The Coal Conundrum

WORLD COAL
2009
Coal has been in the political spotlight often this year with
much talk of ‘clean coal initiatives’. Daniel Gleeson takes a
look at ‘clean coal’ projects, the demise of the coking coal
price, statistics from 2008 and indications of where the thermal
and coking coal markets might be heading
THE COAL CONUNDRUM
C
oal is depended on for a variety of
processes. Whether it’s electricity
generation, steel production or conversion
into liquid fuels, it is a fuel on which our society is
very dependant. Clean coal will take time and
money before it can proliferate. In order to meet
the demands that industry and society impose
coal needs to be mined quickly and efficiently.
The International Energy Outlook 2009 has
revised its figures on world energy consumption
from 2006 to 2030. Last year (IM August 2008,
p45-54) we quoted an increase of 50% from
2006 to 2030, however with the global downturn
the figure has changed. The current report states
that world coal consumption will increases by
34 International Mining AUGUST 2009
49% from 2006 to 2030, with coal’s share of
world energy consumption increasing from 27%
in 2006 to 28% in 2030. Considering the
speculation and media commentary about global
leaders looking elsewhere for energy supplies, in
particular nuclear supplies, this 1% revision is big
news. It shows that despite a serious global
downturn and much talk of alternative fuels, coal
is still an energy mainstay that is not going away
in the near future.
The report goes on to say that “at the end of
2008, in response to the global economic crisis,
worldwide demand for coal imports fell
precipitously, and the ensuing coal supply glut
prompted many mines in coal exporting countries
to lower their production levels. Although the
break from intense global coal demand could
provide an opportunity for coal trade
infrastructure–including mine, rail, and port
capacity–an opportunity to catch up with the
previous years’ fast-paced growth, many
infrastructure projects in the early stages are likely
to be deferred.”
In 2008, Euracoal reports that global hard coal
production increased by some 200 Mt with China
alone increasing its production by 160-170 Mt.
This according to Euracoal’s report will “once
more result in an increased share of coal in global
electricity generation. Coal reserves are abundant
and, due to the higher energy prices and
modernised production technologies, resources
also become more abundant.” The report then
went on to warn that “USA, China and Russia
have the biggest coal reserves in the world, so
their participation in post-Kyoto commitments is
essential for the world to have any chance of
mitigating the effects of climate change; any
unilateral CO2 abatement efforts by other
countries will be useless.”
International Energy Outlook again: “Although
both steam and coking coal are traded
internationally, most of the trade is in steam coal,
which represents 72% of world coal trade in
2030, similar to current levels. In 2007, 58% of
the world’s exported steam coal was imported by
Asian countries, and their share of the total in
2030 is projected to be 65%. The share of coking
coal imports destined for Asian countries increases
from 61% in 2007 to 67% in 2030.”
The problems
In coking coal specifically, the International Energy
Outlook comments that “trade has been subject
to recent cutbacks, with some companies
reducing steel output by as much as 30%;
however, many countries are adopting economic
stimulus packages to support infrastructure
investments, which presumably will require steel.”
The impact that these packages will have on the
market is unknown as of yet though.
Coal has faced many problems recently. When
all minerals were suffering late last year, its price
dropped considerably, with prices currently at the
low end. Global steel production continues to be
weak and has resulted in lower demand and
pricing for metallurgical coal. The World Steel
Association is currently forecasting an estimated
15% reduction in worldwide apparent steel usage
in 2009, which will have a huge effect on
metallurgical coal demand. In June, BHP Billiton
agreed to about a 58% cut in annual coking coal
contract prices after demand for the steelmaking
material declined. For a major such as BHP to take
such a big hit with pricing the sector must really
be in a bad state.
WORLD COAL
Macquarie Commodities reported in
March about the risk in the coal market,
saying that the “greater volume risk is
associated with higher-cost coking coal
producers in swing markets such as the
US. Lower-cost thermal coal producers
have the lowest volume risk, particularly
where the coal boasts marketable qualities
and is sold into markets with few
competitors (either other mines or
substitute fuels).
“On this basis, the US appears to have
very high volume risk, while Indonesian
coals, which boast low costs, are close to
major Asian markets and appear to have
very low volume risk. Australia, despite
being the world’s biggest coking coal
exporter, also has relatively low volume
risk. Thermal coal makes up a higher
proportion of Australian exports than of US
exports, while Australian coking coal
exports form the foundation of most coke
blends in Asia and tend to be lessvulnerable to steel market downturns than
higher-cost, lower-quality product of competitors.
Global steel production is far-more volatile than
electricity production.”
Macquarie’s Commodities Comment Assessing coal-volume risks report views coking
coal as more cyclical than thermal and assessed
that “electricity demand is relatively less-volatile,
buttressed by a steady flow to residential and
Peabody Energy (one of its operations pictured here)
supplies 10% of America’s electricity supply
commercial building customers. Global electricity
production, excluding China, has not contracted
in any year since 1992. We therefore expect
relatively more cuts to coking coal production
than to thermal coal production.
Table 1 - Pacific market steam coal supply (million tonnes)
Country
Australia
China
Indonesia
Russia
Vietnam
Canada
Total
2008
126
42
201
18
20
4
411
2007
109
51
189
15
33
4
401
Difference
+17
-9
+12
+3
-13
0
+10
Source: Euracoal Market Report 1/2009
Table 2 - Atlantic market steam coal supply (million tonnes)
Country
Colombia
Poland
Russia
South Africa
Venezuela
USA
Norway
Total
2008
69
2
57
64
6
17
5
220
Source: Euracoal Market Report 1/2009
36 International Mining AUGUST 2009
2007
65
4
59
67
8
10
5
218
Difference
+4
-2
-2
-3
-2
+7
0
+2
This doesn’t mean to say that thermal
coal is not going through a rough patch.
An interesting point that Macquarie notes
is that both Arch Coal, which supplies
around 12% of America’s coal supply, and
Peabody Energy, which supplies 10% of
America’s electricity supply, have had to
cut production. Macquarie: “It is a
measure of just how weak demand is that
Arch Coal and Peabody have announced
significant production cuts at their Powder
River Basin mines. This is an exception to
the general rule of robust growth there,
but the cuts are still relatively small
compared with the scale of contraction in
Appalachia (east of Mississippi).”
