harradynamics pty ltd · 2019. 2. 12. · brisbane po box 10012, brisbane adelaide street, brisbane...

BRISBANE PO Box 10012, Brisbane Adelaide Street, BRISBANE QLD 4000; Ph: +61 403 823 713, +61 7 3162 9384

Ref: H-C-D-1550 - Australian Coal Industry Review

1 February 2019 HARRADYNAMICS Pty Ltd Web Site Release Version HARRADYNAMICS 2018 Australian Coal Industry Report HARRADYNAMICS has recently completed a review of each and every Australian coal mining operation along with those coal projects which have been advanced sufficiently to be recognised by State based approvals agencies or listed to be developed within the period 2018 to 2023 by the tenement owner. Other coal projects which have not lodged development documentation with either NSW or QLD government agencies, or have not been publically listed by tenement or mining lease owners, have not been considered in this analysis as their likely development timeframes fall beyond the forecast period 2018 through 2023. HARRADYNAMICS has ranked various development (“greenfields”) projects and expansion (“brownfield”) projects that could add production volumes into the domestic and export markets over the forecast period. The ranking process allowed each project to be ranked from Tier 1 (most likely to be developed during the forecast period) through to Tier 10 (least likely to be developed during the forecast period). A series of ‘value’ criteria were applied to each ‘greenfields’ and ‘brownfields’ project that subsequently allowed for the ranking process. At the heart of those ‘value’ criteria are life-of-mine (LOM) strip ratio (for OC mines), product coal quality, capital and operating costs (if known), product yield, mining costs per product tonne, rail and port charges per tonne, scale, expansion capability, complexity of the mining operation, track record of mine owner/operator, and a series of revenue variables. The analysis was undertaken across all thermal coal projects separately from those for coking coal projects to allow insights for each coal market to be determined. Once HARRADYNAMICS applied the ‘value’ criteria the rankings for each coal project were then re-assessed based on the ownership structure, management team, clarity of purpose and direction as expressed by executive management from public domain records. This analysis aims to address the following questions over the 2018 – 2023 forecast period:

Of the numerous thermal and coking coal project developments that could be undertaken which make the most sense based on fundamentals – as defined by the ‘value’ criteria applied?

Does the ranking (Tier 1 through 10) process for each and every coal project provide some insights into the likely Australian export volumes for coking and thermal coal?

Is there a direct relationship between the Tier grouping of coal projects, as defined by HARRADYNAMICS, and the quality of those projects?

Prior to undertaking the above analysis HARRADYNAMICS applied a set of assumptions in order to define the likely thermal and coking coal revenues and exchange rates driving seaborne demand over the 2018 – 2023 forecast period. HARRADYNAMICS have referred to a number of price decks produced by key brokers and then calculated median figures as per Table 1 below. Worth noting from Table 1 that the 2018 figures are averages and thereby do


not take into account the substantial swings in revenues experienced throughout the year. For example the thermal coal benchmark started 2018 below US$81/t and then rose to US$98/t by December 2018. Coking coal revenues also rose quickly and unexpectedly on the back of Chinese domestic production constraints from US$167/t in early in the year to over US$200/t by late 2018. In effect the spot price dragged the benchmark price up rapidly in the back half of 2017 and now that we are in late 2018 it is evident that the spot price is more inline with the benchmark and thereby closer to the long term average price for both thermal and coking coal. We are already seeing coal stockpile volumes increasing across many jurisdictions, including Australia, China, and the US, whilst at the same time the Chinese government is unwinding some of the policies it introduced in 2017 that constrained Chinese domestic production. Recent announcements by the Chinese central government suggest that domestic coal fired power generation, along with steel manufacturing, will weaken throughout 2019. HARRADYNAMICS do not see the recent and firming pricing in thermal and coking coal revenues providing any sustained stimulus leading to additional ‘greenfields’ coal project development other than that forecast in this Industry Report for the 2018 – 2023 forecast period. We are nonetheless forecasting an uplift in the sale of both thermal and coking coal assets throughout 2019 and over the medium term. Rio Tinto has recently sold out of coal assets worldwide and other major mining houses forecast consolidation into metallurgical coal assets rather than thermal coal over time. We also note that Peabody Energy Australia has not yet concluded the restructuring of its Australian coal assets even though it has successfully trading out of Chapter 11 in the United States. HARRADYNAMICS is forecasting Peabody (in Australia) will sell “non-core assets” which we take as the worst performing of the Macarthur Coal mines purchased by Peabody in 2011. Olive Downs tenements were sold to Pembroke Resources for US$120m (plus a royalty) in May 2016. Other Peabody coal assets in Australia could sell one at a time or be bundled into an IPO over the next few years. It is also likely that Yancoal (Yanzhou) will re-structure their Australian coal portfolio in 2019 once the newly acquired NSW mines are fully integrated into the Yancoal Australian business. Table 1 – Broker consensus forecasts (2018 – 2023)

