Weak Coal Prices

[greengiraffe]

Miners shovel coal into flooded market
DOW JONES OCTOBER 23, 2014 12:30PM

SYDNEY-Miners are shovelling more metallurgical coal onto a global market already awash with the steelmaking commodity, delaying any recovery in prices that are at multiyear lows.

BHP Billiton Ltd. became the latest company to announce record output of metallurgical coal, after opening new mines that were planned years ago when prices of the commodity were at a peak. The extra supply is far outpacing demand in countries such as China and Japan, which produce much of the world’s steel.

Miners’ willingness to dig up more coal despite lower prices mirrors a similar push in iron ore, in which miners are investing billions of dollars and running operations harder in a bet that efficiencies of scale will allow them to profit. Critics say the strategy risks creating a supply glut of each of the raw materials used to make steel that will take years to clear.

On Wednesday, BHP said it produced a record 12.8 million metric tons of metallurgical coal in the three months through September, up 7 per cent from the previous quarter and 25 per cent above levels of a year earlier. This included output from a new Australian mine called Caval Ridge, which BHP and partner Mitsubishi Corp. opened this year. BHP, in its joint venture with Mitsubishi, is the world’s largest metallurgical-coal exporter.

Anglo American PLC, the world’s No. 3 metallurgical-coal exporter, has also been increasing supply despite easing demand. The company’s metallurgical-coal production from January to June jumped 21 per cent compared with a year earlier.

The supply surge is weighing on prices and forcing analysts to rethink expectations of a recovery. Many companies with unprofitable mines are opting to wait out the downturn rather than shutting production and laying off staff.

The price for Australian premium hard coking coal, a type of metallurgical coal, has tumbled 16 per cent this year to US$110 a ton, according to data provider the Steel Index. That is near its lowest level in more than seven years and well below the US$300 a ton the material fetched in early 2011.

“We are forecasting a surplus again in coking coal in 2015,” said Christopher LaFemina, an analyst at broker Jefferies who estimates the market oversupply will double to 20 million tons in 2015 from 2014. Consequently, the potential for coal prices to rise “is likely to be much more limited than we had previously anticipated,” he said.

Jefferies recently downgraded its price forecasts for Australian hard coking coal by 12 per cent in 2015, to US$115 a ton, and 10 per cent in 2016, to US$117 a ton.

For BHP, the start-up of Caval Ridge was the biggest contributor to increased volumes in its fiscal first quarter. The mine in remote Queensland state is designed to produce 5.5 million tons a year of the fuel. But the company also dug up record amounts of coal at the Daunia and South Walker Creek mines in Queensland, partly because it used its equipment more effectively.

The scale of the jump in output surprised analysts. “The on-quarter performance of metallurgical coal was strong,” said Barclays mining analyst Ephrem Ravi, who argues that BHP’s broad range of assets from coal and copper to petroleum should allow it to ride out economic cycles better than competitors such as Rio Tinto PLC.

RBC Capital Markets said BHP’s metallurgical-coal production was 17 per cent above its own forecasts. In the year through June 2015, BHP said it hopes to increase production of metallurgical coal by 4 per cent, to 47 million tons.

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‘Broken system’ a risk to jobs: Rio coal boss
THE AUSTRALIAN OCTOBER 25, 2014 12:00AM

Sarah-Jane Tasker

Reporter
Sydney
Supplied Editorial drayton

The 500 staff at Drayton mine are set to lose their jobs. Source: Supplied
RIO Tinto’s Australian coal boss has hit out at the NSW planning system, saying it has reached a “state of crisis” and that urgent ­action is needed to protect jobs.

The state’s mining sector has rallied to raise concerns about a planning system it says is broken as the mining lobby warns that more than 8600 jobs in the Hunter Valley region are at risk.

Rio’s coal Australia managing director, Chris Salisbury, told The Weekend Australian that the company had been continually frustrated by delays in the NSW system and slipping timelines.

“If the system can’t provide certainty about the future of an existing mining operation that provides work for 1300 people and supports hundreds of local businesses, surely that shows there’s a serious problem,” he said.