The problems facing coal miners in
America does not end with supply cuts. In
late June, the National Mining Association
(NMA) reported on proposed legislation to
severely restrict domestic coal mining,
which according to the NMA “could have
devastating and far-reaching impacts on
jobs and the economy.”
‘The Appalachian Restoration Act,’ could
effectively idle much of America’s coal production
nationwide by eliminating the ability to dispose of
excess rock and dirt in fills under Section 404 of
the Clean Water Act. “The bill would destroy tens
of thousands of high-wage jobs in Appalachia
and throughout the country,” said NMA President
and CEO Hal Quinn. “There is no rational
justification for such wholesale threats to the
nation’s coal mining community.”
Quinn continued by saying that “this is true
throughout the Eastern coal states, particularly in
Eastern Tennessee, Western Maryland,
Pennsylvania and Ohio where much of the
surface mining is conducted at formerly
abandoned coal mines. For example, since 2004,
125 miles (200 km) of abandoned highwalls in
Tennessee have been systematically restored and
repaired by the state’s coal mining operators,
providing safer mine sites with improved water
quality and the opportunity for a sustainable
economy for the area.” Quinn finally said that
the “NMA urges Congress to oppose this deeply
flawed proposal.”
Back in September last year it wasn’t all this
gloomy. At a presentation at MinExpo 2008 in Las
Vegas, Andy Blumenfeld, Vice President of Market
Research for Arch Coal said that “around the
globe, countries are embracing coal as a primary
source for electricity.” He saw big demands for
thermal coal from all over the globe in the next
few years. Some of this may be deferred, but
largely, once the recession is over, this demand
will come back. He specifically included:
■ 24 GW of capacity online by 2014 in USA
■ 2 GW of capacity online by 2013 in Mexico
WORLD COAL
■ 6 GW of capacity online by 2013 in Central
and South America
■ 33 GW of capacity online by 2015 in Europe
(non-CIS)
■ 67 GW of capacity online by 2013 in India
■ 9 GW of capacity online by 2015 in CIS
countries
■ 216 GW of capacity online by 2013 in China.
Bloomberg reported on another coal producer
in June, this time in Australia, that voiced its
opinions on the coal market. Macarthur Coal, one
of the world’s biggest pulverised coal exporters,
said that customer demand for the steelmaking
raw material is recovering as China seeks
shipments. “The metallurgical coal market is
showing tentative signs of recovery with renewed
customer interest,” said Shane Stephan, Chief
Development Officer of Macarthur Coal.
Bloomberg says “steelmakers in China boosted
production this year, spurred by the government’s
4 trillion yuan ($585 billion) stimulus package for
construction of housing, roads and railroads.
Coking coal contract prices may gain 8.5% next
year because of rising steel demand in China,
Macquarie Group said in a June 15 report.”
Macarthur Coal also pointed out the export
figures for May as a positive development: “Early
indications are that exports of metallurgical coal
from Australia to China in May were about 4.1
Mt.” The company links this surge of imports, not
only to the market picking up, but also to the
concerted efforts of China’s authorities to improve
safety in the small mine coal sector, resulting in a
decrease in domestic metallurgical coal
production.
Backing up Macarthur’s opinion,
www.Chinamining.org reported in June that the
Shanxi government is actively encouraging
mergers and consolidation activities in the coal
industry across the province, with the inclusion of
related industries such as power, metallurgy and
chemicals. This, the report says, is “in a bid to
reverse the infamous image of its local coal
industry – too many producers, small size of each
producer and a fragmented layout.” It is
anticipated that the province’s five largest staterun coal producers will each be responsible for
integrating some 100 local mines to reduce the
number of coal mines to 1,000. By integrating
these smaller mines into much bigger operations
the government is hoping that single mines will
produce above 800,000 t/y by the end of 2010.
Show some steel
Euracoal’s Q109 report shows the extent to which
world steel production has fallen and how in turn
this is effecting coking coal production. In the first
quarter of 2009 264 Mt of steel was produced, a
decrease of 22.8% compared to the first quarter
of 2008. Euracoal: “In the first three months of
2009 Asia produced 173 Mt of crude steel, a
decrease of 8.9% over the first quarter of 2008.
The EU produced 30 Mt of steel in the first
quarter of 2009, down by 43.8% compared to
the same quarter of 2008. North America showed
a 52.1% decline, producing 16.6 Mt during the
first three months of 2009. China showed a slight
increase of 1.4% while all the other major steel
producing countries showed a decrease in the first
quarter of 2009.
“In the EU, Germany’s crude steel was 2.1 Mt in
March 2009, a decrease of 49.8% from March
2008. Italy’s crude steel production was 1.7 Mt,
down 42.7% compared to the same month last
year. France showed a decrease of 36.7% from
March 2008, producing 1.1 Mt in March 2009.
Spain’s crude steel production for March 2009 was
1.1 Mt, 41.2% less than the same month last year.”
This is a distinct contrast to peak steel
production, where global players like Arcelor
Mittal and Tata Steel were ploughing investment
into coking coal projects in order to ensure a
steady supply for steel production. Now such
companies are left to make cutbacks left, right
and centre until such a time when it can either
offload these stakes, or step up production inline
with demand.
AUGUST 2009 International Mining 37
WORLD COAL
Picturing the decline
I
t is not only the coal price that has affected producing companies over the last 10 months. Building and operating costs have also played a part in their
problems. CostMine, by using its exclusive Mining Cost Service coal mine and preparation plants indexes, has been able to compile a cost diagram that
shows the fluctuation of costs for American miners on building and operating coal mines. The graph shows that the costs of building and operating coal
mines in the US and plants increased steeply in 2007 to mid-2008 followed by a precipitous decrease in late 2008-2009 due to a combination of two factors:
the coinciding rapid rise and fall over the same period in prices of commodities, industrial chemicals, fuel and steel.
