BOOM NOT BUST
Why the mining industry’s outlook is not so bleak
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.