Australian coal miners opt to explore overseas

Image courtesy of [digitalart] \ FreeDigitalPhotos

About a dozen Australian mining firms are heading overseas to South American jungles, Mongolian deserts, the Siberian tundra and other far-flung locations to look for mines to dig.

Image courtesy of [digitalart] \ FreeDigitalPhotos
Image courtesy of [digitalart] \ FreeDigitalPhotos
Reuters reports that the Australian prospectors with the combined market capitalisation of about A$800 million ($748.68 million) listed on the Australian Securities Exchange have been locked out of the home market by bigger rivals and are now pinning their hopes on a rebound in the price of metallurgical coal.

“The coking coal industry in Australia is dominated by the mega companies — the likes of BHP Billiton Glencore Xstrata, Peabody and Rio Tinto and the majors also sit on most new prospective deposits,” said Celsius Coal Managing Director Alex Molyeneux.

Perth-based Celsius is mapping out a 500-million tonne project in Kyrgyzstan, an enormous development in Australia for a company capitalised at only A$50 million.

According to the managing director, there are no high-yield coking coal deposits of a comparable size in Australia in the hands of juniors like Celsius.

“It’s an opportunity that doesn’t exist,” Molyeneux said.

David Fawcett, chairman of Jameson Resources Ltd also said the country has some of the highest mining costs in the world.

Jameson divested its Australian holdings in 2007 and now owns two coal prospects in western Canada.

“Australia’s no place for small hopefuls like us just starting out,” he said.

Western Canada is becoming a sought-after place for developing new coking coal mines, with junior miners like Jameson exploring side-by-side with mining giants like Teck Resources Ltd , Glencore Xstrata and Walter Energy Inc.

According to Fawcett, Jameson will only need to dig between 8 and 9 cubic meters of dirt to extract a tonne of coal from its Crown Mountain mine in British Colombia where it takes between 11 and 13 cubic meters in Australia.

“That can represent a big difference in cost,” Fawcett says.

Metallurgical coal prices worldwide fell as demand from steel producers dropped off, leaving up to half of all Australia coal mines running at a loss.

It costs about $160 a tonne to produce coal in Australia compared with $50-$100 in places like Mongolia and Russia.

The junior miners say they are detecting signs of resurgence in demand as steel production increases across Asia.

China’s imports rose seven-fold from 2008 to 2012 to 54 million tonnes, matching top importer Japan, trade data shows.

Meanwhile, new mega-steel mills are under construction in landlocked Central Asia, where big coal miners have no established seaborne trade routes, providing ample opportunities for upstarts.

Coking coal prices tumbled to $137 per tonne in August, a 14% drop since the beginning of the year.

Prices will average $140-$145 a tonne during the second half, still down from an average of $158 a tonne in the first half according to Moody’s ratings agency.

Even at the lower prices, juniors see profit margins.

Tigers Realm Coal is hoping to mine high-quality coking coal from Soviet-era deposits found in the Chukotka Province of Siberia for around $100 a tonne.