Most affected during this period were the operating costs at surface coal mines and
preparation plants. These operations experienced a 22-24% increase in costs peaking in
July 2008, but both categories ended the period with a 9% increase overall. Analysis of
nine major cost indexes (mine equipment, lumber, #2 diesel fuel, electric power,
explosives, hourly earnings, industrial chemicals, steel products, and tyres) for the same
time period showed the causes behind this fluctuation. Diesel fuel, industrial chemicals,
and steel products showed the largest increases ranging from 46 to 239%, with the
diesel fuel index peaking at plus 239% in July 2008. Other cost indexes showed only
slight increases; however the lumber index decreased 25%. At the end of the 27month period in March 2009, steel ended at -4%, diesel fuel at -27% and industrial
chemicals increased 6%. By comparison, Appalachian coal futures increased from $45/t
to $158 in June 2008 and then fell to $55/t in the same period.
CostMine’s Mining Cost Service coal mine and preparation plants indexes shows that operating costs
for American coal mining companies at surface coal mines and preparation plants in the US were
most affected by cost fluctuations from January 2007 to March 2009
Steel producers haven’t had much luck over the
last year. The financially profitable times they had
previously has had an adverse effect on them this
year. In a report in June, NDTV said that steel
companies will have to honour their FY'09 coking
coal contracts at $300/t despite the prices for this
year being reduced to $129/t. “Steel majors like
Steel Authority of India (SAIL), Tata Steel and JSW
Steel had not bought a part of their promised
quantity of coking coal last fiscal which amounts
to 10 Mt, so the rollover cost differential is close
to $1.7 billion which these companies will be
required to pay.
“Sources in the industry tell NDTV that SAIL,
India’s largest steel company, has 5 Mt of pending
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WORLD COAL
Table 3 - Coking coal supply
Country
Australia
Canada
China
Russia
USA
Others
Total
2008
135
25
4
3
35
5
207
2007
138
25
3
5
26
5
202
Difference
-3
0
+1
-2
+9
0
+5
Source: Euracoal Market Report 1/2009
coking coal which will cost them $875 million
extra. Tata Steel’s European operations are
expected to have carried forward over 3 Mt of
coking coal which means an extra hit of more
than $500 million. For JSW Steel it is 1 Mt which
increases their cost by $170 million. The cost
differential of $170/t will be paid by the steel
companies to fulfil their contracts with the mining
majors like BHP Billiton and Xstrata.”
The report said that companies were hoping to
stagger these payments over a number of years in
order to “spread the impact” and make sure they
do not overspend at a crucial time. NDTV:
“Sources say that SAIL has already reached a
contract of paying the cost differential over next
two years,” however at this time the company is
unwilling to confirm either way. Regardless of the
result, this is just another compounding issue
making it harder and harder for the steel
companies to operate.
Lignite, of course, is another, lower rank type
of coal. This brown, soft coal is primarily mined in
eastern Europe and is used almost exclusively to
generate power. Euracoal’s 2008 production
figures (table 4) show that lignite has not been
greatly affected by the slowdown – only a 4 Mt
decrease - however 2009’s figures may show a
different story. In this market a huge fluctuation is
not expected. As lignite is inherently a low quality
form of coal there are fewer applications that it
can be used for. In essence demand is only likely
to go down instead of up.
Table 4 - Lignite production
comparing 2007 to 2008
Country
Bulgaria
Czech Republic
Germany
Greece
Hungary
Poland
Romania
Slovakia
Slovenia
Spain
Total
2008
11.9 Mt
24.5 Mt
85.7 Mt
30.7 Mt
4.5 Mt
28.6 Mt
15.6 Mt
2.5 Mt
2.4 Mt
0
206.4 Mt
2007
10.8 Mt
24.7 Mt
88.0 Mt
31.7 Mt
3.9 Mt
27.9 Mt
16.3 Mt
2.3 Mt
2.3 Mt
3.0 Mt
210.9 Mt
Source: Euracoal Market Report 1/2009
Reserves and production
There are many regions of the world that are
renowned for their abundance of coal - whether
it’s coking, lignite or thermal. USA, Russia and
China have the majority share of coal reserves,
with these three countries accounting for over
60% of the proven coal reserves in the world.
Out of the three, only America has a proven track
record of delivering on these reserves however.
China, even though going through much change
AUGUST 2009 International Mining 39
WORLD COAL
Table 5 - Proved coal reserves at the end of 2008 (million tonnes)
Country
USA
Russian Federation
China
Australia
India
Ukraine
Kazakhstan
South Africa
Poland
Brazil
Anthracite
and bituminous
108,950
49,088
62,200
36,800
54,000
15,351
28,710
30,408
6,012
-
Sub-bituminous
and lignite
129,358
107,922
52,300
39,400
4,600
18,522
3,130
1,490
7,059
Total
238,308
157,010
114,500
76,200
58,600
33,873
31,300
30,408
7,502
7,059
Share
of total
28.9%
19.0%
13.9%
9.2%
7.1%
4.1%
3.8%
3.7%
0.9%
0.9%
R/P ratio*
224
481
41
190
114
438
273
121
52
>500
Source: BP Statistical Review of World Energy June 2009
*R/P ratio – if the reserves remaining at the end of the year are divided by the production in that year, the result is the length of time (in years) that those
remaining reserves would last if production were to continue at that rate
Russia
As can be seen from table 5, the Russian
Federation ranks second in coal reserves, however,
as mentioned, the country’s transport
infrastructure has made it increasingly difficult for
it to make the most of these reserves and expand
its exports. An article by Reuters in June reported
that the country’s “limited rail capacity and poor
port infrastructure are frustrating the ambitions of
Russia’s leading coal producers to increase exports
quickly to make up for weak domestic demand
during the country’s recession.”
It went on to say that “state-controlled
transport costs remained too high and years of
underinvestment were taking a toll on shipping
and rail links.” Alexander Jovalchuk, Director of
the Coal Market Research Institute pointed to
‘bottlenecks’ in the system, something
experienced by SUEK’s new Vanino coal terminal
in the Far East, which began handling shipments
for the company, Russia’s largest coal producer, in
December. Kovalchuk said that “Vanino suffers a
lot because the BAM (Baikal-Amur Mainline)
railway doesn’t have sufficient capacity, it is
underserved by 40-50%, according to SUEK
estimates.”
