Wednesday, 16 January 2019
METS 2018 Maintenance and Project Opportunities with the Australian Export Coal Industry

METS 2018 Maintenance and Project Opportunities with the Australian Export Coal Industry

Bede Boyle is founding director of coal industry advisory firm HiValue Strategies and chairman of Manufacturship Group and provided insights to Austmine on business opportunities for mining services and engineering firms in 2018.

ABS highlights Record Value of Australian Coal Exports in 2017

The latest trade data from the Australian Bureau of Statistics indicates the strength of coal exports in 2017 which were valued at $56.5 billion, 35 per cent higher than 2016. This is the highest ever annual value of coal exports – the previous record was $46.7 billion in 2011.

Coal was Australia’s second largest export in 2017 with iron ore at $63.3 billion in the same period. Historically coal has been Australia’s biggest export earner and these trade numbers confirm its ongoing strength and significant contribution to the economy.

Coal exports are from both NSW and Queensland and comprise thermal coal for power generation and metallurgical coal for steel making.

In 2017 thermal coal exports were 200 million tonnes (Mt) worth $20.8 billion while metallurgical coal exports were 172 Mt with a value of $35.7 billion.

Overwhelmingly the destination of coal exports continues to be Asia, spanning from established north Asian markets to the fast growing economies of Southeast Asia and India as highlighted in my independent study of Australian Export Coal Industry 2018 – 2027 available free from boyle.bede@bigpond.com 

Southeast Asia is emerging as a significant new market for Australian coal due to its recent investments in high efficiency, low emission (HELE) coal-fired power plants significantly reduce greenhouse gas emissions. Exports to this market were worth approximately $2 billion in 2017.

The Minerals Council of Australia observes that the last 12 months continue to show the market fundamentals for Australian coal are positive. The high productivity of the Australian coal mining industry, proximity to major markets and strong regional economic and population growth will continue to underpin coal exports in the long term.

The inherent quality of Australian coal is a benefit for both energy and steel making where high energy, low ash characteristics ideally match the requirements for HELE coal-fired power plants being built throughout Asia while our high grade metallurgical coals are amongst the best in the world for modern steel making.

In addition to export revenue coal continues to make a significant contribution to the domestic economy including providing 75 per cent of generation in the National Electricity Market, over 51,000 direct jobs and $5 billion in royalties annually.

 

NSW 2017 COAL EXPORTS BY PORTS

ABS provisional data February 2018

Port of Newcastle

                        PWCS                        104.6Mt

                        NCIG                           53.4Mt

Port Kembla

                        PKCT                            5.7Mt

Total NSW Exports            163.3Mt provisional

 

Total Thermal Coal            141Mt provisional

Total Metallurgical Coal     22Mt provisional

 

QUEENSLAND 2017 COAL EXPORTS BY PORTS

ABS provisional data February 2018

Abbot Point                           26.0Mt

Hay Point                              44.1Mt

DBCT                                     64.9Mt

Gladstone                              68.3Mt

Brisbane                                  7.6Mt

Total QLD Exports             210.9Mt

Total Metallurgical Coal   153Mt provisional

Total Thermal Coal              58Mt provisional

Source: ABS & Minerals Council of Australia 7 February 2018

 

There are immediate METS Business Opportunities in Maintenance and Refurbishment of Plant and Equipment in New South Wales and Queensland

METS Industry feedback highlights that from 4Q 2017 into 2018 coal companies are committing to maintenance, major refurbishment and upgrading projects providing business opportunities for maintenance, mining services and engineering firms.

Coal Industry feedback confirms that in 2018 as mines attempted to ramp up production to capture benefits of higher coal prices production constraints caused by Failures of Operating Plant and Equipment emerged as a business critical constraint.

The genesis of the maintenance backlog was that during the five years of coal industry profit downturn from 2012 to 2016 mining companies

1.    Deferred maintenance of plant & equipment, and

2.    Moved from Scheduled Maintenance to working plant and equipment to Breakdown mode of operation

This created a major backlog of maintenance of major plant and equipment to restore operations to ‘name plate capacity’.

Maintenance, mining services and engineering firms are reporting a dramatic boost in work from 4Q 2017 into 2018 with New South Wales and Queensland coal, rail and port operations.

Well Advanced Projects with Coal Production in 2018

Two well advanced projects, one in New South Wales and one in Queensland, illustrate the scope of opportunities for Mining Service and Engineering Companies.

