RAG to take stock of strategic acquisitons

RAG Coal International recently secured an important strategic foothold in Queensland's Bowen Basin with the purchase of the North Goonyella mine together with Thiess

Staff Reporter

Having had a presence in Australia since 1977 through their minority ownership of the German Creek operations, major German coal miner and trader, RAG Coal International recently secured an important strategic foothold in Queensland's Bowen Basin with the purchase of the North Goonyella mine together with Thiess Contractors. Visiting Australia recently was director Dr Gerd Stolte, responsible for RAG's Australian operations. He spoke to AMM about the company's local and international aspirations.

With current annual production of around 107 million tons, RAG is one of the world's largest hard coal producers and one of the most experienced operators of underground coal mines. In the RAG portfolio there are two companies active in the coal industry: Deutsche Steinkohle (DSK) carries out all mining activities in Germany and RAG Coal International is responsible for all coal related business outside Germany.

In the United States of America, RAG Coal International operates 16 surface and underground mines; in Australia operations include a minority share in the German Creek operations, majority shares at Burton and North Goonyella coking coal mines in Queensland; and, in Venezuela RAG owns a minority interest in the Paso Diablo open-pit mine. Production from these operations amounts to 70 million tons while the German mines (through Deutsche Steinkohle - DSK) produce around 37 million tons of hard coal. Some 20 million tons stems from international coal trade.

In its current form, DSK came into being in 1998, when the coal mines in the Saar area were placed under the operating umbrella of RAG. Since then the company has undergone a process of major restructuring in the face of lower subsidies for the German coal industry, increasing competition within domestic, European and international coal markets, and ongoing globalization. The subsidies are due to be reduced from current levels of DM 10 billion to DM 7 billion, accompanied by a corresponding drop in tonnages to 26 Mt by 2005 and a drop in workforce numbers to 36,000.

Dr Stolte said the restructuring phase of RAG's international mining business, begun in 1997, is now complete.

"Now we have two things to do," he said. "The first is to digest all the acquisitions we made in the last year, especially in America and the acquisitions we have made here, including Burton and North Goonyella. And with German Creek we now have a new partner there in Anglo Coal. We have to consolidate this business first.

"The second thing for RAG is to continue with our strategy of international expansions because we are reducing our production in Germany due to our subsidies."

While RAG is looking to expand, Dr Stolte pointed out that the company was not on the verge of doing another billion dollar transaction, nor did the company bid for the Shell assets.

He said at the time RAG Coal International realised it could not simultaneously win a major position in America as well as in Australia: "Our strategy so far was to get a position in the Bowen Basin with coking coal. The first step was Burton, the second step was North Goonyella and we had our share of the German Creek operation. We wanted to get up to 8-10 mtpa which we control operation-wise and marketing-wise and we have more or less achieved that. The next step is still under consideration."

RAG also owns DBT, the world's leading supplier of equipment for underground coal mining. But Dr Stolte said it was important to note that RAG was not buying coal mines to get more business for DBT. DBT has to compete at arms length in the supply of any mining equipment to RAG operations, and has to be competitive.

"We regard ourselves as an international worldwide coal company with integrated coal services. We have mining, equipment, processing, sales and trading. We aim to optimise and use the synergies that exist," he said. "We want to be in a position to independently sell coal in other areas. We don't want a captive situation where we own mines and these mines only provide coal to our customers in Europe. As you know competitiveness depends on freight rates, exchange rates and market rates in certain areas, and that can change."

Regarding RAG's longer term goal in Australia, Dr Stolte said no immediate expansion of RAG personnel is planned. RAG's main input at this stage is more likely to be at the level of experience, engineering and equipment. This is one of the reasons that Thiess has been entrusted to operate the North Goonyella mine. Thiess already operates, and owns 5% of, the neighbouring Burton mine. Thiess's experience in dealing with Australia's workplace is clearly another reason for this decision.

RAG Australia general manager Dr Frank Leschhorn (who was general manager of a major longwall underground mine in Germany) said productivity and availability depended on maintenance and the leadership of people at the face. Unlike in Australian mines, the foreman or deputy in a German mine is a real leader. "Here he is not the most experienced chief to decide what to do and to push the whole process." Dr Leschhorn said.

Where the Germans are likely to have a major impact on future longwall operations is in applying systems approaches, more akin to the way American mines are run. Dr Leschhorn said the whole longwall - shearer, face conveyor and roof supports - must all work as a system. Another area where the Germans lead the world is in condition monitoring and maintenance. While monitoring has become more common in Australian underground mines, Dr Leschhorn said more sophisticated monitoring was needed.

"We need to know what really happens at the face, 24 hours per day," he said.

* This story first appeared in the October edition of Australia's Mining Monthly.

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