This has forced the country’s steam and coking
coal producers to look at exporting as rival coal
countries, such as India and China, are continuing
to grow their economies while the Russian
industry suffers. There are reports that this is
already happening. Estimates say that Russia
exported some 6.53 Mt of coal in April, compared
with 6.80 Mt a year ago. This comes at a time
when, overall, Russian coal production declined by
about 13% in April.
Experts have pointed to investment for the
country to start challenging with the rest of the
Asian market in the long term. This is especially
needed by the RZhD state railway monopoly. They
Table 6 - Production 2008 (million tonnes oil equivalent)
Teck’s Fording River coal mine in southeastern British
Country
2008
Columbia, Canada, is comprised of 20,304 ha of coals
lands. 4,220 ha are currently being mined or are
scheduled for mining. The operation has more than 200
Mt of reserves and, at current production rates, the mine
life is about 27 years
in coal mining, still has many problems with its
mining operations and Russia is experiencing
difficulties with its transport network - coal costs a
lot more to transport in Russia than other
established coal producing countries. Both
countries are likely to improve over time out of
necessity more than anything, but where else are
steel and power generation companies looking
for alternatives?
40 International Mining AUGUST 2009
China
USA
Australia
India
Russian Federation
Indonesia
South Africa
Poland
Kazakhstan
Colombia
1,414.5
596.9
219.9
194.3
152.8
141.1
141.1
60.5
58.8
47.8
Change 2008
over 2007
10.0%
1.3%
0.3%
7.0%
2.8%
5.3%
0.8%
-3.3%
17.1%
4.9%
Source: BP Statistical Review of World Energy June 2009
Includes bituminous, anthracite, lignite and brown (sub-bituminous) coal
2008 share
of total
42.5%
18.0%
6.6%
5.8%
4.6%
4.2%
4.2%
1.8%
1.8%
1.4%
WORLD COAL
also point to lower tariffs for coal shipped more than 5,000 km from Siberia
to ports in the Russian Far East. Yet rates continue to rise.
“Coal prices dropped sharply, but the transport component does not
decrease, and there will be a 4-6% increase as of July,” Eurosib Spb
Transportation Systems’ Andrey Baranov said.
The report says that “the government is debating whether to cap price
hikes at more modest levels than previously planned to support the economy
in downturn, which saw industrial production plunging 17.1% year-on-year in
May.”
Extensions of rail track are a priority, though a rapid expansion is not
expected given the high costs of building in Russia. Alex Bexborodov of the
InfraNews Research Agency said it costs $1.5 million to build a kilometre of
railway in Russia, compared with an international average of $600,000$800,000.
Technology at the port also needs developing for exporters, according to
the report. Tamara Novikova of the Research and Development Institute of the
Sea Fleet said that Soviet-era technology limits volumes and damages railcars,
particularly in winter with frozen coal being loaded. “Few ports have
equipment to defrost cargo, which would improve capacity,” Novikova said,
adding that Russia also needs deeper ports that can serve Panamax class
cargo ships.
Costs at the port are also compounding the industry. Russian ports are
among the most expensive, adding $10 per tonne in costs, in comparison to
the $2-$3 per tonne global average. “At Australian and Chinese ports they
use automated technology, satellites, here we have to employ a lot of people,
so it’s a much different technology,” Bezborodov said.
In neighbouring Ukraine production fell some 9.3%, or by 3.67 Mt, to
35.88 Mt in the first half of 2009 compared to the same period of 2008.
Coking coal production fell 11.9% to 12.6 Mt over the period, while steam
coal output fell 7.8% to 23.28 Mt. Nevertheless, output was still 15.5%
above the target set by the Coal Ministry. Coking coal beat its target by 4.7%
above for coking coal and steam coal by 42.8%.
State-owned coal mines reduced production by 15.6% to 19.41 Mt in the
period, which included drops of 4.72 Mt of coking coal (down 12%) and
14.69 Mt of steam coal (down 16.6%).
Coal production in Ukraine rose 3% in 2008 compared with 2007 to
77.67 Mt, comprising 26.64 Mt of coking coal and 51.03 Mt of steam coal.
The Coal Ministry has said state-run mines might cut coal output 7.2% to
42.7 Mt this year due to falling demand.
WORLD COAL
Table 7 - Consumption 2008 (million tonnes oil equivalent)
Country
China
USA
India
Japan
South Africa
Russian Federation
Germany
South Korea
Poland
Australia
2008
1,406.3
565.0
231.4
128.7
102.8
101.3
80.9
66.1
59.4
51.3
Change 2008
over 2007
6.8%
-1.7%
8.4%
2.4%
4.9%
8.1%
-5.9%
10.4%
2.2%
-8.3%
2008 share
of total
42.6%
17.1%
7.0%
3.9%
3.1%
3.1%
2.4%
2.0%
1.8%
1.6%
Source: BP Statistical Review of World Energy June 2009
Including bituminous, anthracite, lignite and brown (sub-bituminous) coal
India
As can be seen from table 5, India has plentiful
reserves of anthracite and bituminous coal, which
it uses domestically and also exports abroad. India
has suffered in past years from electricity
shortages, and as it seeks enormous growth in
order to become a global hub for businesses and
developments, it must ensure a steady power
supply. One way it is tackling this is to “expedite
environmental approvals and allow mining in
degraded forests to double the nation’s coal
output,” a June report in the Behre Dolbear
Global Mining News said. “The country needs to
increase coal production to 1,000 Mt in the next
seven years to feed new power plants,” Jairam
Ramesh (Environmental Minister) said at an
industry conference in New Delhi.
These degraded forests, in which the trees have
been lost, represent around 55% of forest land in
India. The country wants to double power
generation capacity in the five years to March
2012, “as it seeks to cut peak hour shortages that
may rise to 12.6%.” The government plans to
add 78,700 MW of generation capacity in the
period to March 2012 and 100,000 MW in the
following five years. “Our power plants won’t
materialise unless we produce a billion tons of
coal,” said Ramesh.
