THE NEW BLACK FEA­TURE

QLD COAL IN RE­VIEW

The Australian Mining Review - - FRONT PAGE - REUBEN ADAMS

No one is call­ing it a boom just yet – but the QLD coal sec­tor’s strong growth over the past year now looks set to con­tinue its up­ward tra­jec­tory through 2018.

COAL has of­fi­cially re-emerged from some of the most dif­fi­cult in­dus­try con­di­tions in years.

Even tak­ing into ac­count the sub­stan­tial im­pacts of Cy­clone Debbie in April, strong prices have put a spring into the step of the QLD’s ma­jor pro­duc­ers.

In FY17, New Hope Group’s rev­enue from its QLD and NSW op­er­a­tions jumped 59 per cent to $844.1 mil­lion.

White­haven Coal rode higher vol­umes and prices to post a mas­sive 20-fold jump in full-year profit to $405.4m.

Glen­core recorded a 50 per cent jump in en­ergy prod­ucts in­dus­trial rev­enue to $US5.037m in H1 2017.

Even Yan­coal nar­rowed its net loss to $13.9m from $180m the pre­vi­ous year.

And Anglo Amer­i­can’s de­ci­sion to hang onto its QLD coal as­sets now looks vin­di­cated, as its 2017 Mine of the Year Mo­ran­bah North re­mains on track to de­liver record pro­duc­tion tar­gets for the cal­en­dar year.

In­dus­try in­sid­ers, in­clud­ing New Hope Group chief ex­ec­u­tive Shane Stephan, were con­fi­dent that coal would make a come­back.

“Back in 2015, we were at a point where 60 per cent of the Aus­tralian ther­mal coal in­dus­try wasn’t mak­ing cash,” Mr Stephan said.

“Over 90 per cent of the Chi­nese ther­mal coal pro­duc­ers weren’t mak­ing cash ei­ther – they weren’t able to pay their work­ers, so they weren’t able to pay their debts.

“But at the same time, the Chi­nese power util­i­ties had their best ever year in 2015. It was rea­son­ably fore­see­able that that wasn’t sus­tain­able.”

Things are be­gin­ning to change. In FY17, the en­tire QLD re­sources sec­tor de­liv­ered $55.1 bil­lion to the State’s econ­omy, sup­ported close to 300,000 full-time jobs, paid $3.8 bil­lion in roy­al­ties to the State bud­get and gen­er­ated more than 70 per cent of to­tal ex­port value, ac­cord­ing to Queens­land Re­sources Coun­cil (QRC) chief ex­ec­u­tive Ian Mac­far­lane.

“With sus­tained higher prices for com­modi­ties new mines will open, such as QCoal’s By­er­wen which cre­ated 350 di­rect con­struc­tions jobs, 500 op­er­a­tional jobs, and as many as 5000 in­di­rect jobs with first ex­ports in com­ing months,” he said.

“We are also see­ing a mea­sured re­sponse to em­ploy­ment with job num­bers grow­ing.

“How­ever, the num­ber of ad­ver­tise­ments are con­sid­er­ably less com­pared to the boom times and are com­ing off a very low base af­ter sev­eral years of softer com­mod­ity prices.”

A key elec­tion re­sult

These num­bers may be com­ing off a low base, but there are al­ready rea­sons to cel­e­brate.

Now, an event­ful State elec­tion has con­cluded with La­bor re­tain­ing power – this time with a clear ma­jor­ity. This is a good thing for busi­ness, Mr Stephan said.

“No mat­ter which party, I think busi­ness prefers a Gov­ern­ment with a clear ma­jor­ity,” he said.

“Any Gov­ern­ment that has a clear ma­jor­ity is in a bet­ter po­si­tion to govern and pro­vide cer­tainty to busi­ness; as a mem­ber of the re­sources in­dus­try that would be our hope.”

Mov­ing for­ward, a sus­tain­able and glob­ally com­pet­i­tive coal sec­tor will re­quire ef­fec­tive col­lab­o­ra­tion and con­sul­ta­tion be­tween Gov­ern­ment and in­dus­try.

The QRC has ap­plauded the “proac­tive ap­proach” of the Palaszczuk Gov­ern­ment to re­lease acreage to sup­ply the do­mes­tic gas mar­ket and land for min­er­als in the North West Min­er­als Prov­ince, how­ever it is con­cerned about the “con­flict­ing mes­sages” be­ing sent about fu­ture in­vest­ment.

