Smart engineering can cuts costs in the coal industry

ALTHOUGH the coal industry has been hit by lower coal prices and a strong Australian dollar, it is possible to cut costs through smart engineering practices and benefit from the eventual recovery, says Golder Associates group manager of mining David Arnott.

Lou Caruana

The Australian thermal coal price has moved from a July 2008 record high of $200 per tonne to just under $90 (FOB Newcastle and Port Kembla).

Although the market recovered in the first quarter of 2011 to $143 per tonne, there has been a continued slide since, dragging coal prices near to the post-boom trough of $84 in October 2009.

The strong Australian dollar has hit exporting coal miners. After the peak in coal prices in July 2008, the AUD/USD currency rate moved from 96c to 65c in less than one financial quarter, followed with a rise to $US1.07 in July 2011.

With the Australian dollar hovering around US90c, financial analysts are asking themselves whether the Australian dollar will continue to remain comparatively strong against the US dollar.

“Such conditions have made coal mining in Australia less attractive to investors. High operating costs and business inefficiencies, something which crept into the market as a result of boom prices, are now being tackled in an attempt to return some of the lustre to the industry,” Arnott said.

“Retrenchment of staff reduces the salary burden for an operation and has been used by many organisations in the last 18 months to achieve some immediate financial benefit. Work previously outsourced by mines to contractors and consultants has been either shelved in the immediate future, or brought back in-house to smaller production teams.

“This has had a knock-on effect, with salary package offerings for new hires resetting to pre-boom levels. Some recruitment agencies are reporting drops of between 20-30%.”

Technical excellence

Consulting companies such as Golder Associates are working closely with their clients to find efficiencies. In the long term this is the only sustainable way of all stakeholders maintaining a competitive edge, according to Arnott.

“While being cost competitive is a necessity felt acutely by consultants at the present time, it is not enough on its own,” he said.

“Technical excellence and the ability to demonstrate value-adding are more important than ever. If spending a dollar is not going to save or make ten, then it is unlikely expenditure will be approved.

“Engineers are being asked to focus on the cost of production. In these times mining companies need to be looking at how they can reduce operating costs without increasing safety risk.

“Operations which can continue to produce safely for fewer dollars per tonne, without stripping away at the maintenance schedule or compromising environmental commitments, are more likely to survive into the next positive cycle.”

Small investments in the right expertise can significantly improve operating costs. Simple adjustments to such things as drilling campaigns, information management, quality control, tailings management, mine design, and equipment operating practices can make a real difference, Arnott said.

“Operating practices can, over time, become less than optimal as mine schedules and coal products change. Fleet operating costs make up a large proportion of the total cost of open cut production and even small gains in efficiency make a difference.

“Independent review of mining operations can be a cost-effective way to identify practical ways to optimise waste stripping and coal mine production. Fresh eyes, with broad global experience can help mine staff to fine-tune their operations. With a ‘Plan the Mine and Mine the Plan’ approach, cost reductions are achievable.

Many of the more mature coal mine producers need to reassess when to move underground, particularly given current coal prices, Arnott said.

“Long-term and extended open cut operations require engineers to define when to flick the open cut switch off or transition into underground mining," he said.

"This will bring with it a range of new challenges for producers not already working in this space,” he said.

“Inefficient data collection, file management and data sharing need to be challenged. Data silos are a commonplace barrier for important operational decisions. Forward thinking engineers are recognising the need for integrated data management systems enabling disparate information to be brought together for optimal decision making.

“Consultancies such as Golder cannot change the price of coal for a producer; however they can show how to reduce the cost of production. The diverse experience consultants offer their clients is never more important than now.”