Responding to a question over project delays during the half-year investor presentation yesterday, Hollows said five years ago the capital costs with the Codrilla project were $1 million per kilometre for rail but are now $3-4 million per km.

“We built Moorvale in 2003 at a total cost of $70 million, including the preparation plant and the rail spur and on a 20 million tonne reserve at the time,” Hollows said.

“Over the last four to five years, operating costs have increased 60 to 70 per cent, capital costs have doubled to almost tripled, therefore the hurdle rate you have to have for proving up a resource and reserve continues to get larger.

“So in 2003, you can develop a pure PCI coal mine on a 20 million tonne reserve. You now probably need a 60 to 80 million tonne reserve for a PCI project, to be able to absorb the infrastructure costs.”

Hollows also noted the Queensland floods of 2008 prevented drill rig access while 2-3 years ago there was a crisis in terms of getting drill rigs.

But she placed a lot of blame on the slow pace of port capacity development, saying Macarthur still did not have sufficient port capacity.

She said the Dalrymple Bay Coal Terminal was meant to have reached capacity of 85Mt per annum a while ago.

“For the next two years it’s going to be lucky to get above 75 million tonnes per annum.

“Wiggins Island should have been built by now as well.”

Macarthur’s 70%-owned Middlemount project has started mining but is not expected to kick off to its 5Mtpa run-of-mine coal target until the 4Mtpa coal handling and preparation plant is finished in the September quarter.

Hollows said the mine was likely to produce 3.5-4.0Mt of saleable coal, although floods have delayed the Middlemount mining lease and regulatory approvals have also become “a lot longer and a lot harder”

Given the environment of higher project development costs, port capacity delays, and tougher regulatory approvals, Hollows said resources needed to be increased to make sure projects could be delivered.

The price of pulverised coal injection coal also needs to move high enough to advance the development of a PCI mine.

“To be able to develop a project now, particularly given rail and port infrastructure costs are now going to be for Abbots Point or Wiggins Island about $15 a tonne more, they are going to need at least $US125 per tonne to make it work,” Hollows said.

But Macarthur is expecting coal prices to jump up for the upcoming Japanese financial year starting April.

“There are no settlements for hard coking coal as of yet and price discussions are at very early stages, we understand that pricing that has been tabled in Japan is over $US200 per tonne and similar to where the spot pricing currently is into India and China,” Hollows said.

With higher coking coal prices, the appeal of Macarthur’s PCI coal becomes greater as a cheaper metallurgical coal, but the company is already starting to profit from higher priced spot deals.

“We are getting very, very good pricing for our high-ash PCI product, that we historically sold as thermal coal, into China,” Hollows said.

“Actually higher than what we are selling our PCI benchmark for.”

While not revealing the price, she said it was more than $US100/t.

Hollows also observed there was more discussion over quarterly contracts as opposed to the typical annual deals.

“Negotiations are currently seem to be delayed, mainly I think because of BMA putting forward quarterly pricing and other parties looking at quarterly pricing.”

Macarthur suffered a 43% reduction in its coal sales prices last year due to the steel market slump which followed the start of the global financial crisis, a major factor behind its recent half-year profit results which were down 63% year-on-year.

The company is continuing a feasibility study for its Codrilla project and the environmental impact study for the prospective 3Mtpa PCI and thermal coal mine is expected to be finalised in December.

The leading PCI exporter is actively exploring its Vermont East and Wilunga tenements in order to undertake a prefeasibility study for another mine capable of up to 4Mtpa of ROM coal production.

Shares in Macarthur closed down 9c to $10.31 yesterday.