Favourable conclusions from the NSW Commission of Inquiry on Tahmoor North mean that Austral Coal should get its long-awaited blue sky.
Six months ago the future of Austral Coal Ltd’s Tahmoor North project at Wollondilly in New South Wales was looking decidedly chancy.
It was at this time that the miner was readying for the Carr-Government’s State Commission of Inquiry to wade through 260 public submissions into its proposal to expand the colliery — a move that would see the company lift its reserve position from about five years to 20 years.
Though some estimates at the time purported that the votes for-and-against the development were an even split (the development would see mining under the Thirlmere heritage conservation area), Austral’s management had one strategically important trump card: employment.
In the 18 months before the commission officially sat, the Illawarra region had been haemorrhaging coal mining jobs with CFMEU southern district secretary, Ken Harris, reporting that the area had lost more than 1000 permanent positions. Worst of all, many of the people who had got the sack were staying unemployed because mining related work was all they knew.
With local business owners and residents pitching in to help the company win its development battle, it would appear economic sense has prevailed. Commissioner Kevin Clelland last month handed down his recommendations, the most important of which was that “there are no environmental aspects, including subsidence effects which preclude approval of the Tahmoor North underground extension”
Austral followed this up by saying that the conditions stipulated by the commissioner were being reviewed by the company and the Department of Urban Affairs and Planning but were “not expected to impact on the economic feasibility of the project”. Final approval will come from the minister but at press time it seemed safe to assume that Austral would get the go-ahead to mine Tahmoor North.
It seems ironic that a junior company such as Austral should be worrying so intently about a big patch of blue sky in a market where all eyes are on making sure every last dollar is wrung out of existing operations. But Tahmoor North is essentially Austral’s future. Without it, it is doubtful whether the company could maintain key institutional and broking support. To put it bluntly, the company would quickly join the ranks of also rans.
To date Austral has made a good fist of exploiting Tahmoor, a colliery with a chequered history courtesy of its Buli seam gas and outbursts which have prevented maximum returns from the mine’s high quality coking coal. In the December quarter Austral recorded stronger shipments of 378,000 tonnes and is forecasting further improvements in March — one analyst suggesting the figure could exceed 500,000t.
Given that the coal will be delivered at 1998 contract prices, Austral should be able to reduce its stockpile to less than 100,000t and ensure that it puts more than $10 million in the bank at the end of quarter. Austral’s currency hedging program for 1999 provides cover for all the projected revenue at an average rate of $US0.672.
Full production resumed in February this year on panel 17 which contains 2.2 million ROM tonnes of coal. Production is forecast to continue throughout the year without interruption as the next longwall changeover is not planned until mid-2000.
Austral also announced another round of retrenchments — 60 jobs are to go from the current workforce of 239. Back in January 1998, the mine’s workforce numbered 351. Austral said the layoffs would not impact on production and were expected to boost productivity to 9000t per man year.
Other moves of importance included the entry of Brooklyn Resources Ltd on to the company’s register. Brooklyn has taken 15% of Austral and Paterson Ord Minnett analyst, Greg Chessell, expects Brooklyn to move to 19.9% providing Foreign Investment Review Board approval is given. “We do not foresee an aggressive takeover emerging in the short-to-medium term,”
Chessell said. “We see Brooklyn’s long-term strategy to be acquiring Australian coking coal production in order to establish a South-East Asian coking coal trading business.”
Chessell said given Austral’s debt-free status, it had the balance sheet to restructure. This could potentially include a sale and lease back of plant and equipment. “The cash generated (expected to be more than $10 million) could be applied to dilute the onerous foreign exchange hedging, pursue growth opportunities and/or pay a dividend,” Chessell said.
Though Tahmoor North has at least 20 years of reserves, further insitu exploration is required. The mining lease will also need development work and the installation of basic mine infrastructure such as a ventilation shaft. The total development bill could be $50 million — a big ask for a junior in a depressed coal market.
In the meantime, Austral is working on a feasibility study to use methane gas from its current mine drainage program to fire an electric generator and cut power costs. The company is also looking at extending the operation’s rail loop to 42 freight cars instead of the current 33 wagon limit. This will reduce freight charges.
