weeks.
The government may have backtracked in light of negative press coverage highlighting a foreign company's flouting of local laws despite Drummond having agreed to pay penalties for continuing to load coal temporarily using the banned method.
The flaws of barge and crane loading, which the government first announced it would ban around 2007, caught the public's attention a year ago when a Drummond barge flipped in rough weather and spilled a load of coal into the Caribbean.
CNR's Rio Cordoba port, that of Drummond and Glencore's Prodeco are neighboring facilities in the municipality of Cienaga in Magdalena province on a Caribbean stretch of Atlantic coast.
Colombia's biggest miner, joint venture Cerrejon, is unaffected by the new law as it has used conveyor belt loading at its own private port since its origins in the country in the 1980s. It mines in the far northern province of Cesar.
Cerrejon is jointly owned by Anglo American Plc
Colombia is likely to forgo around 4.2 billion pesos ($2.17 million) in royalty and tax income per day by shutting off Drummond's exports, a heavy cost for a country where many still live in poverty and one in urgent need of better infrastructure.
(Editing by Leslie Adler, Matthew Lewis and Jonathan Oatis)