Much of this supply will come from Coal India
Ltd (CIL), which is aiming to raise output to 520
Mt by fiscal year ending March 2012 and to 664
Mt in the following five years, according to CIL
Chairman, Partha S. Bhattacharyya.
China
China is the fastest-growing coal market in the
world, using coal to fuel 80% of its electricity.
China is expected to nearly double its electricity
consumption by 2015. More than 700 million
Chinese residents have gained access to electricity
over the past several decades as China has grown
42 International Mining AUGUST 2009
to become the world’s third-largest economy.
Subsidiaries of Peabody Energy and Shanxi
Lu'an Mining Group have entered into an
agreement to explore joint development and
operation of Lu’an’s Shaxi mine in the Xinjiang
Uygur Autonomous Region in Northwestern
China. The mine, which is under construction, has
access to a large dedicated thermal resource. It
has the potential to expand to 15 Mt/y or more in
line with the development of a new rail project
that would serve electricity customers and other
industrial users in Central and Eastern China.
Peabody Energy Chairman and CEO Gregory H.
Boyce: “China is leading the world in industrial
growth and fueling its progress with coal.
Peabody has a growing presence in Asia, and
seeks to partner in world class coal projects to fuel
long-term energy needs using our state-of-the-art
safety, mining and environmental practices that
are recognised around the world."
In the coming months, the companies will
conduct a feasibility study to evaluate technical
requirements for the next phases of development,
which also includes other coal reserves in the
region owned by Lu'an.
Ren Runhou, Chairman of the Lu'an Group:
“We look forward to working with our colleagues
at Peabody on the joint development
opportunities in China, which would bring mutual
benefit to both companies.”
Peabody has an expanding presence in China
and is the only non-Chinese partner in GreenGen,
a near-zero emissions power project in Tianjin.
The company is pursuing multiple partnerships in
Asia that include a large surface mine and
downstream coal conversion facility with the
government of Inner Mongolia, China and other
partners; and projects in Mongolia, which include
the Peabody-Polo Resources joint venture.
Lu’an is an energy and chemical enterprise. In
2008, Lu’an produced 42 Mt of coal and had
$5 billion in revenues. Peabody Energy is the
world's largest private-sector coal company,
with 2008 sales of 232 Mt and $6.6 billion in
revenues.
Mongolia
In addition to gaining a presence inside China,
coal companies are also looking to gain a
foothold in nearby countries in order to maximise
exposure to the Chinese market. In March,
Peabody entered into a renegotiated agreement
to create a 50-50 joint venture holding for Polo
Resources’ Mongolian coal interests, for a cash
contribution of up to $25.8 million. Mongolia
holds substantial metallurgical and thermal coal
reserves that are strategically located to serve the
high-demand China and Asian markets. The
creation of Peabody-Polo Resources BV marks
another step as Peabody expands its Mongolian
presence. The company has ongoing initiatives to
assist the government in large long-term coal
resource development.
The coal interests to be contributed by Polo
could include up to 1,000 Mt of potential
resources, subject to exploratory drilling. A
majority of the coal licences are located in the
South Gobi coal region which hosts some of the
largest coking and thermal coal deposits in close
proximity to China. The venture also has more
than 100 employees in Mongolia. In line with the
prior agreement, Peabody has also been granted
warrants to enable the company to acquire an
approximate 15% equity interest in Polo
Resources.
Stephen R. Dattels, Polo’s Executive Chairman:
“Polo is excited about the opportunity to join
forces with a company of the calibre of Peabody.
This alliance will provide the mining expertise and
funding required to develop our existing asset
base and unlock the currently unrecognised value
of Polo’s Mongolian interests.”
“A joint venture with Polo’s existing platform
will accelerate the development of Peabody’s
presence in one of the world’s premier
undeveloped coal regions,” said Greg Boyce,
Chairman and Chief Executive Officer of Peabody.
“Because Polo has existing assets, coal resources
and personnel in Mongolia, this transaction
advances our goal of expanding our presence in
highgrowth, high-margin markets.”
Also in Mongolia, the Canadian company
SouthGobi Energy Resources, has its Ovoot Tolgoi
project, which we reported on last year. In April
SouthGobi announced an increase in its mining
capacity due to the addition of a new, larger fleet
of shovels and trucks. Once fully operational at
the end of this year it will have the capacity to
produce 5 Mt/y of a blend of thermal, premium
thermal and metallurgical coal, which will be
trucked across the border to China.
WORLD COAL
This new fleet no doubt helped the company
record new monthly sales of 231,566 t of coal in
June from Ovoot Tolgoi. This represents a new
monthly record that doubles the previous record.
The company said that “major factors
contributing to the record were the signing of
new customer contracts, mobilisation by
customers of larger truck fleets to transport Ovoot
Tolgoi coal and continued enhancement of
operations at the Shivee Khureen (Ceke) border
crossing between Mongolia and China.”
With the increasing sales rate and a reduction
in the company’s coal inventory to less than
700,000 t, South Gobi has been using full mining
capacity at the project. Since July 1, the existing
mining fleet has been operating 24 h/d, seven
days a week. In addition it expects to have its
second mining fleet commissioned in October of
this year, with the company targeting coal
production of 1.1-1.3 Mt the second half of
2009.
It will complete a new technical report for
Ovoot Tolgoi later in 2009. This new report will
incorporate outstanding data obtained from
drilling to the end of 2008 and redesign the
surface mine to a depth of 300 m from the
present 250 m. In addition, the new technical
report will update the resource models and
delineate reserves based on at least a prefeasibility
level of engineering.
SouthGobi Energy Resources’ Ovoot Tolgoi
project recorded a new monthly sales record
in June of 231,566 t of coal
This report will demonstrate the potential of
the Ovoot Tolgoi coal deposit. SouthGobi made
considerable progress in identifying additional
resources at Ovoot Tolgoi in 2008, drilling over
23,200 m down to a depth of 800 m in the
West field. In addition, there are 3,800 m of drill
data from 2007 in the Southeast field that still
require modelling. Based on 2008 drill data the
coal potential is continuous along strike and at
depth. The project currently has some 168.3 Mt
of Measured and Indicated resources and 25.2
Mt of Inferred resources. SouthGobi’s Chief
Operating Officer, Gene Wusaty thinks it will
not end there though: “We are very
encouraged with the results from drilling
completed in 2008 and are confident we will be
able to establish additional resources. We are
planning further drilling this summer, which also
is intended to expand the resource at Ovoot
Tolgoi.”
