UPDATE 2-Colombia says Drummond cool to options on coal exports

Fri Jan 10, 2014 7:35pm EST

By Peter Murphy and Luis Jaime Acosta

BOGOTA Jan 10 (Reuters) - U.S. miner Drummond has shown little interest in proposals by the Colombian government to enable it to keep exporting coal after authorities shut its port for violating a new environmental law, a government official told Reuters on Friday.

The government shut Drummond's port this week because it was continuing to load coal onto ships with cranes and barges, a method banned since Jan. 1.

The company, Colombia's No. 2 coal producer, will need until March to finish building a now mandatory conveyor belt loading system, and on Friday it invoked force majeure, a default clause, on shipments that were due to be loaded up from next Monday onwards.

Colombia's U-turn decision, likely to slash its coal exports by a third, surprised the coal market as the government appeared to have resolved the issue in December when it said Drummond could keep loading with cranes and pay a fine for the privilege.

The Andean nation is the world's No. 4 coal exporter. It has not given a reason for the about-turn.

Asked what was the biggest difficulty to arranging an alternative means by which Drummond could load, Garcia said: "To find the will on (Drummond's) part to resolve this, to show a preference for one of the alternatives.

"Yesterday we sat down, it was us the national government proposing alternatives. They closed themselves off a bit, (saying) let us open, impose the fines that you want but let us reopen, but this is not a very viable alternative," she said.

A Drummond representative said the company would not comment.

Drummond would be able to keep exporting coal by using the nearby and publicly owned Santa Marta port or that of Glencore's Prodeco miner sited next to its own port, which is already legally compliant, Garcia said.

It could not immediately be clarified under what terms rival miners could use Prodeco's loading equipment, but a source at Goldman Sachs' smaller miner CNR told Reuters the government could force it to offer others capacity as it was a public port.

Garcia said the government would have a contingency plan setting out concrete alternatives for Drummond within two weeks.

PUBLIC PORT AVAILABLE

The compulsory switch to conveyor belt loading seeks to end pollution caused when lumps of coal and dust fall into the sea when handled by crane. A Drummond barge also spilled a load of coal into the sea at its port in rough weather a year ago -- an incident that has stayed in the media's spotlight.

Coal prices eased on Friday after rises in prior trading sessions related to the expected cut in Colombian coal exports, although no solution has been worked out. A grace period through which Drummond can keep loading ends on Sunday.

The port of Santa Marta said it could handle about 20,000 tonnes of coal for Drummond or CNR if received a request. That equates to about a quarter of the coal Drummond produces daily and would at least soften the impact of the temporary closure of Drummond's own port.

"Nobody has approached us but we are able to serve them," said a port representative who was not authorized to speak on the record about the issue. He said both companies had used Santa Marta port in the past, delivering coal from their own ports by truck.

The port, owned by the government but operated under concession by a group of private investors, negotiates instead of setting fixed prices for its services, the source said.

CNR, which has two mines in Colombia, can produce 3 million tonnes a year when operating normally, will begin construction of its conveyor belt loader in the next few weeks and will need up to 18 months to complete it, a company source told Reuters.

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