Coal news and updates

BHP Billiton's struggling Queensland coal sector will not face another royalty hike, after state Premier Campbell Newman promised a more stable royalty framework in the future.

 

Mr Campbell made the comments today while officially opening the Daunia coking coal mine near Moranbah, which will become the seventh mine to run under a long standing partnership between BHP and Mitsubishi.

 

The Australian coal sector has been struggling under lower commodity prices, high costs, union disputes and even flooding in recent years, and Mr Newman added to those challenges in 2012 when he increased coal royalties for miners working in his state.

 

The move angered miners and prompted some like Xstrata to suggest earlier this year that more than 30 per cent of Australian coal mines were unprofitable.

 

Advertisement Mr Newman used his appearance at Daunia to reassure BHP and Mitsubishi that there were no more royalty slugs looming on the horizon.

 

"We didn't like to do it, there won't be any further changes and we are certainly trying to give people some (cost) offsets elsewhere," he said, while standing beside BHP's coal president Dean Dalla Valle.

 

"We are doing everything we can to put on the table regulatory reform that will mean mines can find operating cost savings."

 

The start of production at Daunia, which has been ramping up since first coal in March, is another step forward for the BHP Mitsubishi alliance as it seeks to improve profitability across the division.

 

The mine was delivered several months early and about $US250 million under budget, giving hope that the nearby Caval Ridge mine construction will also come in on budget within the next 12 to 24 months.

 

The extra 15 million tonnes of coking coal that will eventually flow from Daunia and Caval Ridge each year will help the alliance reduce its overall unit cost, which is now believed to be only just below the benchmark price for coking coal.

 

Coking coal prices were testing $US220 per tonne just 14 months ago, but have slipped below $US150 per tonne on numerous occasions over the past year, and were $US147 per tonne this week.

 

That slide pushed BHP's coal division to an underlying loss for the first half of fiscal 2013 which was only turned into a $US746 million full year profit by a fierce cost-cutting regime and the production increases.

 

"We have been suffering a lot for the past two years because of the very high cost of contractors, high cost of commodities and high cost of operations," said Mitsubishi executive Kanji Nishiura. "We have to say goodbye to the past of high cost operations."

 

The seven mines that make up the alliance in Queensland reduced their cost profile by 30 per cent in the second half of the 2013 financial year, and JP Morgan has estimated the mines' average cost of production is now closer to $US120 per tonne.

 

All seven are believed to be profitable at the moment.

 

A big part of the cost reductions was achieved by dumping mining contractors such as Leighton, which was axed midway through its contract to mine the Peak Downs mine.

 

Other cost reductions were achieved by de-bottlenecking and efficiency measures, as well as a big reduction in the number of days lost to strikes.

 

The alliance struck a three-year workplace deal with miners and their union representatives just over one year ago, and that has delivered a much more stable operating environment.

 

The workplace deal does not cover the Daunia mine nor Caval Ridge, and the alliance will open talks on an agreement for those mines later this year.

 

Mr Dalla Valle said the 450 new jobs at Daunia came out of more than 30,000 applicants, and workers will fly in and out from Cairns and Brisbane.

 

He said despite tight margins, there was still a strong long-term demand trend for coking coal.

 

The alliance lost important market share to North American coal exporters during the flood and strike-affected years, but the latest statistics show it has started to claw that back.

 

Coal production increased by 13 per cent over the past year, and is expected to continue growing to 59 million tonnes of exports per year by 2015.

 

 

Source: www.smh.com.au