Sep 25, 2014
The continued downturn of the seaborne coal market has taken more of a toll this week, with 700 jobs set to go at BHP, and one prospective coal miner shutting up shop.
The continued decline of the price of coal is hitting the market where it hurts.
BHP Billiton coal boss Dean Dalla Valle says the 700 job cuts announced this week by the mining giant are in response to the dramatic fall in the price of metallurgical coal.
An extended decline over the past three years from a peak of more than US$140/tonne to this morning’s spot price of Newcastle thermal coal at US$65.95/tonne has wreaked havoc with the coal mining landscape.
The metallurgical coal market has fared similarly. In 2011 it peaked at more than US$300/tonne, but now has declined to almost a third of that.
Dalla Valle, speaking with the Sydney Morning Herald yesterday, indicated that conditions have worsened since BHP – the world’s biggest met coal exporter – started considering cost cutting measures.
“When we started looking at cost restructuring we were around US$150 a tonne, coming down from US$200, and now we are down around US$110,” he was quoted as saying.
“And we’ve had a pretty sticky forex rate in this country. This all follows a period of pretty inflationary cost growth over the past four or five years.”
BHP announced on Tuesday it will axe 700 jobs across its Queensland coal business, the BHP Mitsubishi Alliance. 560 of those will be operational.
“We will take action as necessary to make sure the mines remain profitable. Ultimately we have closed mines which we can’t make profitable.
“Some people criticise us for putting more tonnes out but for us that makes sense for helping us reduce our fixed cost base for our business.”
While the downturn in the market means job cuts for the bigger players, for the little guys it can mean the end for the entire business. Coal mine developer Bandanna Energy has gone into voluntary administration after the company’s board failed to come to a working agreement with creditors over funding.
Bandanna is one of the eight ‘stage one owners’ of the Wiggins Island Coal Export Terminal (WICET), the planned – but embattled – project designed to ramp up coal capacity at the Queensland port of Gladstone by almost double.
WICET chief executive Robert Barnes said on Tuesday the terminal’s development was on track to start exporting coal in November, despite the loss of Bandanna, which will likely no longer take part in that development, with administrators PPB Advisory appointed by the board on Monday.
Since June, Bandanna had been in negotiations with Credit Suisse to restructure the agreement designed to secure take or pay obligations for WICET port access and for rail access from provider Aurizon, to export coal from its planned Springsure Creek coal project.
“Negotiations with Credit Suisse have been both extensive and cordial however the board, after significant deliberations, determined by majority decision that an agreement with Credit Suisse could not be reached,” the company told the ASX on Monday.
The Bandanna board said it has “vigorously” explored alternative funding sources, including from Credit Suisse, existing and potential new major equity investors and also explored opportunities for binding commitments to asset sales, but now has been left with no choice but to go into voluntary administration.
Chairman John Pegler dissected the situation.
“Over the past few years, the BND Group has made substantial progress towards the development of the Springsure Creek project including obtaining EIS Approval from the Queensland Government, environmental approval from the Commonwealth Government and broad support from the local community and Local Government,” he said.
“Unfortunately, progress has been impacted by delayed approval of the Springsure Creek mining lease and the deepening cyclical decline in seaborne thermal coal prices, which together have further exacerbated delays in investor interest and participation.”
Acacia Coal, which is partnered with Bandanna in the proposed Triumph Creek Train Loading Facility at Comet Ridge – which was to be a part of the Springsure Creek mine’s export operation – says it is seeking an urgent meeting with PPB Advisory on the matter.
In other coal news, Anglo American boss Mark Cutifani is leading the campaign against ‘ethical investment’, which is seeing less investment in the coal and other fossil fuel sectors.
Cutifani said the growing movement of investors choosing to look away from fossil fuel focused industries was “short-sighted,” and “unfortunately very vocal.”
He said his business and other partners will begin a series of dialogues with local communities on the matter, and will also focus on faith-based groups “because they’ve got such an extensive reach across the globe.”