Rio Tinto’s June announcement finally giving its $425 million Hail Creek coking coal mine project the go-ahead signals the development of one of the last big opencut deposits over the medium term in Queensland’s Bowen Basin.
Smaller near-surface deposits containing “niche” products such as PCI coal will still offer opportunities for companies like newcomer Macarthur Coal but, after Hail Creek, the basin’s future lies underground. And it is a future that sits predominantly in the hands of BHP Billiton and Mitsubishi.
Hosting some 25.781 billion tonnes of insitu thermal and coking coal, it is the Bowen Basin’s production of high-quality coking coal that has propelled Queensland to its position as the world’s largest seaborne coal trader. Other than six mines operating in the Surat and Morton Basins to the south, the bulk of Queensland’s coal comes out of the vast Bowen Basin region and most of it is coking coal.
Since BHP starting mining at Goonyella in 1971, approximately 1000 million tonnes of high-quality coking coal have been mined in Queensland. Of the 105Mt exported in 1999/2000 — valued at $5.338 million FOB — coking coal made up 74Mt of the total. Up 12% on the previous year, this was a record tonnage. Coking coal exports, which includes PCI coal, jumped 20% during the period.
The increase in saleable production came from underground coking coal mines, three new PCI mines and a ramp up in capacity at some opencut operations. Analysts predict that by 2005, coal exports from the region could reach in excess of 130Mt, with about 14Mtpa of additional coal projected to be coming out of the basin. Brownfields expansions are expected to contribute 8Mt of this additional production, with the balance to come from new greenfields projects.
Opencut high-quality hard coking coal reserves in Queensland are limited. Of BHP’s existing mines, only Peak Downs and Goonyella have large remaining reserves: about 300Mt and 200Mt, respectively.
Rio Tinto’s Hail Creek project, 85km west of Mackay, has total resources estimated at 1.2 billion tonnes. Described as one of the world’s largest undeveloped opencut coking coal deposits, its development was deferred for years, most recently when the coal price hit historic lows. Recently, the closure of Canadian coking coal mines had opened the door for a new mine like Hail Creek, said Greg Boyce, chief executive Rio Tinto Energy Group.
Rio Tinto has letters of intent from Asian and European buyers for around 50% of the mine’s projected output. At full capacity Hail Creek will produce 5.5Mtpa of coking coal, generating $400 million a year in export income.
Despite Hail Creek getting the green light to proceed, BHP Billiton and Mitsubishi will dominate the coking coal market in 15-20 years time, according to Chris Seymour, managing director of Norwest Mine Consultants. BHP recently sold half of its coking coal assets to Mitsubishi.
“Highwall access underground mines, where longwall gateroads are driven directly from the highwall, have the potential to cut $100 million off the capital for a new longwall and $5 per tonne off the operating costs,” Seymour said. “BHP has 150km of highwalls.
“Potentially they could establish 15 new mines producing 5Mtpa each from these highwalls.”
BHP long ago took the position that market discipline was crucial to prevent the coking coal market from becoming flooded with coal, causing a subsequent dip in the price. Any future developments are going to be essentially provide replacement capacity.
BHP’s most advanced underground project is the Goonyella exploration adit, accessed via the Goonyella highwall. Contractor Allied Mining has driven a three-entry development 3.5km downdip from the Goonyella highwall to assess geology and conduct a feasibility study, the results of which are to be presented in August.
Over the past two years while the underground-mine trial entries were driven, BHP has lowered its openpit mining costs even further. This has shifted its economic cut-off point — based predominantly on stripping ratios — between opencut and underground mining, and could extend the life of some opencut mines. Furthermore, Mitsubishi’s involvement as equal partner in BHP’s coking coal assets could extend the approval process as the Japanese trader gets its feet wet in an operating role. The Goonyella punch longwall is scheduled to be commissioned by mid-2003.
Growth in the pulverised coal injection (PCI) market has opened up something of a niche position for smaller aggressive players, including CAML Resources with the Foxleigh mine and Macarthur Coal’s 45% owned Coppabella project. The latter is building towards capacity of 4.2Mtpa, up from 2.5Mt in 1999-2000. Sales are forecast to grow to 3.6Mt in 2000-2001 before hitting 4.2Mt in 2001-2002. BHP also services the PCI market through South Walker Creek which produced 2.5Mt product coal in 1999-2000. The introduction of a surplus dragline from Goonyella will increase production to 3.5Mt this year.
Looking out to 2010, new greenfields projects forecast to be up and running include Anglo’s opencut Theodore and nearby Dawson steaming coal projects. Potentially, these two projects could produce 10Mtpa between them. Other longer term projects include Macarthur Coal’s 2.5Mtpa Olive Downs PCI project and Jellinbah Resources 1.5Mtpa Lake Vermont opencut project.
Rio Tinto’s 55% held Clermont project will be developed as an eventual replacement for Blair Athol, 110km north-west of Emerald, while Anglo’s 2.3Mtpa Grasstrees project, located within the existing German Creek lease area, will replace hard coking coal production from the German Creek Southern colliery, which is expected to run out of economic coal reserves by 2005.
“Development of Grasstrees colliery is scheduled to commence in 2001 with the sinking of two shafts to access the German Creek seam,” said Clyde Henderson of Energy Economics.
“The first longwall coal will be produced in early 2005. Grasstrees will produce 4Mt of coking coal a year. Development of Grasstrees will extend the life of the German Creek mine until 2016.”
Though workforce issues at Grasstrees remain unresolved, Anglo is determined the mine should be established as a greenfields operation and be subject to a different enterprise agreement from the existing restrictive Southern colliery agreement. Eventually, when the longwall goes into production in 2005, the four development headings in Grasstrees will be holed back into the Southern mine to establish services and longwall coal clearance. In the interim, development coal is to be cleared via a 400tpa vertical shaft which means technically Grasstrees can be established as a greenfields mine.
Projects with uncertain switch-on dates include the Togara North and South projects. According to Gary Cochrane, managing director of Asia Pacific Coal Services, Togara North and South, 90km south-east of Emerald, are not as attractive on an operating-cost basis as some other projects. Both are underground thermal projects and both require significant infrastructure investment. Concurrent development of both projects has been mooted for some time, but no agreements have been reached between the two groups of owners.
