Coal Call

WHILE coal is the biggest mining game in town, New South Wales’ metalliferous industry is taking some strong steps. By Imelda Cotton
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Staff Reporter

When the Federal Government rejected a proposal last year by Newcastle City Council calling for a cap on regional coal exports on the basis of greenhouse gas reductions, the only people to make waves about the decision were the world’s climate change fanatics.

The New South Wales mining industry itself seemed almost as indifferent to the rejection as it was to the call in the first place, no doubt because it knows its own strength when it comes to coal and, year after year, has the statistics to back it up.

The state is, of course, home to one of the world’s carbon capitals and apart from reporting consistently good returns from its five producing coal fields, the commodity represents more than half of the value of all minerals produced there each year.

According to NSW Department of Primary Industries figures, the value of the state’s coal industry in 2005-06 was $8.5 billion, up $1.5 billion on the previous period and a major contributor to the overall mineral production value during 2005-06 of $11.7 billion.

Production of raw coal during 2005-06 amounted to more than 160 million tonnes, of which 35Mt was reserved for domestic consumption and more than 89Mt exported through the ports of Newcastle and Port Kembla to more than 30 countries.

For the same period, coal operations accounted for two thirds of NSW’s full-time mining employment numbers, bringing the total number of jobs directly generated by the local coal industry to 12,658.

While the jury is still out on the sustainability of the current resources boom, it is clear coal will continue to make a critical contribution to the NSW economy.

So when the export cap proposal first raised its ugly head, you can understand why industry experts such as NSW Minerals Council chief executive Dr Nikki Williams calmly suggested the idea would not float.

“This country has built its economic wealth on competitively priced coal for its energy needs over more than 150 years,” she said at a meeting of the NSW Business Club in February.

“In NSW, more than 90% of our electricity comes from coal. Our current quality of life is intimately related to the mining industry. So when campaigners call for radical changes to the shape and nature of the mining industry, they are also – by extension – calling for radical changes to the way we live our lives.

“Newcastle City Council’s idea is a disservice to the 54,000 people of the Hunter region who are directly and indirectly employed by the mining industry, which their livelihoods should be disparaged so lightly and their futures consigned to irrelevance in such a manner.”

Williams’ comments reflected yet another bumper year for the NSW minerals industry, which grew to an overall estimated value of almost $2 billion more than that recorded for 2004-05.

A number of new minerals projects – such as CBH Resources’ Rasp lead-zinc mine, Perilya’s Potosi zinc-lead-silver mine and Bemax Resources’ yet-to-be-commissioned Snapper mineral sands project – helped retain the industry’s position during the period as NSW’s largest source of exports (worth more than $7 billion a year, according to the NWSMC) and a major contributor to the state’s economy in terms of employment, royalties and associated income (more than $1.2 billion a year).

But it is the large number of new coal projects including Ravensworth West (owned by Xstrata Coal), Tarrawonga (Whitehaven Coal/Indemitsu Boggabri Coal) and Tasman (Newcastle Coal Company) that have kept the state’s infrastructure in the spotlight and raised questions about its future export capacity.

Earlier this month, the Australian Competition and Consumer watchdog reinstated its queue management system based on reduced demurrage costs in an effort to ease vessel numbers and waiting periods at the Port of Newcastle.

With vessel numbers recently peaking at 70 and a waiting period of more than 20 days to load coal, the system will come as some comfort to producers hit by costly shipping delays such as Coal and Allied Industries and Sydney-based Gloucester Coal.

In January, CAI reported reduced coal sales and a slump in its 2006 earnings as a direct result of the delays, with total export shipments nearly 5% lower than 2005.

Similarly, Sydney-based Gloucester Coal posted a drop in sales revenue in the six months to December 2006, citing the large vessel queue at Newcastle as the trigger for pushing some of its sales into the following period.

The company said vessels arriving after December 12 did not load until January 2007, with the delay representing a loss of about 10% of the first half year’s sales.

No doubt bringing greater relief will be the completion later this month of the $170 million Project 3D expansion at Kooragang Island terminal, designed to increase port capacity by around 15%, from 79 million tonnes per annum to 105Mtpa.

However, Graham Davidson, chairman of the Hunter Valley Coal Chain Logistics Team, which is charged with planning and coordinating the region’s coal export activities, said queues would still be a part of coal exporting.

“The queues we have experienced at Newcastle are mostly a result of natural peaks and troughs in demand experienced by coal ports all over the world,” Davidson, who is also general manager of Port Waratah Coal Services, said.

“There was an increase in arrival rates of vessels sent by large coal-consuming countries late last year for example. This is part of the normal seasonal pattern and demonstrates the ongoing strong global demand for Hunter Valley coal.”

Project 3D follows the completion of the $80 million Sandgate rail flyover in the Hunter Valley last November to eliminate infrastructure bottlenecks on the way to Newcastle and increase local rail capacity by around 56%, from 60Mt to 165Mt a year.

Coal is not the only commodity on the receiving end of generous capital investment.

The NSW minerals sector as a whole will stand to benefit from the recently-launched $8 million “New Frontiers” incentive to increase exploration in under-explored areas through the utilisation of new technologies and interpretative processes such as geophysical surveys, data compilation and data interpretation.

An extension of the seven-year $30 million “Exploration NSW” program launched in 2000, “New Frontiers” is expected to lift the level of greenfields exploration out of the mild recession it has been in since the turn of the decade.

Although private exploration investment has skyrocketed in recent times – activity more than doubled from $51 million in 2003-04 to $114 million in 2005-06 – a report by economist ACIL Tasman says the greenfields experience is not as impressive.

“In 2005-06, approximately 70% of total exploration in NSW occurred at existing deposits and continues the trend away from new exploration areas,” the report said.

“New exploration was around 44% in 2003-04 and has decreased to 25% in 2005-06.

“Many of the state’s existing mines and reserves are expected to be significantly diminished over the next few years. For example, several existing metalliferous mines will close within the next 10 years and there are currently few proposed developments to replace them. It takes about 10-15 years from discovery to development for most major greenfields mining projects.

“Without a significant new discovery in NSW, in the near future [Newcrest Mining’s] Cadia may be the only major metalliferous mine operating in the state. Exploration, particularly in greenfield sites, is crucial.”

It is a view endorsed by the NSWMC, which says there is a requirement to maintain NSW’s quality in pre-competitive data, particularly in frontier regions, and to follow South Australia’s lead in facilitating drilling through capital investment in exploration – an approach that netted SA a 66% increase in exploration expenditure in 12 months.

“Exploration NSW is a great outcome for our minerals industry and compares favourably to exploration initiatives in other states such as Western Australia and Queensland, which continue to prosper from their investment in mineral resources,” Williams said when the initiative was launched.

“Canada, South Africa and South America have now overtaken Australia as primary exploration investment destinations. Ongoing funding for a new, long-term exploration initiative is essential to ensure NSW does not continue to lag behind the rest of the country and our international competitors.

“Government must consider the introduction of an initiative, which focuses on capital investment in exploration and drilling for NSW to remain a competitive destination for mining companies, secure its immediate minerals future with attendant revenue and employment streams and maintain its attraction for limited, globally-competitive, exploration investment.”

Published in the April 2007 Australia’s Mining Monthly