IHS Energy
Inside Coal
29 October 2014ihs.com
Developer presses ahead with
plans for UK met coal mine
By Jack Saunders, [email protected]
Australian-listed New Age Exploration is pressing ahead with
plans to develop the UK’s first prospective coking coal mine
since Hargreaves Services closed the Maltby deep mine in South
Yorkshire last year.
The Lochinvar project, sitting astride the western edge of
the Scotland-England border, involves the revival of a coalfield
explored by the National Coal Board back in the 1950s.
The latest findings from a group of consultants engaged
by New Age Exploration, released earlier this week, suggests
that the project can make a healthy margin even in today’s
downbeat seaborne coking coal market, which has been beset
with historically weak prices and widespread mine closures.
Lochinvar’s operating cost is calculated at $70/t FOB Blyth or
Hunterston port which the company says puts it in the first
quartile of global seaborne coking coal operating expenses.
“Our real edge kicks in when you consider the travel distance
to Rotterdam. US coal is hauled along 500km of rail before being
shipped 6,400km to Europe whereas Lochinvar travels 120km
by rail and a short 544km by ship,” NAE’s scoping study coordinator, Damon Rhodes said.
NAE commissioned the scoping study which was carried out by
independent consultants lead by Newcastle, NSW-based Palaris
Australia. The study concluded that Lochinvar’s exceptionally
low ash and low phosphorous product is likely to compete with
North American product which filled the vacuum left by the
closure of the Maltby mine.
“We believe we are highly competitive with the likes of US
Hampton Roads high vol A and B coking coals” Rhodes said.
“Lochinvar product is expected to be priced at about 87% of the
HCC benchmark and in between the US Hampton Roads hv A
and hv B FOB prices.”
These qualities are currently assessed at around $100-110/t
FOB east coast US. However, NAE chose to assess the coals
using an Australia prime hard coking coal benchmark of $165/t,
which would give an average realized price of $143/t FOB, using
the 87% relativity.
However, the $165/t benchmark was last seen in Q1 2013.
Since then the quarterly benchmark has slipped to around
Contact the editors
Andrew Wells,
+44 (0)7920 872 254, [email protected]
Mark Burgess,
+1 (865) 584 6294, [email protected]
© 2014 IHS
IHS coal marker prices
Coking coal daily
Basis
Australian prime hard coking coal
FOB
110.95
Day
Change
n/c
North China prime hard coking coal CFR
121.15
0.35
0.60
Australian hard coking coal
FOB
95.75
North China hard coking coal
CFR
109.25
0.50
Coking coal weekly
Basis
Week
Change
US low-vol
FOB
108.50
n/c
US high-ash, high-vol
FOB
99.10
n/c
ULV PCI
FOB
90.05
(0.20)
Coke Rizhao
FOB
178.55
(0.25)
ARA coke
CIF
210.95
(0.35)
Steam coal weekly
Basis
Week
Change
NEX
FOB
63.48
Source: IHS
(0.47)
© 2014 IHS
Freight rates
Coking coal
China
ARA
Japan
Taiwan
Queensland C
10.80
14.85
10.20
--
Queensland P
12.45
15.85
--
--
US east coast C
30.15
14.05
--
--
US east coast P
29.45
11.13
--
--
Canada C
12.15
--
10.80
11.80
Canada P
14.00
17.70
--
--
Note: All prices weekly apart from US east coast routes to ARA, which are assessed daily
Source: SSY, Clarksons
© 2014 IHS
Global coking coal trade (million tonnes)
Key exporters
Aug-13
Jul-14
CY-13
Australia
14.4
14.2
169.06
15.6
US (excl. Canada)
4.41
3.87
59.48
4.20
Canada
Aug-14
3.41
2.39
35.27
2.76
Sep-13
Aug-14
CY-13
Sep-14
China
7.25
3.84
75.42
4.50
Japan
3.59
3.22
48.43
--
Korea
1.40
2.40
21.4
0.88
Key importers
Source: Customs authorities
IHS™ Energy
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© 2014 IHS
IHS Energy | Inside Coal
IHS weekly coking coal prices ($/t)
Briefs
Oz prime HCC FOB
US low-vol HCC FOB
Source: IHS
German coking coal imports fell 15% in August, from the
previous month, while the US took a greater share of the
country’s met import market from Australia.
Met coal imports totalled 0.97mt in August, compared to
1.14mt in the previous month, though this is 3% up on 0.94mt
in August last year, according to government statistics.
Australia remained the largest supplier of met coal to
Germany in August, but its share of the overall market
declined while the US share increased.
Germany imported 0.44mt from Australia in August,
down 21% from 0.56mt in the month before, but up 5%
from 0.42mt in the year-ago month.
Imports from the US rose 59% to 0.35mt in August, from
0.22mt in July this year, and are 9% higher compared to
0.32mt in August last year.
For the January-August period, Germany imported
a total of 7.64mt, which is up 12% from 6.80mt in the
year-ago period.
