Coal, Commodities, Features

Coking coal miners seize the day

By Anthony Fensom. 

Australia’s listed coal miners are back in the spotlight, with surging prices and merger and acquisition (M&A) deals providing a “generational opportunity” for growth. 

With Asian demand remaining firm and supply constrained, the prospects appear bright for Australia to capitalise on its position as the world’s top metallurgical (coking) coal exporter.

Seaborne metallurgical coal prices hit an all-time high of $US410 ($560) per metric tonne (CFR China) for premium hard coking coal on August 25, eclipsing the previous record high of $US392.50 set in January 2011 following Cyclone Yasi. The price of the key steelmaking ingredient has risen by around 250 per cent over the past year.

Thermal coal prices have also hit record highs, with the price of thermal coal at Newcastle Port doubling over the past year to more than $US166 a tonne.

Domestic supply tightness along with strong steel demand in China have contributed to the price rises. China’s unofficial ban on Australian coal has added to the supply issues, with imports from the United States, Canada and Russia unable to replace the quality or volume of Australian coal.

While China has imported more coal from outside Australia, supply disruptions have impacted other major exporters, including wildfires in Canada and coronavirus outbreaks in Mongolia that have disrupted output.

“China’s ban on Australian coal purchases from around November last year has caused huge distortions in the global coal market, with separate Chinese and rest-of-the-world pricing developing for both metallurgical coal used by steel mills and thermal coal used by power stations,” the Australian Strategic Policy Institute’s David Uren says.

Meanwhile, the widely publicised exit of major miners and Western bank moves to restrict finance for new coal projects have contributed to a lack of new supply.

Rio Tinto completed its exit from Australian coal in 2018, while rival BHP has announced plans to sell its thermal coal assets and some of its lower quality Queensland coking coal assets by August 2022.

The sell-off by major miners has sparked a new wave of M&A activity among remaining players, including listed and unlisted buyers.

Generational opportunity

“It’s a once in a generation opportunity,” Bowen Coking Coal executive chairman Nick Jorss says.

“Many existing players, such as BHP, are exiting the market, which is creating a lot of opportunities for companies such as Bowen. We are actively looking at assets of increasing size and quality to grow our business.”

Jorss is known for his success at Stanmore Coal, where he famously acquired Isaac Plains in a $1 deal and transformed it into a multi-billion-dollar enterprise. He aims to repeat his success at Bowen and make the explorer a profitable, mid-tier producer.

In July, the company announced it had been awarded preferred bidder status in the sale of the Bluff PCI mine, an open pit mine located in the central Bowen Basin in Queensland.

The project has approval to mine up to 1.8 million tonnes per annum of ultra-low volatile PCI coal.

Just days later, Bowen announced an even bigger M&A deal, with its planned “transformational” acquisition of the Burton mine and Lenton project from New Hope Corporation.

The assets include a 5.5 million tonnes per annum capacity coal handling and preparation plant and train loading facilities, with a JORC resource of 204 million tonnes and 30 million tonnes reserves.

“Completion will deliver on Bowen’s strategy to be the next leading independent ASX coal producer, targeting (run-of-mine) production of approximately five million tonnes per annum by 2024,” the company states in an August announcement.

Nick Jorss plans to turn Bowen Coal into a mid-tier coking coal producer.

Bowen also sees the potential to create a processing hub for its nearby exploration and development projects in Queensland’s Bowen Basin, including Broadmeadow East, Hillalong and Carborough.

Other Australian coal miners are also enjoying share price gains, with many recently hitting 12-month highs.

Among them, Stanmore Resources is planning further expansions, with mining lease approvals granted in July 2021 for its Isaac Downs project. The company plans to produce up to 2.5 million tonnes per annum of coking coal, with a 10-year mine life.

In the same month, Stanmore announced the completion of the Millennium and Mavis Downs mine acquisition from Peabody Energy Australia, with auger mining to commence in the following months.

Elsewhere, major miner Whitehaven Coal received a boost with the Federal Environment Minister approving its Vickery Extension Project in north-west New South Wales in September following a five-year approval process.

In its fiscal 2021 results presentation, the Sydney-based miner pointed to an “emerging supply gap” in thermal seaborne coal, with Australian high-grade coal in strong demand from Asian buyers.

It also pointed to rising demand for metallurgical coal, with Asian seaborne demand projected to reach nearly 250 million tonnes by 2050, up from around 150 million tonnes in 2020.

Price rise

Will the recent gains for Australia’s coal miners continue?

In its latest quarterly report, the Office of the Chief Economist projects that the Australian premium hard coking coal price will rise from an average of $US143 a tonne in 2021 to $US157 by 2023.

Australia’s exports are expected to increase too, from a low of 171 million tonnes in fiscal 2021 to 186 million tonnes by fiscal 2023.

Coal export values should reverse recent declines, rebounding from $22 billion in fiscal 2021 to almost $32 billion by fiscal 2023, the government forecaster states in its “Resources and Energy Quarterly” for the June quarter 2021.

“As industrial production recovers outside China, demand for metallurgical coal is likely to rebalance, narrowing the price differential on Australian output and adding to revenue for Australian exporters,” the report states.

“Over the outlook period, metallurgical coal demand is expected to grow in India (though the latest COVID-19 outbreak presents risks to this), Japan, South Korea and Europe.”

Importantly, it notes that Australian metallurgical coal exporters have “largely succeeded in diversifying their own supply chains, building new markets in South Korea, Vietnam and Brazil.”

For Australia’s next wave of coal miners, the future for ‘black gold’ appears brighter than ever.

This feature appeared in the October issue of Australian Resources & Investment.

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