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WORLD COAL
Australia
As can be seen from table 6, Australia was the
third biggest producer of coal in the world in
2008. The Pilbara might be the place for iron ore;
however Hunter Valley in New South Wales is the
place for coal. In April, Xstrata announced that it
had begun work on a new A$1.1 billion open pit
coal mine, west of Muswelbrook in this area. An
estimated 10.5 Mt/y of coal will be produced for
export and local power use once the mine
becomes operational in 2010.
The work is being carried out by Xstrata and its
newly allied partner Parsons Brinckerhoff. They
will deliver the EPCM and commissioning of all
civil, industrial area facilities and common supply
works. The mine, Mangoola, will be the first
project carried out by the new global alliance.
Within upper Hunter Valley, Felix Resources has
its Moorlarben coal project. The project adjoins
the Ulan coal mine (Xstrata/ Mitsubishi) to the
northwest and the Wilpinjong coal mine
(Peabody) in the east. It is an unincorporated joint
venture with Sojitz Corp of Japan (10%), a
consortium consisting of Korea Resource Corp,
Korea Electric Power Co and four of its generator
subsidiaries, Kosep, Komipo, Kowepo and Kospo
plus Hanwha Corp (a total of 10%). Felix owns
80% and will operate the project.
In January 2008 mining lease 1605 and mining
lease 1606 were granted for a term of 21 years.
The Moolarben resource is around 610 Mt of high
quality, open pit and underground thermal coal
with approved capacity of 10 Mt/y. It has an open
pit strip ratio of less than 3:1. In April GRD
Minproc was awarded an engineering design
contract for the project. This contract relates to
the material handlings areas of the A$400 million
coal mine and will be carried out by Minproc and
Roberts and Schaefer.
Elsewhere in Australia, Northern Energy Corp
(NEC) has its Surat Basin Elimatta coal project. In
late May, the project, located in southern
Queensland, increased the reserves to 108.5 Mt,
comprising 82.3 Mt of Proven reserves and 23.5
Mt of Probable reserves. This is based on the
establishment of an open-pit mine producing
around 5 Mt/y of low ash, high volatile thermal
coal for more than 20 years. The mine plan is
based on an excavator and truck contract mining
operation feeding a 1,100 t/h two stage coal
processing plant producing a nominal 5 Mt/y of
product coal.
This project is planned to provide a new rail link
between Wandoan and the existing Moura –
Gladstone rail link. It is designed to provide 42 Mt
of rail capacity from the Wandoan region with the
design standard enabling the use of the unit
trains that will be larger than currently running in
Queensland. This will provide efficient rail haulage
to Gladstone. NEC is currently negotiating with
44 International Mining AUGUST 2009
Anglo Coal (a subsidiary of Anglo
American) has projects all over
South Africa including the
Isibonelo colliery pictured here
Surat Basin Rail for the provision of 5 Mt/y
capacity on the new rail.
South Africa
South Africa has suffered in recent years from
power outages, however as table 6 shows this
hasn’t stopped it from boosting its coal
production by 0.8% from 2007. Ranked seventh
this year, South Africa has much coal producing
potential. In the north-western part of the
Limpopo Province Exxaro Resources and Sasol
Mining are developing a new coal mine to supply
Sasol’s potential new inland coal-to-liquids (CTL)
Mafutha project.
Should the project proceed, it will require a new
coal mine to produce feedstock for the 80,000
bbl/d CTL complex. The development will help meet
the growing shortfall in South Africa’s domestic fuel
production, most notably in the installed capacity
for producing diesel and petrol. In recent years,
South Africa has been a regular importer of refined
fuels to supplement local production. It is expected
that such a mine would require an open-pit truck
and shovel extraction method.
The development of the new mine is in the
prefeasibility stage with the mining of a bulk
sample planned for before the end of 2009. It is
expected that some 170,000 t of coal will be
mined for large-scale testing at the Sasol Synfuels
Secunda plant.
The Homeland Energy Group has its Eloff
project in prefeasibility as well. This project has the
potential to ramp up to mining rates of 500,000
t/month and has Measured resources of 151.1
Mt, Indicated resources of 99.2 Mt and Inferred
resources of 210.5 Mt. It is located at the Western
Extremity of the Witbank coalfield around 10 km
to the south of the town of Delmas in the
Mpumalanga Province.
Eloff is largely mineable by open-pit methods,
underlying predominantly farming (maize and
livestock) land that has historically been
considered for supplying a low grade of coal to
the local power generating industry. The elevation
of the project is some 1,600 m above mean sea
level. The project is located close to a number of
current and defunct mining operations. Several
prospecting drilling campaigns have been carried
out in the area, the most recent being
commissioned by Homeland in May 2007. A total
of 165 holes were drilled in 2007 over the project
area of 4,921 ha, for a total length of 10,312 m.
The majority were coal-bearing with only 10
boreholes, along the edge of a paeleo drainage
channel, showing no coal or weathered coal.
More than 12,000 m of drilling has been done on
this property to the end of 2008 to delineate a
resource.
A project near to Eloff is Keaton Energy’s
Delmas project. In May the company released a
25.9 Mt coal reserve with 24.3 Mt in the
Proven category and 1.6 Mt in the Probable
category. This was calculated during a feasibility
study on the project which showed that the
majority of shallow bituminous coal of the No.
4, No. 5 and No. 2 seam resource could be
converted to a reserve. It has an in-situ coal
resource of 163.4 Mt inclusive of the 25.9 Mt
reserve. Later in June Keaton announced it had
received a 20 year mining right by the
Department of Minerals and Energy for the
project and that mining would commence later
in the year.