The mining giant is caught up in the state’s planning process after an approval it had received to expand its Mount Thorley Warkworth coalmine in the Hunter Valley was overturned by the Land and Environment Court last year. It is now fighting to have an amended proposal approved but it has continually warned that the 1300 jobs at the mine are at risk if it can’t expand the operation.

“After more than five years in the planning system we still haven’t been able to secure the future of Mount Thorley Warkworth mine, which has been part of the Hunter Valley community for three decades,” Mr Salisbury said.

The state’s sector was shocked this week when the government-appointed planning assessment commission rejected a plan by Anglo American to expand its Drayton coalmine in the Hunter Valley.

The 500 people working at the mine are now set to lose their jobs as the mine will run out of coal by April-May next year.

The NSW Minerals Council yesterday released data showing that more than 4000 current mining jobs were at risk and more than 4500 potential new jobs may never arise because of a planning system that it says is failing to deliver for the people of NSW.

The industry body said that according to the ABS, there were 8800 more people unemployed in the Hunter now than when the current state government took office, adding that the Hunter Valley unemployment rate had risen from 5.8 per cent to 8.4 per cent.

Anglo’s chief executive of coal, Seamus French, this week said that the company did not accept the PAC process and did not believe that it protected the interests of local people or the state of NSW.

“If Drayton South does not go ahead there is no other employer positioned to fill this void and the impact on the local towns, local schools and long-battling local businesses will suffer as our people have no choice but to move away to pursue opportunities elsewhere,” he said.

On the Drayton decision, the PAC decided that the potential economic loss if the nearby horse studs — backed by multinational interests — chose to leave the area because of the mine expansion far outweighed the economic loss of the mine closing and 500 job losses.

The PAC was introduced by the former NSW Labor government in November 2008 as an independent advisory body to the planning minister. In September 2011, after the Coalition was elected, they delegated the power to make the determinations on major developments to the PAC.

NSW Minerals Council chief executive Stephen Galilee said it was a concern that there was no accountability back to the government for the decision made by the PAC. “The government should be responsible for the decision that is made,” he said.

Mr Galilee also outlined that the government had failed to ­provide the PAC with the guidelines and policy parameters by which it should assess project ­applications.

“The PAC has had to make up policy that it believes is appropriate for particular projects,” he said. “That means uncertainty for proponents and inconsistency in outcomes.”

Mr Galilee said the lack of guidelines for the PAC had left it open to manipulation and he also argued that the public hearings around the process had become a “circus”.

He said there were examples of anti-coal activists doing musical performances to state their concerns at a PAC public hearing. He added that there was also one instance where someone used a puppet of the earth to make his point. “People with genuine issues have to compete with that sort of craziness,” Mr Galilee said.

“It is like a town-hall meeting ... it’s like a performance rather than a proper hearing of those for and against.”

[greengiraffe]

No longer the good oil

Aaron Patrick
1392 words
25 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Divestment Its national wealth may be largely based on resources, yet even Norway is considering dumping coal. Aaron Patrick reports.

The Ophelia bar in Oslo's student district offers a Monday special on one of its popular dishes: a hamburger with chipotle sauce and a small basket of chips. The price is the same as a glass of Leffe beer: 100 Norwegian krone, equivalent to $17. "We're doing it to get more people in," the barman tells AFR Weekend, surveying the empty room.

In the late 1990s, Norway decided that all taxes from oil and gas production would be diverted to what is now one of the world's biggest sovereign wealth funds. The objective was to avoid "Dutch disease", an export-driven currency surge that strangles other industries. It doesn't appear to be working.

Now, in a step that could be felt in ­boardrooms across Australia, Norway is debating whether its $950 billion Global Pension Fund should be more than a national piggy bank and join the global movement against coal.

A Norwegian coal investment boycott would ricochet around the world, deliver a huge boost to the divestment movement, put mining and energy companies on the defensive and probably encourage more Australian public institutions to copy the Australian National University's controversial sell-down of resource companies.

One of the richest countries on earth and with a generous social safety net, Norway doesn't want to ban oil or gas investments. After all, these are the industries that are the basis of its wealth. But many regular Norwegians and their political leaders want to draw the line at the black substance, which makes up a large part of Australia's resources industry and produces one-third of the world's carbon dioxide emissions.

"Coal is by the far the worst [for the climate] and the place to start," says Torstein Solberg, the Labour opposition spokesman on the fund.