NSW MACH Energy - Mt Pleasant

MACH Energy is a wholly-owned subsidiary of Droxford International part of the Indonesian Salim Group and acquired Mt Pleasant from Coal & Allied in January 2016 for $US224 million, plus royalties on future coal sales.

Mt Pleasant is approved to produce up to 10.5 million tonnes of run of mine thermal coal for international markets with first production of coal in Q1 2018. Mount Pleasant has approximately 474 million tonnes of total marketable coal reserves.

Calibre Group Ltd was awarded a $149M contract by MACH Energy as part of the Calibre DRA 50/50 Joint Venture (comprising G&S Engineering Services Pty Ltd and DRA Pacific Pty Ltd to design and construct a new coal handling and preparation plant  and train load out facility at MACH Energy’s Mount Pleasant Operation. It is anticipated that the project will be completed by mid-2018.

Mining Services company Whittens has been awarded a $22 million contract by G&S Engineering Services. The contract involves plant site bulk earthworks, construction of the run-of-mine walls, roads, drainage and buried services, together with the detailed earthworks and construction of 7000 cubed metres of structural concrete. The scope of works for the concrete includes major structures, such as a sizing station, plant feed and thickener areas, transfer pads through to the stockpile and a reclaim tunnel.

CIMIC Group’s mining services provider Thiess has won a mining services contract with MACH Energy expected to generate $500m in revenue. Under the contract, Thiess will conduct total mining operations, including mine planning and engineering, at the mine until 2021.

QLD Byerwen Coal Project

The 10Mtpa Byerwen Coal project is owned by private group QCoal in joint venture with JFE Steel. The mine is an integrated open cut and underground operation.

Construction is well advanced through Macmahon Holdings Limited. With a rail loop already built the mine is set to start adding new tonnage into the seaborne market by early 2018.

Macmahon executed a $350 million mining services contract at the Byerwen coal mine having been named as the preferred contractor for the three-year contract in April 2017. The contract involves the provision of all open cut mining and bulk earthworks at the new mine. Macmahon commenced operating under a preliminary works agreement at the site in August 2017.

Sedgman has won almost $100 million in contracts. CIMIC Group, Sedgman’s parent company, reported that the contractor would deliver a stockpiling and train load-out facility, and a coal handling and processing plant at Byerwen through two engineering, procurement and construction contracts. These contracts will start in 2017 and be completed in 2018.

Sedgman has also been awarded a third contract for the operation of the crushing and stockpiling at the coking coal mine.

New Project Development Pipeline

Queensland has a $6billion pipeline of metallurgical coal projects with capacity to produce 45Mtpa of Coking, PCI and by-product Thermal Coal. Queensland has responded to sustained Asia demand to become the World’s largest exporter of metallurgical coal. The Bowen Basin contains almost all of Queensland’s metallurgical coal reserves and producing mines. Bowen Basin exiting rail and port export infrastructure has available excess capacity for increased export tonnages.

Of most significance is the emergence of Private Equity Firms seeking investment in high value metallurgical coal assets. Metallurgical coal revenue averaged about $200 per tonne in 2017 whilst thermal coal averaged about $100 per tonne.

Although there is robust Asia demand for Australian high quality thermal coals, environmental activism and court delays is creating uncertainties for investors in Australian thermal coal projects. This is exemplified by the strong activist movement against the Adani thermal coal project which may lead to Adani investing in Indonesia and South Africa.

There are currently 11 proposed Galilee Basin thermal coal developments that would add 240Mtpa of new supply to the seaborne thermal coal market if they were to all come online. However, development of the Galilee Basin requires a rail link solution.

Glencore has been granted a mining lease for its proposed 22Mtpa Wandoan thermal coal development in the Surat Basin. The project is the key to unlocking the Surat Basin as a major coal producing hub, but a rail link to the Port of Gladstone is still required.

Availability of finance is proving to be a restraint on these developments. The real challenge for Queensland thermal coal developments is the high capital development cost for mine, rail and port infrastructure of about $150 per saleable tonne [with revenue of say $100 per tonne] compared to lower $130 per saleable tonne average for a metallurgical coal mine [ with higher revenue of say $200 per tonne].

 

20 February 2017

Bede Boyle

Director

HiValue Strategies Pty Ltd

boyle.bede@bigpond.com

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