Vitrinite team members with a core sample taken from their Karin deposit. Image: Vitrinite.
BY ELIZABETH FABRI
BOWEN Basin locals may be quick to talk down another coal boom, but there is no question confidence is returning to the region. An upturn in coal prices is boosting new exploration and development, M&A activity, mine expansions, and prompting companies to reopen shuttered operations. But can recent momentum be sustained?
Optimism has returned to the coal-rich Bowen Basin in central Queensland.
In late 2016 recovering coal prices signalled hope – dampened only slightly when Cyclone Debbie rocked the region in 2017.
And by early this year many Bowen Basin miners were wearing a smile again.
Take Anglo American; the miner made a decision to weather the downturn by hanging onto its QLD coal assets. This year, its Moranbah North mine is on track to deliver record production targets.
BHP Mitsubishi Alliance (BMA) also enjoyed record production at four of its seven Bowen Basin mines in the March quarter, and last year increased its intake of Bowen Basin apprenticeships.
Higher production bodes well for operations in the current market, with metallurgical [coking] coal prices at “relatively high levels”, according to the Office of the Chief Economist’s March Resources and Energy Quarterly.
“The Australian Prime Hard Coking Coal (HCC) FOB spot price remains around US$220 a tonne, as strong Asian demand, bad weather in the United States early in 2018 and ongoing supply problems in eastern Australia all keep the seaborne market tight,” the report stated.
“The prospects for metallurgical coal demand over the medium term are firm.
“Strong growth in emerging Asia will drive strong growth in steel production and hence metallurgical coal demand.”
Thermal coal prices had too increased in recent months, due to supply concerns and strong demand.
While higher production and prices signalled profits, many miners had also benefited from the timing of strategic acquisitions and divestments.
Stanmore Coal, for example, picked up the mothballed Isaac Plains coking coal mine for a token $1 in 2015 from international mining giants Sumitomo and Vale (valued at $860 million during the boom).
In April 2016, Stanmore reopened the mine just months before coal saw a revival, and in March was granted a seven-year life extension for the project.
A similar scenario for TerraCom; in early 2017 the company bought the Blair Athol thermal coal mine from Rio Tinto for $1 (in which Rio agreed to pay $80 million for required rehabilitation works), and this year secured a one year extension to mine life.
At the time of the sale, Blair Athol had been shuttered since 2012, and Rio made two previous attempts to sell the asset.
Aside from Blair Athol, Rio has generally timed its exit from the QLD and NSW coal industry very well.
In 2017, the miner let go of its Hunter Valley Operations (HVO) in NSW for $US2.7 billion, and in March sold its interest in Hail Creek and the undeveloped Valeria project in the Bowen Basin to Glencore for $US1.7 billion.
Days later, Rio entered a binding agreement to sell its 75 per cent interest in the undeveloped Winchester South coal project to Whitehaven for $US200 million, and – in a separate agreement – sold its 80 per cent interest in Kestrel to a consortium for a huge $US2.25 billion.
Bowen Basin Mining Club director Jodie Currie said by examining recent activity, green shoots were returning to the region as the coal price held steady.
“Overseas demand is only projected to increase as South-East Asia especially sees more of their population move out of energy poverty and into the middle-class,” Ms Currie said.
“This development requires both metallurgical and thermal coal – the proportion of demand between the two varies, but it’s not slowing down.”
Fresh Prospects
With increased appetite for coal, miners were gearing up for the next generation of projects as older mines neared the end of their operating lives.
One of the most significant projects was Adani’s Carmichael thermal coal project, a few hundred kilometres to the west in the neighbouring Galilee Basin.
The project made national headlines for the best part of 2017, and while not directly in the Bowen Basin, it has caused a wave of anticipation with the promise of local jobs, and infrastructure.
But after failing to secure sufficient finance by a March deadline, the Carmichael project has reportedly been delayed up to a year.
Despite the setback, the Bowen Basin had a number of key exploration and advanced projects of its own underway, headed up by players such as Vitrinite, Red Metals, New Hope Group and Pembroke Resources.
“Pembroke Resources’ Olive Downs project will be a large and long-term metallurgical coal project,” Ms Currie said.
“Fitzroy Australia Resources is another new player to watch, as well as Sojitz and Bengal.”
In addition QCoal’s $1.76 billion Byerwen coal mine was close to completion and will add up to 10 million tonnes of hard coking coal production per annum.
In the exploration space, the QLD Government recently announced two companies – Metroof Minerals and Sojitz Coal—as preferred tenders to unlock 13,100 hectares of coal reserves in the Basin between Middlemount and Blackwater.
A mining lease out until 2032 has also been granted to Bengal Coal to develop Dysart East underground coal mine, which will create 200 jobs and produce about 1.9mtpa of prime hard coking coal once operational.
In March, Vitrinite too was in the spotlight after signing a binding investment agreement to join forces with Japanese ITOCHU Corporation for the “rapid development” of its flagship Karin deposit.
The mine, directly southeast of Clermont, was acquired by Vitrinite in August 2016 and contains multiple, thick coal seams with exceptional metallurgical coal properties.