On the other side of Norway's political chamber, the conservative Norwegian coalition government doesn't want the fund used as an arm of policy. "It should not be a political tool to promote development in Africa or climate change or anything like that," says deputy finance minister Paal Bjornestad, a member of the free-market Progress Party. "It should stay a financial matter."Parliament controls fund

But Parliament oversees the fund, not the government, and parties controlling a majority of seats favour a coal ban in principle, including two sitting on the government benches: the Liberal Party and the Christian Democrats.

Similar debates about coal, gas and oil investments are being fought in Australia, the US, Europe and elsewhere. But nowhere are the stakes probably as high as in Norway, whose riches and reputation as a responsible global citizen have made it a powerful international force for ethical investing. Companies that make cigarettes and nuclear weapons or use child labour are already banned from the portfolio. So is Rio Tinto, on environmental grounds.

Solberg, who is 29 and has a master's degree in sustainability, spoke to AFR Weekend in the modest café of Norway's Parliament House, which is located in Oslo's main shopping district next to a large Louis Vuitton store. The hilly city of 600,000 surrounds an attractive, jagged harbour. Traditional European low-rise, high-ceiling apartment buildings sit next to sleek, modern architecture that wouldn't look out of place in trend-spotting Wallpaper* magazine. Solberg's new jeans, open shirt and fitted jacket seem to sum up Norway's aura of ordered calm.

One of Labour's objectives is to provide international leadership. "We don't want to tell Australia what to do, because the fund is not foreign policy," Solberg says. "But [hopefully] Australian politics can be inspired by the debate and the decision."

Like the Rockefeller family's decision to sell out of oil, the oil-rich Norwegians don't see the irony of a ban on coal as ironic. They have a proud history of climate change policy and taking further action is likely to be politically popular. Under Norway's last prime minister, Labour's Jens Stoltenberg, 80 per cent of greenhouse gas emissions were covered by the European emissions trading system, a carbon tax, or both.

But Stoltenberg has left politics for a position at NATO and the divestment debate is being driven by domestic politics similar in many ways to Australia.Seizing the initiative

Last year, after eight years in office, the Norwegian Labour Party lost power to the Conservative Party, which offered both tax cuts and generous welfare provisions.

Hoping to seize the initiative from opposition, Labour's new leader, Jonas Gahr Støre, proposed Parliament direct the fund to boycott coal companies. He knew, given Norway's gas and oil wealth, it would send a powerful message about Norway's commitment to combating climate change.

Politically, Labour's idea was designed to split the government's coalition. The Liberal and Christian Democrats previously supported a coal ban – when Labour had rejected it. Now, they accused Labour of opportunism. The scope of the ban was unclear: would it cover only coalmining companies or coal-driven power producers? What about companies that use coal and wind to generate power?

Labour's push was somewhat undermined by its support for state-owned coalmining on the island of Svalbard, which is located in the far North Atlantic close to the Russian Navy's main Atlantic transit routes. A new mine opened on the island in February capable of producing 2 million tonnes of coal a year. A road was specially built over a glacier to transport the coal to port.

Selling or shutting down Svalbard's coal industry (which is 1 per cent-owned by a Labour-affiliated union and 99 per cent by the government) wasn't an option for either major party. The coal it produces is regarded as vital to Norway's energy security. Government ownership of the mine is perceived as an important demonstration of its commitment to the island's economy.

Unable to reach agreement, Parliament asked a former public servant, Martin Skancke, to examine the merits of a ban. His committee is due to report in the next month or so. Parliament is expected to make a decision by the Norwegian spring, when the annual review of the fund is due.No real impact?

The issue is complex. Some experts say divestment campaigns have no financial impact. Tobacco stocks, which were banned from Norway's fund several years ago, have performed well over the past five years.

Proponents, including Greenpeace, say the real objective is to stigmatise the coal industry to make it politically easier to impose tougher regulations and laws on it.

Divestment decisions, in Australia and overseas, get a lot of attention. The seven resources stocks sold by ANU were only about 1.7 per cent of its endowment, but the motivation behind the sale triggered a vigorous national debate that led to full-page ads in newspapers, including The Australian Financial Review. Coal stocks make up only 0.045 per cent of Norway's fund.