Pricing Assumption Broker Consensus Forecast (USD real, 2018 basis)

2018 2019 2020 2021 2022 2023

FX Rate (US$/t real) 0.74 0.74 0.73 0.73 0.73 0.71

Thernal Coal (FOB Newc)

$97.80/t $89.70/t $80.40/t $75.20/t $72.10/t $69.60/t

Hard Coking Coal $201.50/t $173.20/t $145.70/t $137.50/t $133.90/t $131.50/t

Semi-soft Coking/PCI average

$135.60/t $130.80/t $124.70/t $118.60/t $115.10/t $104.30/t

Inflation % (both USD and AUD)

2.00 2.00 2.00 2.00 2.00 2.00


Australian Coal Industry Report – 2018 – 2023 Forecast Period Graph 1 below suggests a modest increase in total thermal coal production (up by 18.9Mtpa) over the 5 year forecast period. This equates to a modest 1.5% p.a. increase over 5 years. Coking coal production volumes are up over the same period by more than 31Mtpa or 3% p.a. Basis data includes FY2018 actuals to March 2018. Graph 1 – Coal Mine Production Forecast

HARRADYNAMICS has investigated all known (publically reported) ‘greenfields’ and ‘brownfields’ coal projects in QLD and NSW to get a sense of their current status along with the likelihood of those projects being undertaken in the 2018 – 2023 forecast period. It has been assumed that no new coal mine discoveries will occur in the 2018 – 2023 forecast period and given the substantial exploration and development activity that occurred in the mining boom this assumption appears reasonable. The level of exploration and resource development across the coal mining sector has shrunk dramatically on the back of the mining boom and what little exploration activity is occurring at present appears to be focused on the development of known projects and/or current mining operations. Once the full list of ‘greenfields’ and ‘brownfields’ projects was assembled a process of ranking those projects was completed. Coal projects which were deemed unlikely to be developed over the 2018 – 2023 forecast period were then classified as “Pipeline” projects given there low prospectivity of being developed prior to 2023. Graph 2 below suggests a thermal coal project “Pipeline” of some 310Mtpa (on average) over the forecast period. This graph also suggests that the coking coal project pipeline is smaller at 150Mtpa (on average) over the forecast period. The trend for both thermal and coking coal pipeline projects is relatively flat out to 2023 indicating that few of those projects have the financials to be converted into additional production volumes in the near term.


Graph 2 – Coal Project Pipeline Forecast

Graph 3 below provides a comparison of the coal production forecast with the project pipelines for thermal coal and coking coal projects. The thermal coal project pipeline forecast always exceeds total thermal coal production whilst the coking coal project pipeline is always below the production forecast, and falls to approximately 50% of the coking coal production volumes by 2023. The relationship between production forecasts and the project pipeline, as depicted in Graph 3, provides some insights into what the future holds for the Australian coal mining sector:

1. Coking coal “pipeline” forecasts look reasonable and are in-line with longer term trends as they are between 75% and 50% of forecast production volumes over the 2018 – 2023 period. This means the project “pipeline” is well known and well advanced without being so large that the number of cued projects cannot all be developed without a significant impact on revenues.

2. The forecast “pipeline” figures for thermal coal don’t make sense and are more typical of a “mining boom” mentality where the presumption is demand is uncapped and volumes unconstrained and without negative revenue impacts. Thermal coal “pipeline” forecasts are between 130% and 114% of forecast production volumes over the 2018 – 2023 period. Clearly most of the “pipeline” projects cannot happen as they would more than double the most optimistic thermal coal production forecasts going forward.

