SOUTH32 is walking the fine line between increased production at Illawarra Metallurgical Coal and reassuring climate conscious shareholders it is closely monitoring trends in consumer and market behaviour around coal.
Releasing a report titled Our Approach to Climate Change 2019, the company has completed decarbonisation concept studies at Illawarra Metallurgical Coal, with the aim of identifying potential decarbonisation initiatives, which can be progressed into prefeasibility planning during FY20.
However, metallurgical coal demand is set to skyrocket from 275mt (in 2017) to 372mt by 2030 – according to the NSW Minerals Council – and Illawarra is expected to increase production to around 7mt by the end of financial year 2020 and 8mt by FY21.
In the September quarter alone, the site experienced a 30pc increase in production over 2019 to 2.1mt (reported in the September quarter) after the successful completion of two longwall moves in the June 2019 quarter.
Additionally, both the Dendrobium and Appin longwalls have also continued to perform strongly, with an increase in the use of longwall automation and FY20 production guidance remaining unchanged at 7mt.

This underground mine in the heart of the Illawarra region produces metallurgical coal used for steel making is expected to stay in production out to 2048.
In its plan for Dendrobium’s future, South32 is proposing to continue mining in two underground areas within the mine’s existing mining lease.
An application for the expansion project for Dendrobium is currently before the NSW planning authorities and is supported by an environmental impact statement.
The expansion is expected to create 200 jobs during its construction phase, and 500 jobs in operating the mine thereafter, creating a net economic benefit of A$2.8b, the company said.
Dendrobium and its sister underground mine, Appin, produce mostly metallurgical coal and some by-product thermal coal.
This coal is processed at South32’s West Cliff and Dendrobium plants before shipping by rail and road to the Port Kembla coal terminal at Wollongong.
Dendrobium coal shipments go to international customers around the world including to countries like China.
South32 said in a recent production update that longwall mining in its Dendrobium mine has continued to perform strongly as a result of some automation.
A planned move of Dendrobium’s longwall mining operation is scheduled for the quarter period starting March 2020 after it was moved in the October-December 2019 quarter.

Eagle Downs project
Eagle Downs is a large, high-quality and fully permitted metallurgical coal development project in Queensland with the potential to export 4.5Mtpa of coal from one longwall during the first 10 years of full production.
Subject to the outcome of the feasibility study and requisite approvals, South32 intends to construct a multi-seam underground longwall metallurgical coal mine and processing plant with a dedicated rail spur and train loadout facility.
The project was set to benefit from previous investment that had established two kilometre drifts which were around 40pc completed at the time of acquisition, as well as site infrastructure including water supply, high voltage systems, office buildings, water and sediment dams – all of which could potentially support accelerated development of the site.
The final investment decision for Eagle Downs is scheduled for late 2020.

South Africa Energy Coal
Unlike metallurgical coal, South32’s energy coal (or thermal coal) operations consist of one project, South Africa Energy Coal (SAEC).
And while the project is the main supplier to the country’s energy utility Eskom (which generates about 95pc of South Africa’s electricity), the company recently announced plans to sell the operation.
As of November 6, South32 has entered into a binding conditional agreement for the sale of its 91.835pc shareholding in SAEC to a wholly-owned subsidiary of Seriti Resources Holdings Proprietary Limited, and two trusts which will acquire and hold equity on behalf of employees and communities (jointly referred to as the purchasers).
The transaction remains subject to a number of material conditions after which Seriti (on behalf of the purchasers) will make an up-front cash payment of about 100m South African Rand to acquire South32’s shares in SAEC.
The purchase price also includes a deferred consideration component where South32 will receive 49pc of the free cash flow generated by SAEC for a period commencing at the date of completion to March 2024, with payment capped at a maximum of 1.5b South African Rand per annum.
South32 chief executive officer Graham Kerr said the sale was a positive for the company and the new owners.
“I am pleased to announce we have entered into an agreement with Seriti, a black-owned and operated South African mining company,” Mr Kerr said.
“We ran an exhaustive and competitive process and we believe Seriti as an established operator is ideally positioned to unlock the potential of South Africa Energy Coal’s existing domestic and export operations, including its significant untapped resource base.
“The sale of our interest in South Africa Energy Coal will enable the business to continue to operate safely and sustainably into the future for the benefit of its employees, customers and local communities, consistent with South Africa’s transformation agenda.”
The sale is an important step in the diversification of South 32’s portfolio and will allow the company to focus on its Australian coal operations and the opportunities present in the growing market for metallurgical coal.
“Completion of this transaction will substantially reduce our capital intensity, strengthen our balance sheet and will improve the Group’s operating margin,” Mr Kerr said.