The Norwegian review is aware a coal boycott could have global implications. In a brief email, review chairman Skancke said: "It will be natural to discuss possible indirect effects through contributions to setting of norms for investor behaviour."

The last time the fund was used to help the environment, the result was disappointing. In 2009, at the direction of the Norwegian Parliament, the fund's investment managers allocated 1 per cent of its assets to "green technology" – mainly companies developing more efficient ways of generating power and using water. The return from the investments was 13 per cent over the following four years. If the fund had invested in regular shares, it calculates the return would have been 54 per cent, meaning the investments cost several billion dollars.

A decent return for shareholders or a chance to change the world? Bjornestad, the deputy finance minister, would like to have both. He is hopeful that technology will one day be able to capture carbon dioxide released by the combustion of coal. "Who knows," he says. "Coal may be considered in the future quite environmentally friendly."

Aaron Patrick's travel costs in Norway were paid for by the Norwegian government.


Fairfax Media Management Pty Limited

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[greengiraffe]

Glasenberg: do as I say, not do

Amanda Saunders
644 words
25 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Glencore, the world's biggest coal exporter, has been expanding its ­Australian coal output despite plunging prices, raising questions over whether chief executive Ivan Glasenberg is indulging in the very "sin" he's accused BHP Billiton and Rio Tinto of committing in the iron ore market.

Mr Glasenberg has repeatedly lashed out at the expansion strategies being used by Rio and its ­fellow iron ore majors, and their price impact, as part of his attempt to pitch a $190 billion "merger of equals" with Rio.

But as coal prices crash to five-year lows, Glencore, which is the dominant coal exporter in the global coal market – continues to raise its coal output.

Glencore told sell-side analysts in Australia last month that its coal output this calendar year would be 14 per cent greater than in 2012.

Glencore's total managed coal ­production is forecast to come in at 168 million tonnes in the 2014 calendar year, a fresh record on the 157 million tonnes last year.

But coal prices have fallen dram­atically since the boom times of ­mid-2011, with thermal coal dropping to $US66 a tonne from $US120 a tonne, and metallurgical coal at about $US115 a tonne, from $US300.'We believe in free markets'

When asked about whether Glencore's coal strategy contradicted Mr Glasenberg's criticism of the iron ore majors' flooding the market with fresh tonnes, BHP Billiton chief Andrew Mackenzie said: "I will leave you to draw your own conclusions.

"We believe in free markets," he said. "We believe in being the lowest-cost producer and we do not think the ­lowest-cost producer should be the swing producer."

Glencore told The Australian ­Financial Review that the rising ­volumes were partly a legacy of its $30 billion Xstrata takeover, which was bedded down last year.

"We have consistently told the market that part of the problem with oversupply in coal has been due to legacy capex commitments that we inherited with the takeover of Xstrata, which we could not cancel," Glencore said.

"Part of the logic of our acquisition of Xstrata was to reintroduce capital discipline. Glencore takes a very dis­ciplined approach to capital allocation and we have placed on hold a number of Xstrata's greenfield projects."

Many coal producers are almost forced to maintain production levels despite the big price drops because they are locked into minimum shipments by their "take-or-pay" contracts for rail and port capacity, which they have to pay regardless of whether or not they ship the tonnes.Take-or-pay exposure minute

But Glencore's take-or-pay exposure is minute compared to other ­Australian producers, analysts were told late last month.

Glencore said that of the total 475 million tonnes of contracted capacity across the Australian coal industry, about 100 million tonnes – or about a fifth – was surplus to production. Glencore's tiny take-or-pay exposure was a "strategic advantage", analysts heard.

Glencore has also been closing coal mines, and is in the process of mothballing its Ravensworth coalmine in NSW. However, Glencore's production in Australia is forecast at 94 million tonnes this year, up on 81 million tonnes last year, as its new Clermont thermal coalmine, in central Queensland, comes online.

Glencore's installed capacity is 196 million tonnes, and the coal giant also has a raft of brownfields expansions in the pipeline.

On Thursday, BHP's Mr Mackenzie defended the miner's iron ore expansion, saying "the lowest-cost producer has a right to continue producing at very high margins in the free markets".