Anglo Coal has operations in South Africa. Its
73% owned, $473 million Zondagsfontein project
is currently under construction and includes a
50:50 joint venture plant with BHP Billiton Energy
Coal South Africa. The project is on track to
WORLD COAL
deliver 6.6 Mt/y of export and Eskom coal from 2010, with first production
expected in the third quarter of 2009.
Mozambique and Indonesia
Indonesia has continued to raise its profile as a major producer and exporter,
and Mozambique is starting to show its credentials. Important current projects
include the massive East Kutai project (Indonesia), owned by UK based
Churchill Mining, SouthGobi’s Mamahak project (Indonesia) and the ever
expanding Moatize project (Mozambique) owned by Brazilian giant Vale.
At East Kutai Churchill has established a massive thermal coal resource.
JORC rated, the 3,180 Mt resource was established in May of this year with
an upgrade into JORC categories expected once digital survey data has been
processed. The project has attracted much interest and is already in line to
supply Cirebon Electric Power’s 660 MW power plant in West Java, which will
require some 3 Mt/y of coal for operations when it starts up in 2011.
Surprisingly, the company had an initial resource target of 500 Mt but,
based upon the scope of the area that the company has a mining licence for,
the over 3,000 Mt of current resource is by no means the end. The company
has so far defined a coal system 18 km long and about 3 km wide. To date
only 30% of the project area has been drilled and the existing resource
remains open along strike.
This latest resource update was derived from total cumulative drilling of
40,900 m, including 14,200 m of open hole and 26,700 m coring in 287 drill
hole locations. The drilling focused in the north-eastern areas of the
Investama Resources block and the north-western areas of the Ridlatama
Tambang mineral block.
The quality of the coal from the project is promising. The latest round of
drilling shows similar characteristics to previous drill samples with the coal
defined as medium calorific, with low sulphur and low ash content. Churchill
believes, given the potential world class size of the resource, that the project
now has the scale to be of strategic value to major Asian power groups –
particularly those in Indonesia, India and China.
Due to the large size of the deposit, Churchill has focused its mine and
infrastructure planning to create a bulk mining operation producing up to 20
Mt/y of coal. The company has also set a new JORC reserve target of 500 Mt
to support this production level. To date Churchill has completed many of the
preliminary technical and Indonesian statutory procedural requirements to
ensure mining can go ahead. This technical build-up will continue for the rest
of the year so that the project is ready for project development financing
and/or joint venture partnership next year.
SouthGobi has a metallurgical coking coal project in the East Kalimantan
region of Indonesia. In May, it signed an agreement with Glencore
International to provide it with coking coal marketing expertise and river
barging/vessel loading logistical services for its Mamahak project. At the time
it planned to extract and ship an initial 30,000 t trial shipment for delivery to
various Asian customers for testing. The coal was trucked on the recently
completed 34 km haul road to a new barge-loading facility on the Mamahak
River.
Through its wholly owned subsidiary, Pt. Multi Mamahak Batubara (MMB)
it has commenced the development of surface coal deposits in four
concessions covering 22,968 ha at the project. It has an 85% working interest
in the project and was authorised to begin mining on the MCM concession
under a location permit issued in January 2008.
A resource estimate completed in January showed Measured plus Indicated
coal resources of 12.2 Mt, with an additional Inferred coal resource of 5.2 Mt.
This is based on 220 drill holes completed between March 2008, and
November 5, 2008. Further drilling and bulk sampling of ‘on-strike’ extensions
are continuing on both blocks. A recent bulk sample from the SW resource
block within the MCM concession has confirmed high-volatile metallurgical
coking coal amenable to surface mining.
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WORLD COAL
Clean coal
Aviva Corp’s Central West coal
project consists of a 400-450 MW
coal fired power station (Coolimba),
a 360 MW gas fired power station
and has plans to phase in up to 2.9
Mt/y of carbon capture and
sequestration as a separate project
when feasible
T
here has been much discussion of clean coal in recent years; yet with
the intrusion of other financial issues pressure has not been readily
exerted on coal companies to mine and produce clean coal. This is
not to say that no companies have initiated projects with clean coal
technologies in mind. One such company is Aviva Corp, which is in the
process of developing its Central West coal project using circulating fluidised
bed boiler (CFB) technology to remove sulphur and nitrous oxides. The
project will be constructed to be carbon capture and storage (CCS) ready to
store the plant’s carbon dioxide through the deployment of CCS
technologies.
The project, located 270 km north of Perth consists of a 400-450 MW
coal fired power station (Coolimba), a 360 MW gas fired power station and
has plans to phase in up to 2.9 Mt/y of carbon capture and sequestration as
a separate project when feasible. It will mine 75 Mt of sub-bituminous coal
from the Central West deposit which will be used to fuel the Coolimba
power station.
In a rather different, yet still positive, development, Peabody Energy and
White Energy signed an agreement to develop a coal upgrading plant sited
at a Peabody operation in America’s Powder River Basin. The plant would
use White Energy’s patented coal briquetting technology - a mechanical
process that upgrades lower Btu coals. The process increases the coal's
overall energy content by some 35%. The resulting product is higher quality,
more efficient and cleaner, with lower carbon and other emissions. The
upgraded coal can be used interchangeably with high rank thermal coal for
a number of applications, including power generation, industrial processes
and Btu conversion, such as coal-to-gas and coal-to-liquids.
“We view this technology as a way to unlock further value in our reserves
in the Powder River Basin and at other locations to create new marketing
opportunities for US or export customers,” said Richard A. Navarre,
Peabody's President and Chief Commercial Officer. “Coal has been the
fastest-growing fuel for each of the past five years and will continue to be
the world's primary source of electricity. We are pleased to be partnering
with White Energy to develop a coal product with expanded market reach.”
Peabody and White Energy are proceeding with engineering design and
permitting activities for the first plant that is expected to require up to 24
months. The plant would be built in phases, with the first phase expected to
produce more than 1 Mt/y of upgraded coal. Subsequent phases could
increase plant capacity ultimately to more than 20 Mt/y. Peabody expects
substantial global growth opportunities using this technology that will
initially focus on applications in North America and China.
