The market

From your company point of view, where is the coal industry in the current cycle? Has it peaked and will we start to gradually return to lower prices and mine shutdowns, or is there still some upside left in the current market? What are your forecasts: immediate, a year from now and longer term?

Cycles in the mining industry last much longer than commonly perceived. Yearly variations in prices are often portrayed incorrectly as being “cyclical”; in practicality, such changes simply reflect normal “volatility” within longer macro cycles.

In strict economic terms, the previous “up” and “down” cycles within the coal industry lasted 30 years (1970 to 2000). The entire decade of the 1970s (the “up” portion of the cycle) was a period of excess demand (or insufficient supply) that was marked by rising coal prices and efforts to increase capacity.

The period from 1980 to 2000 was the “down” portion of the cycle. A variety of technical and financial factors enabled production to increase beyond demand, and subsequently, this 20-year span was noted for declining coal prices that stifled investment in new production capacity.

The industry is again in an upward cycle. Strong coal prices have materialised because there is insufficient production capacity to meet demand.

Productivity is declining as mines pursue opportunities to extend their lives (and generate cash) by mining marginal reserves that were bypassed (or otherwise excluded) during periods of low prices.

Given the lead times for new mine development, initial capital spending requirements, and the continuing “degradation” of remaining reserves, this current portion of the cycle will be sustained for many years.

It is Boyd’s opinion that a strong price environment will last at least another decade, and most likely beyond. This market environment, particularly for coal sourced from Appalachia, will be extended by mines that are depleting over the next decade.

We project volatility in near-term (0-2 years) for coal prices, as coal producers and consumers move forward in this major reversal following 20 years of declining prices. We project strong pricing over the next decade that supports investment in new mine development. Such prices must be sufficient to cover cash costs, capital investment, and a satisfactory return on that investment.

We caution that informed observers of the coal industry need to look beyond price trends and focus on underlying costs. Increased prices which are offset by equally higher costs do nothing to improve the economic viability of the coal supply chain.

How has the recovery of the coal market over the past few years changed your business?

The imbalances between supply and demand are resulting in several major changes on the part of Boyd’s clientele. A number of coal consumers are ill-prepared for higher pricing, as they erroneously assumed the previous 20 years of declining prices marked a permanent trend.

Such companies are seeking price forecasts and looking to secure their fuel supplies. Likewise, financial entities are pursuing investments in the coal industry, either through acquisitions or new mine development, and thus require analysis of potential opportunities.

Mining companies are also looking to strengthen their balance sheets while expanding their operations, and are in need of strategic planning advice, particularly regarding their competitive position in the industry.

Experienced financial investors and lenders learned from the 1990s and still retain Boyd to complete due diligence reviews before they accept financial exposure.

What percentage of your consulting work is done for locally owned companies versus offshore? What are the top three foreign locations for your company?

Boyd’s workload is generally in the range of 50% to 80% domestic (US) and 20% to 50% international. Foreign locations vary by year and assignment, with China, Australia, Canada, South Africa and Indonesia being frequent project locations.

Several consulting companies have moved into other technology areas including coal mine methane, coal gasification and others. Please comment on which varied areas your company has moved into and what the future growth areas are for consultants.

Boyd is a full-service mining consultant, and proactive in responding to emerging clients’ needs (opportunities). We have expertise in all major technical and financial aspects of coal and the mining industry.

This diversification into all prominent segments of the business enables us to pursue projects in “growth” areas such as coal bed methane, synthetic fuels, evaluations of transportation and dispatching infrastructure, valuations, new project development, litigation support and property acquisitions/sales.

Health and safety is a major growth area for Boyd, both domestically and internationally. The influx of new workers in the industry, combined with the necessity of exploiting less attractive reserves in the future and increases in public scrutiny on the industry, will require increased focus on mine health and safety.

Skills crisis

The skills crisis is a major issue affecting the coal mining industry and is increasingly the subject of corporate level remarks. How has your company been affected/benefited from the skills crisis?

It is a well-known fact that there has been a dramatic decline in the graduation rates of mining engineers and geologists.

This contributes to demographic concerns across the broad industry, especially as skilled workers and professionals retire as the industry faces an extended upturn. It is reasonable to assume that this “supply and demand” for skills will affect all employers equally as competition for talent increases.

Nevertheless, the situation has not been especially troublesome at Boyd. We have maintained stability in terms of staffing numbers and overall capabilities over the past 20 years. Boyd continuously seeks outstanding professionals who bring a high level of skills, contacts and experience.

What are the key factors determining why and how consultants are used?

The use of consultants varies by client and can be unpredictable. Many clients seek the consultant with the strongest qualifications, and they perceive cost as being of lesser importance than the reliability of the consultant’s professional advice.

Others assume all consultants are equal, and therefore simply seek...click here to read on.