Colombian coal firm CNR halts production

Colombian coal mining company CNR suspended production on 31 July in response to low seaborne prices, narrow margins and disruption from Covid-19, sources have told Argus.

The company, which is the Colombian coal unit of US-based Murray Energy, suspended production at its La Francia and El Hatillo coal mines in the Cesar province, according to workers at CNR and the Fenoco railway.

Murray Energy declined Argus' request for comment. The government's mining regulator ANM also told Argus it had not yet received a formal request from CNR to suspend operations.

The suspension was confirmed at a meeting last week, CNR employees said. Agreements with contractors have been cancelled, while CNR workers have received severance payments and been told operations will resume when market conditions improve, sources said.

A worker on the Fenoco railway that transports CNR's coal told Argus that the mining firm expects to remain off line until the end of December and resume production in January 2021. CNR will transport coal by rail to the Caribbean port of Puerto Nuevo until 18 August to draw down its mine stocks.

The suspension at CNR — which produced 4.1mn t of thermal coal last year, equivalent to 2pc of the national total — has further tightened Colombian supply availability. CNR's production approximately halved on the year in January-March to 612,000t, according to ANM figures.

Analysts already expect Colombian thermal coal exports to fall by 8mn-20mn t on the year in 2020, while the mining association predicts total Colombian coal output to hit a decade-low.

CNR's margins have been hit by rising production costs because of the depth of its mines, longer hauling distances and, in some cases, higher stripping ratios, international coal analyst Jaime Correal said.

The sharp 39.4pc drop in coal prices over the past 19 months also means that companies like CNR face increasingly tight margins. Argus' fob Puerto Bolivar price assessment reached as low as $42/t in May, but has since recovered to more than $48/t. But this is about 38pc lower than the start of last year.

CNR's production suspension may also affect Colombian mining company Prodeco, which procured volumes from CNR while its own assets remain on care and maintenance. Prodeco, which is owned by Switzerland-based producer Glencore, suspended operations in March and exhausted its stockpiles sometime in May, sources said.

Prodeco itself is seeking permission to suspend operations for four years because of unfavourable market conditions. Regulator ANM is evaluating the request and expects to take a decision this month.

The prolonged suspension of output from CNR and Prodeco would hit local and national government finances through lost royalties. Prodeco paid more than 243bn Colombian pesos ($68mn) in royalties last year, while CNR paid Ps74bn.

Murray Energy has filed for Chapter 11 bankruptcy protection and its CNR asset is included in the proceedings.

By Diana Delgado