BOOM NOT BUST

Why the min­ing in­dus­try’s out­look is not so bleak

Business First - - FRONT PAGE -

In some cir­cles min­ing is a dirty word, but it is naïve to think that the dis­band­ment of the min­ing in­dus­try, par­tic­u­larly with fu­els such as coal, would cre­ate a more sus­tain­able fu­ture. In fact, some would ar­gue the op­po­site is true.

It was this con­trar­ian vi­sion to coal that brought Matt Craw­ford and Keith McKnight to­gether to form Cuesta Coal.

“The coal in­dus­try is a good in­dus­try, it has a long term fu­ture,” Matt says. “We should all be mind­ful about fu­ture energy re­quire­ments, par­tic­u­larly in de­vel­op­ing coun­tries in­clud­ing In­dia and China. And I think Aus­tralia can play a big role in pro­vid­ing forms of energy in these grow­ing economies.”

For those un­fa­mil­iar with Cuesta Coal Lim­ited, it is an ASX listed coal ex­plo­ration com­pany with a pipeline of coal projects rang­ing from de­vel­op­ment to Green­field ex­plo­ration. The Com­pany is sup­ported by a strong corner­stone in­vestor and is tar­get­ing pro­duc­tion from its Moor­lands Pro­ject in a 3–5 year time­frame. The Moor­lands Pro­ject is an open cut ther­mal coal pro­ject with a re­source of 146Mt, with sig­nif­i­cant ex­plo­ration up­side. Cuesta has a di­verse port­fo­lio of ther­mal and cok­ing coal ex­plo­ration prospects within the Bowen, Su­rat and Galilee basins, with the com­pany’s core projects well si­t­u­ated ge­o­graph­i­cally and close to ex­ist­ing in­fra­struc­ture.

Cuesta’s founders came to­gether at the White Energy Com­pany. Matt had been in the energy in­dus­try since 2000, when he joined Aus­tralian Char and was sec­onded to work for the Grif­fin Coal Min­ing Com­pany on a va­ri­ety of projects. These projects in­cluded trial ship­ments of coal to ex­port mar­kets, car­bon­i­sa­tion and cok­ing tri­als and eval­u­a­tion of coal dry­ing tech­nolo­gies and var­i­ous busi­ness de­vel­op­ment ac­tiv­i­ties as­so­ci­ated in the coal sec­tor. In 2005 Matt be­gan work as an en­gi­neer­ing con­sul­tant ser­vic­ing ar­eas of the min­ing sec­tor. Then be­tween 2006 and 2010 he con­sulted to White Energy Com­pany and played a key role in the

commercialisation of the Bin­der­less Coal Bri­quet­ting Tech­nol­ogy tak­ing lead site based and head of­fice man­age­ment and com­mis­sion­ing roles for plants both in Aus­tralia and In­done­sia.

Mean­while Keith, whose first ex­pe­ri­ences in min­ing was in Ire­land in 1999 af­ter grad­u­at­ing univer­sity with a Me­chan­i­cal Engi­neers de­gree, be­came en­gi­neer­ing man­ager at White Energy Com­pany in 2009. Keith also worked on de­vel­op­ment of their Bin­der­less Coal Bri­quet­ting (BCB) Demon­stra­tion Fa­cil­ity in the Hunter Re­gion of NSW and on their first com­mer­cial plant in East Kal­i­man­tan, In­done­sia.

The pair had a good work­ing re­la­tion­ship and found they had com­ple­men­tary skills. So they took the leap into start­ing their own busi­ness. “Keith is very good on the de­tail and pro­ject man­age­ment, while I bring skills to the big pic­ture view,” Matt says.

Keith con­tin­ues, “We have a very com­ple­men­tary skillset. I can be very of­fi­cious in some ways, while Matt is al­ways look­ing 12 months or even fur­ther down the line. My role in the busi­ness and in the part­ner­ship is to fo­cus on de­liv­er­ing value to in­vestors in an op­er­a­tional sense.”

Like Matt, Keith al­ways had it in the back of his mind to start his own busi­ness. His at­ti­tude to busi­ness has al­ways been to fo­cus on get­ting the best re­sults with the least amount of fuss. How­ever he says it is im­per­a­tive to find the right part­ner be­fore mak­ing that leap.

“We were lucky to come across each other and I sup­pose Matt had the fore­sight to com­mence a busi­ness. It’s been a roller­coaster so far, but a very en­joy­able one.”

From Matt’s point of view they came to this in­dus­try late and had dif­fi­cul­ties in es­tab­lish­ing them­selves in Queens­land. Un­de­terred, the vi­sion was to es­tab­lish a port­fo­lio with one flag­ship pro­ject that could be brought into pro­duc­tion in the quick­est time­frame pos­si­ble. It was to cre­ate a cash­flow pos­i­tive busi­ness and repli­cate what was hap­pen­ing in the Pil­bara, by mid-tier min­ing com­pa­nies.