Vitrinite executive director Nicholas Williams said the company believed Karin was one of, if not the best, positioned deposits to fill the growing need for high-fluidity coking coal.
“We will push Karin as quickly as possible to first production,” Mr Williams said.
“We are confident the mine life will be well in excess of 20 years with annual throughput targeting the 2-4mtpa range.”
Mr Williams, who spearheaded an exploration campaign during the downturn in the coal market, said “people thought he was crazy” at the time.
“That was a very common reaction among friends in the industry,” he said.
“We are firm counter-cyclists and given the massive drop in coal exploration over the past few years it was obvious that supplies were going to get very tight.
“I think even we underestimated how tight it would get [but] we have been firm believers in this portfolio for nearly a decade.
“The waning interest in the coal sector generally created a spectacular opportunity.”
Industry Hurdles
Even with today’s improved conditions, there were still a handful of challenges facing emerging projects, including growing anti-coal sentiment.
“New projects that are still trying to establish a social license to operate struggle the most, and this is the biggest threat to the industry’s pipeline of work in the mid to long-term,” Ms Currie said.
“If these projects don’t go ahead due to a threat (whether that threat is perceived or real), Queenslanders are the ones who suffer in the long term due to loss of employment opportunities and royalties that build roads, hospitals and schools.
“The activists are often from outside the State and aren’t impacted by this economic loss.”
Ms Currie said the concept that coal is still needed as part of the energy mix for a sustainable energy future was not widely understood by the activist community.
“Activists have a huge digital platform that they use to spread misunderstanding, and we haven’t been united enough as an industry to try and drown out that misinformation on a larger scale,” she said.
QLD Natural Resources, Mines and Energy minister Dr Anthony Lynham said he met frequently with industry and community representatives to gauge sentiment.
“Areas the Government is working with communities and industry on include ongoing social license, financial assurance, safety and health and regulatory approvals processes,” Dr Lynham said.
“Regular round tables involving industry and/or community representatives are held as the Government continually works at engaging with the resources industry and other stakeholders, including the QRC.”
Dr Lynham said as a result of the feedback he received, the newly-introduced fly-in, fly-out (FIFO) laws were implemented to reinforce jobs for local communities.
“Companies will no longer be able to discriminate against local workers,” he said.
Ms Currie agreed local jobs and casualisation of the workforce were issues that had caused damage.
“This was brought in during the downturn as companies adopted a lean approach to labour,” she said.
“A side-effect of this was less apprenticeships offered to young employees and at the other end of the spectrum, redundancy packages offered to senior employees.
“It worked at the time, with productivity record after productivity record broken, but the industry is now facing a skills problem.”
This has been addressed at a legislative level with the Strong and Sustainable Resource Communities Act, but Ms Currie said this now needs to be addressed at an organisational level throughout the industry.
“When permanent positions start being offered again – or even better, casual workers shifted to permanent – this is a solid sign of recovery for the region,” she said.
Vitrinite’s Mr Williams said there was also an emerging gap in the market as existing mines neared the end of their lives, with more exploration in coal needing to happen.
“[Exploration] quality has fallen precipitously,” Mr Williams said.
“Problem is, everyone is busy chasing the new shiny investment hype which is cobalt, lithium etc.
“People forget that these are well established markets globally and are not going away in the near future.”
Mr Williams said there has been a perception that “all coal is bad” which has starved the sector of funding from traditional sources used to help greenfields exploration.
“There still seems to be some belief in capital markets that the steel sector will just magically keep going on without new supplies of coking coal,” he said.
“In reality, it is just going to get worse as coal qualities deteriorate further and China continues its pursuit of more environmentally friendly (high-quality) sources of coking coal.”
Building a METS Hub
Coal will continue to dominate the Bowen Basin economy over the coming years, Dr Lynham said.
“With a vast quantity of proven and probable resource reserves in the Bowen Basin the future is headed for a vibrant and prosperous coal industry that continues to lead the world in mining and rehabilitation innovation and better safety and health technologies,” he said.
“The Bowen Basin also brings significant opportunities to educate communities and the world around mining technologies and services.”
In October last year, the QLD Government supported the launch of a new pilot METS Ignited Bowen Basin Cluster Program, which aims to bring thousands of mining equipment and services positions to the region within the next decade.
“The recently launched pilot METS Ignited Bowen Basin Cluster Program has received a range of applications for some new and innovate mining solutions,” Dr Lynham said.
“Successful applicants will be announced later this year.”
Dr Lynham said he was also working on some other technology initiatives, including the Coalition of Energy Efficient Comminution CEEC – which is seeking to make rock crushing and mining processes more efficient and cost-effective.
“The Palaszczuk Government also is developing an online database of all available testing facilities available to METS companies,” he said.
“This is to provide industry with a readily accessible resource for mining companies to easily access specific and up to date information on testing facilities.”
Ms Currie said she would “love to see the Bowen Basin become more of a hub for METS”.
“I think our regional Queensland location has set us back in that regard – other resource-rich regions are far closer to major population centres,” Ms Currie said.
“Technology will disrupt the way that things have always been done, but I think the productivity and efficiency focus is here to stay.
“Companies that can keep innovating and using technology to create their own opportunities will be the ones that are still around in the next decade.”