John Atkinson, CEO of White Energy said, “"The US is a significant
consumer of coal, and public sentiment supports that we move to a market
with viable clean coal options as soon as possible. Peabody, as the world's
largest private-sector coal company, is rightfully taking a leadership position
in this initiative. White Energy is delighted to be partnering with Peabody to
build a significant clean coal business in the US and also to work together to
The SW and E resource blocks cover some 638
ha, around 3% of the total land area of the four
concessions. Reconnaissance and initial field
mapping have started over the larger project area.
The company believes the area has the potential
to host significant metallurgical coal resources.
Positive exploration results on the SW and E
blocks prompted the company to increase its
working interest to 85% in September, 2008.
Mining giant Vale has operated in Mozambique
since November 2004 when it was selected to
46 International Mining AUGUST 2009
develop opportunities in the Chinese market. Today's agreement with
Peabody complements projects we have done in other key coal markets
around the world and represents another important step for White Energy
in positioning itself as one of the world's leading providers of clean coal
solutions.”
Tenaska’s Trailblazer Energy Centre is a supercritical coal-fired plant
development equipped with carbon capture technology in Sweetwater,
Texas, USA. The proposed facility is expected to be the first conventional,
commercial coal-fuelled power plant in the US to produce electricity while
being designed to capture 85% to 90% of CO2 emissions and providing for
its use in enhanced oil recovery and geologic storage. The plant's advanced
air quality control system will also minimise release of other emissions.
Fluor and Tenaska have signed a memorandum of understanding that
will be the basis of a joint Tenaska-Fluor limited engineering phase of work.
If Tenaska goes forward with the construction of Trailblazer, Fluor expects to
proceed with implementing design requirements, EPC and start-up of the
600 MW plant.
Although Tenaska’s final decision on Trailblazer construction will likely be
made in 2010, the plant is already in an advanced stage of development.
Tenaska has acquired all necessary property and signed tax abatement
agreements with local authorities. Trailblazer has received a draft air permit
from the Texas Commission on Environmental Quality (TCEQ) and has
received a screening study from the Electric Reliability Council of Texas
(ERCOT).
When constructed, Trailblazer would produce around 600 MW, which
could supply power to as many as 600,000 homes. Fluor's experience in this
power sector covers all aspects of pulverised coal including supercritical
facilities like Trailblazer.
Dave Dunning, President of Fluor's Power Group: "We believe Trailblazer
will set a new standard for clean coal electricity generation globally by using
advanced carbon capture technology, and we are delighted to be part of
this innovation in clean energy production."
research one of the largest carboniferous reserves
in the world, located in Moatize, Tete province,
1,700 km north of the capital, Maputo. The
Moatize mine is expected to produce 11 Mt of
metallurgical and thermal coal a year over the
next 35 years.
Prefeasibility studies were done in 2005 and
2006. Analysis of social and economic factors
based on quantitative and qualitative research
was also thoroughly researched. In March, Vale
started the construction of the project. It involves
an investment of $1.3 billion and it will have a
nominal capacity of 11 Mt/y of coal, of which 8.5
Mt will be metallurgical coal and 2.5 Mt thermal
coal. This project, Vale's first greenfield project in
Africa, has Proven and Probable reserves of 838
Mt, being one of the world's largest unexploited
coal reserves. It has high quality metallurgical coal
which is traded at a premium over prices of other
types of coal.
Start-up of the project is expected in December
2010. At Moatize, Vale is building one of the
WORLD COAL
world's largest coal handling preparation plants in
an operational site, with capacity to process 26
Mt/y of coal. Coal production from the Moatize
mine will be transported by a railroad around 600
km to a new maritime terminal in the port of
Beira, province of Sofala, Mozambique. The coal
terminal will be built by a concessionary owned by
the Mozambican government.
Still within the Tete province, Camec has been
making headway on its exploration licence 871L.
With an initial JORC resource of 1,033 Mt, CEO
Andrew Groves believes that the company’s
“licence areas contain world class coal deposits.
The next step is to implement a feasibility study to
fully assess the production potential of the project
and realise its inherent value.”
The coal resources have been estimated based
on a geological model developed by SRK using
exploration borehole information provided by
Camec. On L871, exploration work conducted
by Camec identified 11 coal zones partially
exposed in surface outcrop that extended to a
depth of at least 250 m. These remain open
ended, over a strike distance in excess of 7.5
km. The outcropping coal horizons have a
combined thickness of circa 120 m, dip at
around 120° north, and are generally unaffected
by dykes and sills. The shallow dip should make
these horizons amenable to large scale open-pit
mining.
Churchill Mining’s East Kutai coal project in Indonesia is
in line to supply Cirebon Electric Power’s 660 MW power
plant in West Java. This will require some 3 Mt/y of coal
for operations when it starts up in 2011
Gross tonnages in-situ for the individual coal
zones were estimated based on the preliminary
geological model developed by SRK and using an
average relative density of 1.7 t/m3 of coal. The
coal resource blocks are defined as the areas
underlain by coal from the mapped outcrops in
the south to the northern border faults,
supported and confirmed by close-spaced drilling.
All coal to maximum depth of 250 m was
included in these estimates.
Riversdale Mining and Tata Steel have reported
a huge Indonesian project. Reports show a
resource in the region of 4,000 Mt with 1,033.9
Mt in the Measured and Indicated category. The
two companies have 16 coal bearing tenements
covering an area of 203,460 ha located in the
Lower Zambezi Coal Basin to their name, along
with six tenements covering an area of 53,220 ha
in the Tete province.
Coal reserves currently stand at 273.3 Mt with
181.3 Mt Proven and 92 Mt Probable in
accordance with an initial run of mine
development of 5.3 Mt/y increasing to 10 Mt/y
and ultimately 20 Mt/y as transport
infrastructure becomes available. The project will
produce a mixture of hard coking and thermal
coal and requires a direct capital investment
during development of more than $800 million.
Tata is likely to reap the benefits from the
project, but as previously mentioned, as a steel
company, it will have to hang in there to make
the most of its 35% strategic stake in the
project. IM
AUGUST 2009 International Mining 47