“This complex is planned for sales of approximately 9 million tonnes per annum with future underground expansions capable of adding up to 4Mtpa. Moolarben is a world-class deposit and I believe the best undeveloped coal property in Australia,” Flannery said.

Felix is currently considering a number of funding options for the mine.

The Moolarben thermal coal mine will come on stream in 2008 when, according to Felix, demand for good quality thermal coal is rising.

“The price of gas in Asia is rising and most power utilities in Northern Asia are rethinking their fuel mix. There is a strong shift to coal,” Flannery said.

“Southern China is beginning to emerge as a significant market and we believe China will be a net importer of thermal coal by 2008, mainly into the southern areas. China has ample reserves of good coking coal.

“We have recently signed two letters of intent with Chinese buyers for up to 5Mtpa of thermal coal.”

Flannery said Felix’s Ashton partner – IMC – is in the process of establishing two coal terminals for import and redistribution of coal from Shanghai south to Hong Kong and the Pearl River Delta. IMC also believes China will require significant imports of thermal coal.

“Our natural competitors in Asia are Indonesian producers. High quality coal from Indonesia is depleting rapidly, leaving high moisture coals which can only be used in most power stations by blending with better quality coals from Australia. In addition, Indonesia’s own plans for coal-fired power will require a significant quantity of the production by 2010.”

After Moolarben, which is due to start operating in the second half of 2008, Felix is confident in developing several other opportunities. It is exploring at Harrybrant near Nebo and Athena near Emerald.

But before these is the ramp-up next year of the Ashton longwall in March 2007. The coal wash plant expansion from the existing 400tph up to 1000tph is on schedule for completion in February 2007 and, according to Flannery, is on budget despite the cost pressures experienced in the industry.

The Ashton underground will take Felix’s total production to 8Mtpa (equity share of 5.5Mtpa).

One factor holding back Felix has been supply constraint issues. “Port and rail underperformance in both NSW and Queensland have affected the company’s ability to sell all its production, and demurrage cost the company approximately $A5 million in fiscal 06,” Flannery said.

“At Gladstone port the third rail unloader is due to commission in December and this should solve delay issues. In NSW, further upgrades in the port and rail system should see improvements in the second half of fiscal 07, but significant demurrage is still being incurred at Newcastle.”

Felix non-executive chairman Ian McCauley added that restricted sales infrastructure capacity would continue to be an issue in 2007.

“This limitation on port and rail capacity exists across most of the Australian eastern seaboard facilities and, in all likelihood, will take some time to substantially improve. Although this is disappointing from a sales volume point of view, whilst this situation persists, there is a cap on Australian supply tonnages which should help in placing a floor under export coal prices,” McCauley said.

He said marketing in today’s world to maximise margins was an ongoing challenge and establishing appropriate business relationships with key players in the coal market was an important strategic issue to achieve that.

“The dynamics of global coal markets have been subtly changing over the last few years. We have witnessed a trend towards a decreasing number of producers selling into an expanding market, a changing of the roles and influence of agents and the traditional trading houses, an ever changing array of customers and coal specifications as well as the emergence of new commercial instruments for managing risk.

“You will have noted the company’s attempt to develop a Korean power generation relationship through a sale of equity in the Minerva Mine. This sale was not completed as our existing joint venture partner at Minerva exercised their pre-emptive rights which suggests we offered it too cheaply.”

Felix said it had also been working on ultra clean coal technology, which was being “pursued with vigour” by Japan and China.

In conjunction with CSIRO and MHI, Felix has tested a whole range of bituminous coals from Australia and China and is now ready for the turbine test phase. UCC is one technology the AP6 group is considering for a joint research program, Felix said.