Mr Glasenberg found an unlikely ally in WA Premier Colin Barnett, who this month accused BHP and Rio of "seemingly acting in concert" over "flawed" expansion strategies.But Mr Mackenzie said the WA Premier, was completely wrong.


Fairfax Media Management Pty Limited

Document AFNR000020141024eaap00050

[greengiraffe]

BRIAN TOOHEY
Clean coal dream little more than dust
PUBLISHED: 8 HOURS 19 MINUTES AGO | UPDATE: 2 HOURS 11 MINUTES AGO

Clean coal dream little more than dust
Carbon capture and storage technology has cost Australia almost $2 billion – but it is doomed.   Photo: Bloomberg
Capital idea
BRIAN TOOHEY

Australia has spent almost $2 billion in a doomed attempt to find a commercially viable way to fit carbon capture and storage (CCS) technology to coal-fired power stations. At least this is less than the $3 billion Kevin Rudd wanted to splurge as prime minister. To his credit, Treasurer Joe Hockey has cut $460 million from CCS spending. Over $220 million still deserves to be cut, but Environment Minister Greg Hunt continues to talk up CCS’s prospects.

Australia has long been on a quest to find the holy grail of technology that will allow us to burn coal without emissions. Hunt kept the dream alive this week when he praised the Commonwealth Scientific and Industrial Research Organisation’s progress on CCS.

It would be great if a cost-competitive way could be found to separate, capture and compress the carbon dioxide generated in burning coal to make electricity, then pump it through special pipes into geologically secure underground reservoirs to be stored over many years.

The reality is that this cumbersome technology will add significantly to the price of coal-fired electricity while the cost of rival technologies falls.

Wishful thinking won’t eliminate the cost penalties inherent in retrofitting generators with post-combustion CCS. This captures CO2 after the coal is burnt in an environment that looks more like a petrochemical plant than a power station. Pre-combustion CCS uses a potentially more costly approach to extract CO2 from gasified coal before the latter is burnt to make electricity.

‘PARASITIC LOAD’
Regardless of the type of technology, capital and operating costs will be much higher for CCS than simply venting the CO2 in the mix of flue gases that also contain oxides of nitrogen and sulphur. Apart from the extra spending on CCS equipment, more capital is needed to generate the power required to capture and compress the CO2. The CSIRO estimates 40 per cent more coal is typically needed to generate the extra power – dubbed a “parasitical load” as it can’t be sold to the grid.

Yet Hunt praised the CSIRO’s progress when responding on Monday to the latest report from the Intergovernmental Panel on Climate Change on the need to cut greenhouse gas emissions. The CSIRO is apparently making headway in cutting the cost of the solvent process for capturing the CO2 from the flue gases. But capture is only part of the problem. The CO2 then has to be compressed into a suitable form for piping, such as a slurry, then forced into a large underground storage site strong enough to prevent the compressed gas from erupting into the atmosphere.

The laws of physics ensure the energy required to compress any quantity of CO2 to a specified extent is constant. Nor are there obvious savings on transporting the gas and pushing it down storage holes. The CSIRO estimates transport and storage costs of up to $151 per tonne of CO2 for some NSW plants but much less for closer storage sites in Victoria.

A huge effort has gone into trying to deploy CCS overseas. Supporters hailed the recent opening of Canada’s Boundary Dam station, which was retrofitted with CCS. The government-subsidised 110-megawatt plant cost about $1.4 billion. That’s about three times the capital cost of a standard coal plant. It also has higher operating costs.

A 582-megawatt plant under construction in Alabama will use pre-combustion CCS. Costs have almost trebled to $6 billion. The price of the electricity is expected to be about five times higher than from a natural gas plant.

SOLAR ABOUT TO TAKE A DIVE
Another difficulty for CCS is that the cost of solar power in the United States is widely projected to fall to below that of coal by around 2020. The crossover point for Australian generators will be later, as they don’t have the US plants’ added costs of removing nitrogen and sulphur (but not CO2), although the point could come sooner if the big breakthroughs anticipated in battery storage for solar and wind eventuate.