In par­tic­u­lar, the di­vi­sive Adani project – which dom­i­nated the elec­tion news cy­cle – and the po­ten­tial for new re­stric­tions on gas im­posed on oil and gas ex­plo­ration and de­vel­op­ment through the ex­ten­sion of the Pris­tine Rivers pol­icy in the Cooper Basin.

“Dur­ing the elec­tion cam­paign, the Premier fo­cussed on her gov­ern­ment’s com­mit­ment to con­sul­ta­tion, and the QRC looks for a gen­uine com­mit­ment to this as the es­sen­tial in­gre­di­ent in sta­bil­ity for our sec­tor and State,” Mr Mac­Far­lane said.

The LNP failed to win Gov­ern­ment, but it ran with an im­por­tant mes­sage – cut red tape.

Red and green tape, drawn out de­vel­op­ment ap­provals, and po­lit­i­cal risk are hav­ing a real and tan­gi­ble im­pact on green­fields and brown­fields mine de­vel­op­ment in QLD.

QLD Premier An­nasta­cia Palaszczuk’s snap de­ci­sion to veto a $1bn Fed­eral loan for the Adani Carmichael mine is an ob­vi­ous ex­am­ple. But when dis­cussing the im­pacts of ex­ces­sive red tape, New Hope Group’s $900m New Acland Stage 3 ex­pan­sion is the per­fect case study.

New Acland Stage 3

New Hope’s New Acland mine near the town of Oakey has played a key role in the Dar­ling Downs re­gion as an em­ployer and eco­nomic con­trib­u­tor since 2002.

The mine has around 300 full time em­ploy­ees and ap­prox­i­mately 550 con­trac­tors on its books, and a large num­ber of these are small to medium sized busi­nesses based in the com­mu­ni­ties around the mine site.

First pro­posed in 2007 – a decade ago – the New Acland Stage 3 project must go ahead or the op­er­a­tion will close af­ter min­ing its re­serves in 2020 or 2021.

A re­cent EY re­port stated that the Aus­tralian econ­omy stood to ben­e­fit from an es­ti­mated $7bn in ad­di­tional eco­nomic ac­tiv­ity if the New Acland Stage 3 project re­ceives the green light.

The vast ma­jor­ity of this eco­nomic ac­tiv­ity will be gen­er­ated in QLD.

Af­ter re­ceiv­ing Fed­eral en­vi­ron­men­tal ap­proval early in 2017, the QLD Land Court de­liv­ered New Hope a body blow in late May.

In the long­est case in QLD Land Court his­tory – which in­cluded more than 100 days of hear­ings and 2000 ex­hibits – the Land Court rec­om­mended Stage 3 not be ap­proved.

“He ticked off a num­ber of the po­ten­tial is­sues, but took a neg­a­tive view on noise and po­ten­tial im­pacts to ground­wa­ter,” Mr Stephan said.

“It’s very dif­fi­cult, sit­ting in my po­si­tion, to in­vest very high risk dol­lars in mov­ing for­ward a green­fields project when I have no cer­tainty that I will even­tu­ally get a min­ing lease and the abil­ity to gen­er­ate cash out of it.”

“It was a dis­ap­point­ment to us, as we don’t draw on ground­wa­ter for our min­ing op­er­a­tions [re­cy­cled waste wa­ter from nearby Toowoomba is sup­plied to the mine via a 47km pipe­line built by the com­pany], and only a cou­ple of months prior we had re­ceived all the en­vi­ron­men­tal ap­provals re­quired by the Fed­eral Gov­ern­ment based on our up­dated wa­ter mod­el­ling.”

This is im­por­tant, be­cause the Fed­eral min­is­ter makes a de­ci­sion based on ad­vice from the In­de­pen­dent Ex­pert Sci­en­tific Com­mit­tee (IESC) – and one of the spe­cific ar­eas the com­mit­tee ex­am­ines is ground­wa­ter.

Now New Hope must wait un­til 9 March 2018 for a five day ju­di­cial re­view of the judges hear­ing to pos­si­bly de­ter­mine the project’s fate.

Red tape: a case study

There is an ob­vi­ous prob­lem with red tape in par­tic­u­lar ar­eas of reg­u­la­tion.

Take ground­wa­ter. Cur­rently, a re­source pro­po­nent needs Fed­eral Gov­ern­ment ap­proval with the ad­vice of the IESC; it needs to get through the co­or­di­na­tor gen­eral in QLD who looks at ground­wa­ter is­sues; it needs to go through the QLD Land Court; and now it needs to go through an as­so­ci­ated wa­ter li­cense ap­pli­ca­tion process.

