Currently, two-thirds of the world’s coal is used to generate electricity. The rest goes into steel and concrete production.

The US Department of Energy says China and India will account for 70% of the increase in world coal consumption over the next two decades.

And consider China’s plans for the next five years… they’re planning to build the equivalent of ten New York Cities, said a Canadian chief executive and financier at the mining conference I attended yesterday!

This will need unimaginable amounts of coal for steel production, concrete production and energy generation.

China used to be the largest coal producer in the world, but it is now a net importer. As the communist Republic continues to develop, it will have to import more and more coal. There are no realistic alternatives.

And that will continue to boost the coal price. It’s great news for one brilliant investment. More on that in a moment.

Two more UK coal power stations planned

Most governments have accepted that coal will have to play a big part in their future energy strategy.

Why? Because most of them have been useless in sorting their energy strategy out. This is particularly true in the UK.

France puts us to shame. The country gets 79% of its electricity from nuclear power; which is way ahead of anyone else in the nuclear stakes.

We still do not know for sure if any new nuclear power stations are going to be built – and it takes years to bring one into operation.

However, we do have plans to build our first coal power stations in 20 years. And it’s not just one – but two. And they’re being built by the Germans – even they are ahead of us in the nuclear stakes!

In March 2007, RWE Npower submitted proposals to spend more than £1bn to replace its existing coal-fired station at Tilbury in Essex. The plant would be operational by 2013. E.ON also hopes to replace its plant in Kingsnorth, Kent, by 2012.

Coal will bridge the energy gap as the oil price soars

It’s cheaper and less technologically challenging to build a coal-fired power station than a nuclear facility. This means coal will be attractive in developing countries too.

The American government has also been slow in resurrecting nuclear power as an energy option in the US.

This situation has been repeated all over the world, and I have no doubt it ensures coal’s continued bull-run over the next 10 years.

The US Energy Information Administration forecasts world coal consumption will double between 2003 and 2030. Non-OECD countries account for 81% of this increase.

So, coal is by no means the fuel of yesteryear – it will be around for a long time to come and demand is likely to soar.

If you haven’t got exposure to a coal producer in your portfolio, you need to think again

Here at Smart Commodities UK we’ve been invested in this trend since last October and it’s already showing a tidy gain.

But I believe there are much more gains to come.

You see, this company uses royalty streams (which are now rising) to invest in early-stage mining companies with a view to generating more royalty payments.

The board has proved this strategy works. Between 2002 and 2006 the group achieved a compound annual growth rate on its investments of 76% – this was before the recent surge in coal prices and the increased royalty payment news.

And just this morning they reported that from 1st July 2008 a two-tier coal royalty rate would now apply to its assets in Queensland.

The current 7% royalty rate will apply to the value of coal produced by a mine sold below $100 per tonne and a higher 10% rate will apply to the value of coal sold above $100 per tonne.

In April 2008, coking coal prices rose sharply to between US$250 and US$300 per tonne… so it looks likely that all payments from now on will be made at the 10% rate instead of 7%.

It goes some way to explain why analysts at brokerage firm Numis have upped its price target of this share by 12.5%.

The company also pays a dividend. A payment of 4.35p per share was approved in April. This fact makes the company virtually unique on the London Stock Exchange.

You get exposure to early-stage mining opportunities, paid for by rising coal royalty payments AND a dividend stream as well.

I’m encouraging my readers to buy this stock immediately.

Find out how to access these details here.

Regards,

Garry White
Editor Smart Commodities UK

Note: Past performance and forecasts are not a reliable indicator of future results.

Source: Coal Price Guaranteed to Soar

A few months ago, I visited the largest coal-fired power plant in America, Plant Scherer. When Scherer operates at full capacity, it produces 3.5 gigawatts of power. A nuclear reactor produces around one gigawatt of power

Itaipu produces 14 gigawatts of power. In other words, it’s four times the size of America’s largest coal power plant… and 14 times the size of most nukes. Itaipu provides 93% of Paraguay’s power and 25% of Brazil’s power.

I can’t explain in words what a beast this dam is. It stretches four miles across and 65 stories high. The iron and steel used to build it would give you 380 Eiffel Towers. It’s one of the seven modern wonders of the world, alongside the Panama Canal and the Golden Gate Bridge.

According to their joint agreement, Paraguay gets 50% of the electricity from the dam. Brazil gets 50%. But Paraguay is a small country. It has a population of 6 million people… versus 200 million in Brazil. So Paraguay only keeps 5% of Itaipu’s power and sells the rest back to Brazil.

This makes Paraguay the largest exporter of hydroelectric power in the world.

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Here’s the thing: Paraguay sells its electricity to Brazil at $3 per kilowatt-hour. Right now, Brazil can sell the same unit of electricity to its private utilities at $150 per kilowatt-hour. There is an electricity crisis in Latin America right now, especially in Chile, and electricity prices are very high. It’s immediately obvious Brazil is not paying Paraguay the right price for its power. And Paraguay is losing billions of dollars.

Corrupt politicians set this low price in 1973… under a 50-year contract. The Brazilians bribed the Paraguayan government to sell them power at a rate that’s far too low. Now, there are calls to change this rate, but who knows if that’ll happen…

The thing is, Paraguay doesn’t have to sell its power to Brazil. It could consume the power itself. I think it would be a great business to set up an aluminum or zinc smelter here. These businesses are electricity-intensive. The problem is, Paraguay is a poor country and has absolutely no industry. It’s all agriculture here.

According to the people at Itaipu, the energy the dam creates every day is the equivalent to 433,000 barrels of oil. That’s about half of what Canada’s Athabasca oil sands produce each day. Except it’s renewable, it’s clean, and it takes no energy to produce.

This cheap electricity is one of the reasons I like Paraguay as an investment. But it’s hard to get your money into the country…

Paraguay has no stock market… only a small bond market. So to invest in Paraguay, you’ll have to go there yourself and buy assets from the locals. That’s a good thing. It means everything is cheap.

In Paraguay, for example, you can buy companies for book value… that pay 45% dividends, according to one broker I met. You can buy real estate with 10% rental yields. And cattle farms with 18.5% cash yields.

Good investing,

Tom

P.S. The Three Gorges Dam in China will be the largest hydroelectric dam in the world by volume. It will operate at full capacity by 2011. China hopes it’ll produce 18 gigawatts. That’s bigger than Itaipu.

Our tour guide wasn’t convinced Three Gorges would be able to produce that much power. “The Yangtze isn’t as powerful as the Parana,” he said. “We’ll see…”

P.P.S. There is talk of a hydro plant twice the size of Three Gorges in Africa, on the Congo River. But it’ll never happen. For a start, only 10% of Africans have access to the grid… What will they do with all that power? And secondly, it will require cooperation from seven different central African countries… and hundreds of billions of dollars in loans.

Source: The Largest Electricity Exporter