THE NEW BLACK FEATURE
QLD COAL IN REVIEW
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.”