Oct-14
Sep-14
Sep-14
Aug-14
Aug-14
Jul-14
Aug-14
Jul-14
Jun-14
Jun-14
May-14
Apr-14
May-14
Apr-14
Mar-14
Mar-14
Feb-14
Jan-14
Feb-14
Jan-14
German August met coal imports down 15%
Jan-14
140
135
130
125
120
115
110
105
100
95
US high-ash, high-vol HCC FOB
© 2014 IHS
$120/t FOB suggesting that the average realized price would be
$104/t FOB and therefore the operating margin closer to $34/t
in today’s market.
However, NAE did not factor in the freight advantage into ARA
ports of US supply, which could increase the realized price, and
therefore operating margin, by around $5/t.
Lochinvar’s indicative specifications – 5% ash, 34% volatile
matter, 1.2-1.4 sulphur and 7.0 CSN – makes it a potentially
attractive proposition for UK and European steel mills. The higher
sulphur is within UK/Europe blend limits and has the potential to
be reduced to 1.2% based on coal processing modelling.
As the UK’s only indigenous coking coal mine NAE aims to rail
half its output to the country’s three operating steel mills and to
export the rest to western Europe.
The mine will be 7km from the West Coast Main rail line with
access to UK steel makers, 190km to the existing shiploading
facilities at Hunterston where panamaxes can be accommodated,
and 120km to Blyth where handysizes can dock.
However, against these benefits one observer pointed out the
difficulty of breaking into the established European steel market
with new coking coals.
“The issue they have is that much of the European
customer base they want to tap into is operating with coke
ovens that are 30 years old. These mills may not want to risk
messing with their coke blends by taking on untested coals
from a new source,” he said.
Some sceptics wonder out loud why would an Australian
exploration company travel half way around the world to develop
a coking coal mine?
“Without being too presumptuous a lot of the world’s most
prospective coal developments are being left to Canadian and
Australian juniors to bring on line. Maybe it is our entrepreneurial
spirit or access to capital but it seems we are increasingly
spearheading these developments,” Rhodes, suggests.
The project is located 21km north of Carlisle and 120km east of
Glasgow. Since being granted the Lochinvar licence in June 2012,
NAE has given priority to proving up the coal resource. A maiden
inferred resource was released in October 2013 and an indicated
resource in August 2014.
Contained within two main seams – the appropriately named
nine foot and six foot seams – the site hosts some 111mt of total
resource down to a maximum of 1,000m and a minimum seam
© 2014 IHS
Aurizon doesn’t expect any Galilee exports soon
There will be no rush to get thermal coal from
Queensland’s Galilee basin to the seaborne market
anytime soon, given the current low price environment,
the state’s biggest haulage company Aurizon has said.
Chief executive Lance Hockridge said the current price
environment was not going to be a trigger for investment
in the GVK Hancock project.
It was the clearest indication yet that the 30mt first stage
project proposed by Indian group GVK will be delayed by at
least several years.
“The reality is that the timeframe for a decision to go
ahead will be some years down the track,” Hockridge said.
Aurizon and GVK signed an agreement last year to
jointly develop the rail and port infrastructure required to
unlock the Galilee Basin coal reserves.
2
29 October 2014
IHS Energy | Inside Coal
thickness of 1.2m. In addition there is a potential to increase the
resource by drilling for an exploration target of 31-64mt to the
south and west of the proven resource.
The scoping study was based on an average annual production
of 1.4mt of saleable product. NAE quotes IEA data, which pegs UK
imports of coking coal at 6.2mt in 2013 and the rest of “Europe at
21.6mt, which, it says, means that the Lochinvar project would
represent under 5% of total European coking coal imports. IHS
data has 2013 UK coking coal imports at 5.7mt, while all of the
EU countries imported a total of 35.78mt of coking coal in 2013
suggesting that this percentage is actually much lower.
Since the seam dips are suited to a longwall mining operation,
utilizing a single, bi-directional longwall shearer. The shearer will
sweep along a 200m panel which can be reduced to 140m in areas
of structural complexity.
The shearer will attack an average seam thickness of 2.4m, well
within the machine’s cutting height range of 1.8-3.6m. A 400t/h
wash plant designed to handle up to 2.5mt/yr should comfortably
convert 1.9mt/yr of ROM coal into saleable product.
Resource Capital Funds, a Denver, Colorada-based private
equity investor and 30% shareholder in NAE, together with Chee
Siew Yaw, a high net worth investor based in Singapore and the
company’s second largest shareholder (11%), are throwing their
considerable financial firepower behind the project.
Market comment
As many as 18 cargoes of coking coal across a variety of
qualities are believed to be currently offered into key Asian
markets by various traders.
The types of coals include BHP Billiton brands such as
Saraji and Peak Downs North, though offers are heard in a
wide range of $108/t-$112/t FOB according to sources. Anglo
is believed to have placed a cargo of German Creek into the
hands of traders as well as some PCI from Middlemount,
Yarrabee and some of its Canadian Peace River coal. Vale’s
Carborough Downs is also said to be available through traders.
Until very recently, availability for second-tier hard
coking coals had been fairly tight but is believed to have
loosened. However, sources say stocks at the key Chinese
import port Jingtang overall remain low and that there is
no availability of spot cargoes of second-tier coals.
While the market is described as more active, the action
is coming more from traders on the sell side. Sources
think traders probably took positions anticipating an
uptick in Chinese buying before year-end. So far, prices
being offered appear to be getting little traction as buyers
look for better deals.
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29 October 2014