Ground­wa­ter is im­por­tant to the agri­cul­tural sec­tor, the re­sources sec­tor and the com­mu­nity at large, so it is cru­cial that it is man­aged prop­erly.

But the cur­rent process rep­re­sents four dif­fer­ent mech­a­nisms and pro­cesses that re­quire min­ers, such as New Hope, to present the tech­ni­cal ma­te­rial and the mod­el­ling in four dif­fer­ent ways to man­age the same risk.

Mr Stephan said long ap­provals pro­cesses, ex­cess red tape, and po­lit­i­cal un­cer­tainty were hav­ing a man­i­fest com­mer­cial im­pact in­dus­try wide.

“If you take a step back from New Acland, in­stead of in­vest­ing in new green­fields projects min­ing com­pa­nies are buy­ing ex­ist­ing projects from other com­pa­nies,” he said.

“It’s ac­tu­ally dis­tort­ing some of the values be­ing paid for some of those ex­ist­ing as­sets.

“From the State’s per­spec­tive, be­cause of roy­al­ties and em­ploy­ment the Gov­ern­ment should en­cour­age both green­fields de­vel­op­ment and brown­fields ex­pan­sions.

“The State ben­e­fits from in­creased pro­duc­tion. Right now, all that’s hap­pen­ing is in­vest­ment dol­lars are go­ing from one com­pany to the next; just buy­ing and sell­ing as­sets.”

This reg­u­la­tory cli­mate ac­tu­ally in­flu­enced New Hope’s $US11m ac­qui­si­tion of Peabody’s Bur­ton coal mine, which ad­joins its ma­jor­ity stake Len­ton JV.

New Hope plans to seek Board ap­proval for a sub-$100m capex de­vel­op­ment of the 2mtpa Bur­ton-Len­ton coal project by mid-2018, re­sult­ing in be­tween 200 and 300 jobs from the cen­tral QLD towns of Nebo, Glen­den and Mo­ran­bah.

“We tar­geted Bur­ton be­cause its ap­provals are very long dated, and its diver­sity in terms of in­fra­struc­ture and ju­ris­dic­tion,” Mr Stephan said.

“It’s very dif­fi­cult, sit­ting in my po­si­tion, to in­vest very high risk dol­lars in mov­ing for­ward a green­fields project when I have no cer­tainty that I will even­tu­ally get a min­ing lease and the abil­ity to gen­er­ate cash out of it.

“Also, I have to look for­ward at least seven years into the fu­ture – prob­a­bly 10 – just to get the ap­provals. [It] makes it pretty hard to get the fund­ing to put holes in the ground.”

“We have over 40 per cent of our cur­rent min­ing dis­tur­bance al­ready re­ha­bil­i­tated – 490 hectares of graz­ing coun­try.”

Com­mu­nity Sup­port

Com­mu­nity re­sponse to the New Acland mine and the ex­pan­sion has been over­whelm­ingly pos­i­tive.

Un­like Adani’s ex­po­sure, even main­stream me­dia cov­er­age is now more fo­cused on the neg­a­tive im­pacts should the mine close in 2021.

Mr Stephan said it was very en­cour­ag­ing to the com­pany and its em­ploy­ees that mem­bers of the lo­cal com­mu­nity were pre­pared to stand up for the project.

“In the past our ob­jec­tors in the me­dia of­ten said they were speak­ing on be­half of the com­mu­nity, and the com­mu­nity came to us say­ing ‘well, we’ve re­ally had a gut­ful of this; these peo­ple are speak­ing on their own be­half, they aren’t speak­ing on be­half of the ma­jor­ity of the com­mu­nity’,” he said.

“They came to us want­ing us to sup­port them and give them a voice. The me­dia cam­paign that they have ac­tively par­tic­i­pated in, and that we have sup­ported, is a real demon­stra­tion of giv­ing a com­mu­nity their voice in sup­port of the project.

“We are the sec­ond largest em­ployer in the dis­trict – we em­ploy lo­cally, there’s no fly-in fly-out – many of our op­er­a­tors are in fact farm­ers them­selves work­ing with us for off-farm in­come.

“We have a great track record for sup­port­ing lo­cal com­mu­ni­ties. We also have good track record with the en­vi­ron­men­tal re­ha­bil­i­ta­tion; we have over 40 per cent of our cur­rent min­ing dis­tur­bance al­ready re­ha­bil­i­tated – 490 hectares of graz­ing coun­try.”

