Ian Alexander, managing director, John T Boyd Company (Australia)
Australia has large underground resources of high-quality coking and thermal coal. Relatively thick seams and mining conditions are generally conducive to efficient, high-volume mining methods. Capital expenditures associated with mine access to date are relatively low given the shallow nature of most Australian reserves in comparison to other coal-producing countries. Most longwall mines are operated by established mining companies utilising state-of-the-art equipment.
These factors, combined with strong coal prices, knowledgeable and skilled personnel resources, supportive governments, reasonable transportation infrastructure, and the mines’ proximity to ports and international customers, position Australia as the world’s logical choice for continued expansion of longwall mining projects.
These inherent advantages over virtually all international competitors may give the impression that there are few problems at Australia’s longwall mines. Industry experience, however, demonstrates that Australian longwalls face many significant challenges including:
- The reserves of new longwall projects are substantial in terms of in situ tonnage, but the operating environment is increasingly challenging, characterised by increased faulting, higher stresses, greater heat, thinner seams and more difficult access when compared to previous mining projects;
- Industry growth has resulted in a “seller’s market” regarding the availability of personnel. Individual mines often lose management, technical and operational skills when employees depart to greener pastures as new mines open or existing mines expand. High employee turnover detracts from the performance of management teams and production crews;
- Many mines have a consistent “record of inconsistency”. The output increase per kW of longwall capacity does not reflect the installed power and capacity increases of modern longwalls. Continuous miner development shortfalls are frequent, resulting in production gaps between longwall panels. The temporary shortfall in saleable output often prompts greater focus on maximising longwall production at the expense of development, exacerbating the problem;
- The basic laws of supply and demand are resulting in ever-increasing capital expenditures and operating costs. Skill shortages and the high demands on construction groups contribute to delays during construction and development. Projects are challenged to demonstrate that increased cost equates to increased reliability and decreased risk; and
- New and existing projects compete for construction resources, new equipment, outside services, transportation capacity (rail and port), and other critical mine components.
Each new mine is evaluated on a stand-alone basis as operational and financial projections are assembled and refined during the project justification, design and development processes as it seeks to carve its niche as a low-risk, high-return competitive position on the supply curve. It is rare, however, for a longwall mine project to move forward as planned. Production shortfalls and cost overruns lead to associated problems with customers, shareholders and lenders. It is Boyd’s opinion that mine planning and financial forecasting issues, in conjunction with the potential for major project deviations due to current industry pressures, represent the greatest collective difficulties facing the Australian longwall industry.
New longwall projects must consistently deliver high production volumes compared to existing mines in order to justify up-front investment. It is commonly assumed that new mines, equipped with modern infrastructure, will achieve or surpass historical norms in operational efficiency and productivity. Such targets are often difficult at new mines, which are exploiting reserves that are less attractive than those at previous mines (otherwise, the new projects would have been developed first). Aggressive ramp-up periods support investment but may compromise “achievability”. Mines overstate development expectations and do not allocate sufficient resources to their development activities often resulting in longwall underperformance, float and reduced operating margins.
The escalation of initial expenditures and cash expenses, project delays and overall industry competition for all resources further contribute to shortfalls relative to plans. Most plans are prepared on a site-specific basis so it is rare that the cumulative impacts of external industry factors are considered.
By international comparison longwall mine plans in Australia are prepared to a high standard and in great detail with precisely calculated outcomes. However, history suggests that such plans have rarely been accurate, let alone precise. This may be attributed to a general reluctance to incorporate unknown, but likely, deviations from desired outcomes, or a capacity to manage unforeseen events. It is further compounded by pressures on managerial and technical personnel to “do better” when projecting future performance, resulting in a plan that assumes historical problems will no longer be encountered. As such, it is common to see plans that have downside risk, but no upside potential; disappointments are inevitable.
Boyd’s strategy is to provide our clients – mine operators, customers, lenders, etc – with realistic assessments that reflect likely outcomes, including both upside potential and downside risk.