Winston Churchill allegedly said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Daniel Carlson and the investors in Colombia Clean Power & Fuels fall in the second slot. Carlson is the former CFO and now a director of Colombia Clean Power, a subsidiary of LIFE Power and Fuels, a holding company that makes investments in fossil-energy and clean-energy technologies. The subsidiary was created a year ago to mine metallurgical coal in Colombia, South America, and turn it into coke for steelmaking.
There is good reason for Carlson and Colombia Clean Power — which has a baseline investment plan of $750 million over five years — to be optimistic. Coal prices are booming, as the price of metallurgical coal has jumped from $80 per ton in mid-2007 to $160 per ton recently. That is causing companies to plow money into coal. Arch Coal just announced the $3.4 billion purchase of International Coal Group, and Japanese trading house Itochu has secured a 20% stake in the Colombian coal assets of Drummond Co., a U.S. miner and processor.
To succeed, though, Colombia Clean Power has to battle the perceptions that coal is a “dirty” energy source and that Colombia is a risky place to do business. Both concerns are legitimate. Regarding the first, for example, American Electric Power recently said it may shut down five coal-fired plants and cut operations at another six facilities in the United States because of possible new emission limits from the Environmental Protection Agency.
As for doing business in Colombia, political risks haven’t totally subsided. Four Chinese nationals working in Colombia’s oil fields were captured and held hostage — allegedly by leftist guerillas — in early June.
CFO recently spoke with Carlson about the risks and rewards of coal mining in Colombia. An edited transcript of the interview follows.
What’s the opportunity for Colombia Clean Power & Fuels?
The coal-resource owners, we believe, are missing the boat in that they’re just concerned about getting their resource out of the ground as fast as possible and selling it. The sweet spot is to tie a resource to an end-market with what we feel would be the most appropriate technology.
In the center of Colombia you have a lot of coal resources that have not been fully exploited because of the lack of infrastructure. The infrastructure to get the coal to the coast was not there due to the historical problems of Colombia — the Revolutionary Armed Forces of Colombia, drug dealers, etc. We feel the area is very safe now and is ripe for investment.
At the same time, Colombia is a very large agricultural country. Urea is a main ingredient in fertilizers, and Colombia imports 100% of its urea to the middle of the country. But you can “gasify” coal to make ammonia, which you can then turn into urea. So by building a urea-gasification facility in the middle of the country, you have a cheap resource in a high-priced end-market. That’s what drew us to Colombia in the first place.