QRC chief Ian Mac­far­lane is a Toowoomba res­i­dent, which gives him a first-hand view of the sup­port that large min­ing projects, like Carmichael and New Acland, re­ceive from the re­gional busi­nesses and com­mu­ni­ties im­pacted by them most.

“Re­gional bod­ies in­clud­ing Toowoomba and Townsville are vo­cal in their sup­port for these two projects, as are the lo­cal sup­pli­ers who will ben­e­fit from the flow-on con­tracts the mines will cre­ate,” Mr Mac­far­lane said.

For the record, New Hope is con­fi­dent it will get ap­provals for Stage 3.

The con­cern is in the de­lays in tim­ing be­tween com­ple­tion of min­ing the re­serves at Stage 2 in 2020/2021 – as­sum­ing the coal price stays where it is – and the de­vel­op­ment of Stage 3. It will take about 18 months to build the in­fra­struc­ture to ac­cess the Stage 3 re­serve.

“It’s a very tight time­line, so that’s our real con­cern,” Mr Stephan said.

“That will mean a gap in em­ploy­ment be­tween Stage 2 and Stage 3 and we don’t want to lose our highly skilled work­force; nor do they want to have to leave their lo­cal area in search of work else­where.

“We are a medium sized min­ing com­pany. We know the peo­ple that will be di­rectly im­pacted at Acland. Young peo­ple, young fam­i­lies, whose kids go to the lo­cal schools. They need se­cu­rity.

“From our per­spec­tive we have very skilled em­ploy­ees. It takes sev­eral years for us to train up a dozer driver to mine mul­ti­ple thin seams, so the last thing we want is to let those em­ploy­ees go for any pe­riod of time.”

A Bright Out­look

Ac­cord­ing to the Of­fice of the Chief econ­o­mist, buoy­ant prices for steel-mak­ing com­modi­ties and ther­mal coal, and in­creased LNG ex­port vol­umes, are ex­pected to see Aus­tralia’s re­sources and en­ergy ex­port earn­ings in­crease by 2 per cent in 2017–18 to a record $211bn.

Ro­bust met­al­lur­gi­cal coal spot prices are ex­pected to con­trib­ute to con­tin­ued strong ex­port earn­ings in 2017–18, be­fore mod­er­at­ing in 2018–19.

Aus­tralia’s ther­mal coal ex­port earn­ings will also stay ro­bust over the next year, be­fore spot prices de­cline from re­cent highs to $US69 a tonne in 2019.

Mr Stephan said that to in­cen­tivise the next wave of the cap­i­tal in­vest­ment needed to boost pro­duc­tion out of Aus­tralia, “you re­ally need about $US85 to $US90/t”.

“That’s not go­ing to hap­pen any­time soon, but we be­lieve that it will be de­manded by Asia around 2023/2024,” he said.

“There are in­creas­ing en­ergy needs in Asia, and coal will form a part of that mix along with re­new­ables and gas.”

This in­creased in­fra­struc­ture in­vest­ment is al­ready hap­pen­ing—as of June 2017, there were 286 ad­vanced tech­nol­ogy coal fired pow­ers sta­tions planned or un­der con­struc­tion glob­ally— with around 85 per cent of those lo­cated in Asia.

In QLD, QCoal’s By­er­wen project is aim­ing for first ex­ports in the com­ing months. Adani is forg­ing ahead with its re­gional hir­ing drive and is still aim­ing for first coal in March 2020.

But even if Carmichael doesn’t fi­nalise the fund­ing it needs to sup­port ma­jor con­struc­tion, QLD as a whole is well po­si­tioned to take ad­van­tage of Asia’s grow­ing de­mand in the medium term.

“We have high-qual­ity coal, some of the cheap­est coal trans­porta­tion in the world, and are com­par­a­tively short dis­tances away from ma­jor mar­kets in Asia,” Mr Mac­far­lane said.

“The key chal­lenge will be mak­ing sure our reg­u­la­tory en­vi­ron­ment is sup­port­ive of fu­ture brown­fields and green­fields in­vest­ment.

“Reg­u­la­tory un­cer­tainty con­tin­ues to be a damp­ener for re­sources chief ex­ec­u­tives. The coal in­dus­try needs greater cer­tainty over its reg­u­la­tory en­vi­ron­ment be­fore it can com­mit to the next wave of in­vest­ment.”

All im­ages: New Hope Group.

New Hope Group chief ex­ec­u­tive Shane Stephan.

Just some of the lo­cal Oakey busi­nesses with New Acland Stage 3 sup­porter signs.

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