A 2013 Bureau of Resources and Energy Economics report projects the costs for various generating technologies in NSW out to 2050. At no stage is CCS expected to be cheaper than solar photovoltaics or wind. The report’s cheapest option in 2020 and 2030 is a hybrid solar/coal plant, using a mix of sunshine and coal to make steam for generating electricity with lower emissions than from coal alone.

Newer coal-fired technologies, such as the use of pulverised coal at high (super-critical) pressures and temperatures, could be slightly cheaper than wind if deployed in 2020 or 2025. The bureau expects solar photovoltaics to become the cheapest source of energy by the 2030s. Again, big gains in battery storage to make solar and wind cheaper could make it sooner than that.

Hybrid solar/coal power plants seem to offer hope for the coal industry on cost and greenhouse gas emissions. So might the new, more efficient coal-fired generators. Although cleaner than conventional coal stations, these are still “dirtier” than natural gas generators. But rising gas prices in Australia hurt the latter.

However, the latest coal plants may not be viable if future governments adopt tighter emissions targets after 2020. Even without a tougher target, their prospects will suffer if better battery storage makes solar and wind more competitive in the 2020s.

But the new coal plants’ chances of success are much better than for CCS, which are nil.

It’s about time Hunt accepted this and abandoned CCS.

The Australian Financial Review

BY BRIAN TOOHEY
Brian Toohey
Brian writes about national affairs.

[greengiraffe]

China aims to cap coal use by 2020
NOVEMBER 19, 2014 10:30PM

China aims to cap its annual coal use at 4.2 billion tonnes by 2020, a one-sixth increase on current consumption, already by far the world's largest.

Wednesday's announcement by the State Council comes as Beijing faces growing public anger at air pollution largely caused by coal consumption, as well as international pressure to slow the growth of its greenhouse gas emissions.

Beijing will also attempt to limit coal to providing 62 per cent of its energy by 2020, with renewable and nuclear sources adding 15 per cent, the Council said.

Coal provides 69 per cent of energy currently, according to state media.

China's coal consumption reached 3.6 billion tonnes last year, the official news agency Xinhua said citing the National Coal Association (NCA) - almost as much as the rest of the world combined.

The 2020 target - a 16 per cent increase on 2013 - is in line with recent predictions by the NCA, an industry group.

China is the world's biggest producer of the greenhouse gases which cause climate change, and the announcement of the coal goal comes after President Xi Jinping last week pledged a target to cap carbon dioxide emissions "around 2030".

But Beijing faces spiralling demand for power to fuel its economic growth, and is opening a new coal-fired power plant every week according to environmental campaign group Greenpeace.

Northern China - home to heavy industry which relies on coal power - has been afflicted by chronic air pollution for years, which is estimated to have led to hundreds of thousands of premature deaths.

Faced with mounting public anger about the issue, provinces surrounding Beijing have vowed to cut coal use, but analysts say such measures have resulted in the most polluting facilities being shifted to China's relatively underdeveloped west.

Coal, gas and oil are the main source of global carbon emissions but also the backbone of the world's energy supply.

A UN climate panel warned this month that if current trends continue, the Earth is probably on a trajectory to warm at least 4C over pre-industrial times by 2100 - a recipe for increasing drought, flood, rising seas and species extinctions.

[greengiraffe]

Another tough year for coal
THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM

COAL prices are expected to remain weak next year, with global oversupply resulting from increased production from Australia and Indonesia.

Supply has been ramped up to compensate for lower prices, which have kept sliding this year.

In a new report on Asian coal, Moody’s says “miners will struggle to generate operating cashflows amid the sustained weak coal prices in Asia stemming from slow demand growth and chronic oversupply”.

But it adds that increased consumption of coal in the rest of Asia will partly offset China’s falling imports.

The ratings agency is forecasting the industry’s average EBITDA per tonne will stay below $US10-$US15 ($11.70-$17.60) in 2015, with cost-cutting and the deferment of capital expenditure helping soften the earnings decline but unable to offset adequately the impact of the slide in prices. However, it says “thermal coal producers will likely fare better than coking coal producers, because we believe power generators, the main consumers of thermal coal, are more resilient than the downstream steel market, the key consumer of coking coal”.

Although Indian demand is picking up, high inventory and weak demand in China are set to prevent coal prices from rising.

Moody’s expects Newcastle thermal coal to fetch $US65-$US75 a tonne and Queensland coking coal $US120-$US130.