The main pro­ject is Moor­lands. The pro­ject was formed by con­sol­i­dat­ing the Com­pany’s Moor­lands De­posit with the Orion Coal Pro­ject, which Cuesta ac­quired on

12 De­cem­ber 2012. The Moor­lands Pro­ject is lo­cated 30km to the west of Clermont in the Western Bowen Basin and has a com­bined JORC re­source of 146.1Mt. The coal is a high-volatile bi­tu­mi­nous ther­mal coal with low ship­ping ra­tios (3.2:1). This pro­vides the com­pany with a sig­nif­i­cant de­vel­op­ment pro­ject 14km from the ex­ist­ing in­fra­struc­ture at the Blair Athol Mine. The Com­pany is pro­gress­ing with its de­vel­op­ment pro­gramme and aim­ing for first coal pro­duc­tion in 2016

“We bought Moor­lands a cou­ple of years ago and then we ac­quired another pro­ject called Orion,” Matt says. “We bought that for $18 mil­lion in Fe­bru­ary 2013 and the Orion Pro­ject was a bolton ac­qui­si­tion of our ex­ist­ing Moor­lands pro­ject to give us a much larger foot­print and larger re­source from the start.”

Keith con­tin­ues, “Moor­lands fits per­fectly with our busi­ness de­vel­op­ment strat­egy and that is to take the com­pany from ex­plorer to devel­oper into pro­ducer.”

To do this prop­erly an in­vestor was re­quired to un­der­write the pro­ject. They also wanted to turn the com­pany public to at­tract a greater share­hold­ing. They were lucky to at­tract Bei­jing Guoli. Bei­jing Guoli is a 4 bil­lion RMB con­glom­er­ate fo­cused on diver­si­fied pri­vate power gen­er­a­tion, real es­tate de­vel­op­ment and in­vest­ment.

A fur­ther $12m was in­vested by Guoli in July this year. Bei­jing Guoli in­vested $20 mil­lion dol­lars in two stages, $5 mil­lion dol­lars pre-IPO (ini­tial public of­fer­ing) and $20 mil­lion at IPO. That in­vest­ment be­came the back­bone of the pro­ject.

“They are a great part­ner,” Keith says. “Ev­ery­thing they said they’re go­ing to do, they do it – they’re very pro­fes­sional. I un­der­stand cap­i­tal mar­kets and I also un­der­stand the min­ing in­dus­try can be volatile, but they’ve been great to deal with. Part­ner­ing with a pro­fes­sional Chi­nese group like Bei­jing Guoli who un­der­stand the econ­omy within China, how it works, where it’s go­ing is a great as­set es­pe­cially with the grow­ing de­mand from China.”

One el­e­ment of the busi­ness that makes Cuesta at­trac­tive is its un­der­stand­ing that there needs to be a bal­ance struck be­tween re­new­able energy and fos­sil fuel. Aus­tralia al­ready pro­duces higher qual­ity coal. Matt and Keith be­lieve re­stric­tions on poorer qual­ity coal will ben­e­fit Aus­tralian com­pa­nies long-term. Even though there is a slight move­ment away from fos­sil fu­els.

“There’s no real sub­sti­tute for base load power sta­tions apart from ther­mal coal,” Matt says. “How­ever we have to do things cleaner and makes things more ef­fi­cient. The in­dus­try has al­ready started to do those things.”

Cuesta has nine projects un­der man­age­ment, but the main fo­cus is Moor­lands. Keith and Matt pay trib­ute to the team, in­clud­ing the very ex­pe­ri­enced board, to be able to man­age the work­load, es­pe­cially in a com­pany that is still es­tab­lish­ing it­self.

“Ev­ery­one works bloody hard and they’re all work­ing for a com­mon cause, which I think is im­por­tant,” Matt says.

Keith says com­mu­ni­ca­tion has been para­mount.

“I think com­mu­ni­ca­tion and the hard work is re­ally pay­ing off for us be­cause we’re am­bi­tious. We had to work pretty hard to get where we are to­day and we’re firmly fo­cused on de­liv­er­ing a re­turn for share­hold­ers. When you de­velop a com­pany like Cuesta, as a ju­nior ex­plorer with am­bi­tion to be­come a pro­ducer you need faith from your share­hold­ers and you need a lot of sup­port and we hope we can re­pay that.”

The pair is un­der no il­lu­sion that this will take time. The min­ing in­dus­try no longer of­fers in­stant re­wards, how­ever ev­ery­one knows where they stand and Cuesta is com­mit­ted to reach­ing its tar­gets.

Matt Craw­ford

Keith McKnight

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