Moody’s says “large, diversified suppliers into Asia, such as BHP Billiton and Glencore Xstrata, have more flexibility to weather weak prices than most single-commodity producers in the region”.

[greengiraffe]

Thermal coal back to the boil – Rio

Amanda Saunders
701 words
3 Dec 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Rio Tinto coal boss Harry Kenyon-Slaney has said green shoots are emerging in the thermal coal market after a dire run for more than two years that has seen prices crash to languish near six-year lows of about $US62 a tonne.

"We are seeing the beginnings of the stabilisation of the market, particularly in respect of price," Mr Kenyon-Slaney said in an interview with The Australian Financial Review.

"You've started to see a correction in the supply imbalance, in that you've seen supply being taken out of operation. I'm under no illusions – the tough times are going to continue for some time yet. But the cycle will turn."

And for Rio's thermal coal division, an aggressive two years of cost-cutting is allowing the miner to "keep our head above water," he said.

He expects at least another year of pain for the Australian industry as the market shakes itself out.

About 200 million tonnes of coal production had fallen out of the global market, including in China, and there were more casualties to come, he said. "It takes time for the supertanker to turn. But you are seeing signs, I think, of a rational response."

"My view is that [turn] has started to provide some stability to what has been a really difficult couple of years."Keep mines cash flow-positive

And in these tough times, for Rio it is about ensuring each individual mine site is cash flow-positive.

If any operation slips into the red, Mr Kenyon-Slaney said a "serious review" will be run.

"You've seen casualties all around the world. We have to make sure that our operations remain cash flow ­positive," he said.

Rio has stripped almost $US30 a tonne from costs across its thermal coal business over the past two years.

"We have positioned our business through the work that we've done to keep our head above water."

Mr Kenyon-Slaney also stressed that Rio had the best assets in the Hunter Valley – where the miner is the second-biggest thermal coal producer, behind Glencore. Rio's mines in the region are running at a combined annual pro­duction rate of about 35 million tonnes. At an investor seminar in Sydney last Friday, Rio moved to shore up its case against a joint venture of its Hunter Valley assets with Glencore, saying its assets were of superior quality.

Glencore told analysts on a tour of the region in September that $US500 million ($588 million) in syn­ergies could be created from combining its assets in the region with Rio's. Some analysts are convinced the idea has merit, and are putting the heat on Rio to justify shunning the option.Extracting all possible synergies

Mr Kenyon-Slaney said Rio's assets were "the premier piece of real estate". "We are extracting all the syn­ergies we possibly can across these businesses."

Rio's coal business had been caught in the shadow of the miner's more lucrative iron ore division, he said. "It is a truly world-class ore body, it gets lost a bit against the prestige of the ­Pilbara. And of course it gets lost a bit because of the difficulty of the ­current market.

"But the thermal coal basin [in the Hunter Valley] is the best in the world.

"And we've got the best address – right in the core of the Hunter Valley, across the spine of the geological ore body there. The assets are contiguous."

Mr Kenyon-Slaney also unveiled a major step in the miner's ­"transformation" of its Hunter Valley div­ision, with plans to create a Hunter Blend, and centralise operations through a new control centre.

A surprise reserve upgrade announced to market on Friday means Rio can produce at current rates for the next 80 to 100 years, the miner said.

Rio cited analyst consensus that the Newcastle thermal coal spot price will stabilise next year at an average of $US76 a tonne, in line with the average forecast for 2014. It is then forecast to pick up to $US81 a tonne in 2016.


Fairfax Media Management Pty Limited

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[Boon]

Australian coalminers returning to profitability, but for how long?

DateDecember 11, 2014

Peter Ker
Resources reporter

http://www.theage.com.au/business/mining...25bev.html

[Boon]

China still loving Australian coal

December 16, 2014

Bianca Hartge-Hazelman

http://www.smh.com.au/business/china-sti...280hi.html

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Bargains on offer as mining mergers point to bottoming in coal prices

Given the positive outlook for coal in Asia, those with an appetite for risk and deep pockets may get some bargains among the flurry of asset sales

PUBLISHED : Monday, 15 December, 2014

http://www.scmp.com/business/commodities...oal-prices