3. HARRADYNAMICS have determined that the thermal coal project “pipeline” is skewed towards a number of Galilee Basin coal projects which are large in scale but perhaps low in probability of being developed. The vast majority of those large scale Galilee Basin thermal coal projects can’t happen because of the medium energy coal qualities, relatively high strip ratio’s, and the expensive rail and port requirements from both a capital and operating cost perspective. Better quality (higher tier) thermal coal assets in QLD, like Glencore’s Wandoan project, should be developed prior to


any of the Galilee Basin coal projects currently slated for development over the next 5 years. Again, the assumption being that fundamentals play a role in the timing and scale of any thermal coal mine in Australia over the forecast period.

4. Thermal coal production over the forecast period is relatively flat at around 260Mtpa. Thermal production is not being materially added to from the pool of “pipeline” projects as indicated in Graph 3 by the relatively flat “Thermal Coal Pipeline” curve. Whilst the individual coal mine and coal projects vary considerably in there fundamentals it would appear that most of the 260Mtpa of thermal coal production being forecast over the 2018 - 2023 period is coming from existing operations and mostly from the expansion of existing top tier assets. Given the modest growth being forecast in the export thermal coal market the growth in top tier asset volumes has to come partly from lower tier assets reducing production volumes in response to market forces.

5. Coking coal (including SSCC, SHCC, and PCI) production over the forecast period is expected to grow by an average of 6.2Mtpa for each of the five years out to 2023. This modest increase in annual coking coal production appears to be coming from the pool of “pipeline” projects - as indicated in Graph 3 by the slightly falling “Coking Coal Pipeline” curve. Even though the pipeline of coking coal projects falls slightly most of the growth in volumes over the 2018 – 2023 period is coming from existing (“brownfields”) operations and mostly from the expansion of top tier assets as some lower tier assets contract in scale or close. The best of those existing coking coal assets are the Queensland based BMA operations, which we see expanding over the 2018 – 2023 forecast period.

What Graph 3 doesn’t show is the relationship between forecast production volumes and coal quality over time. Generally speaking the quality of both thermal and coking coal production is falling throughout the forecast period - or processing yields are falling as a response to lower quality ROM coals being mined. In any case the relatively flat production volume forecasts may be hiding lower revenues or higher production costs over the forecast period. HARRADYNAMICS makes the observation that the low level of conversion of “pipeline” or “greenfields” projects into mining operations over the forecast period is unsustainable over the longer term. As existing operations mine deeper or encounter lower quality working sections unit costs must increase and the attractiveness of developing a ‘greenfields’ project, compared to sustaining or expanding a “brownfields’ operation, improves. At that tipping point the economics of a “greenfields” coal mining project allows for their development even in a relatively flat market. We see such a tipping point arising for thermal coal projects from around 2024 – 2025 and for coking coal projects from around 2022 – 2023. The most recent mining boom allowed for near-economic, and some sub-economic, coal projects to be brought into production. Since the end of the mining boom those coal mining operations are typically highly geared and some cash negative. Whilst many of the ‘near-economic’ operations have managed to reduce costs and maintain slightly positive cash flows others have reached a point in late 2018 where they are being offered for sale or have been closed and put on care-and-maintenance. As Graph 3 suggests the Australian coal mining sector appears to be going sideways over the next 5 years or so with respect to total production levels. We also see few ‘greenfields’ projects coming on stream over the forecast period given that the current top tier mining operations are able to increase production volumes at a lower capital cost, and with few approvals related impediments, compared to ‘greenfields’ developments.


Graph 3 – Coal Project Production vs Project Pipeline Forecasts

HARRADYNAMICS reviewed the relationship between existing coal mining operations within the top tier asset group against the likely coal mine developments in the same top tier group to see if the pipeline of quality projects could keep up forecast production volumes over the 2018 to 2023 period. What is evident from Graph 4 below is that the vast majority of Australia’s current thermal and coking coal production is being produced by the best coal mining assets – a somewhat intuitive and predictable finding. What is also evident is that the top tier project “pipeline” is skinny and falls away quickly over the forecast period. Graph 4 – Tier 1 and 2 Coal Mine Production Forecast


Graph 5 below suggests that the very best (Tier 1 and 2) coal projects are not well supported over the 2018 – 2023 forecast period with “pipeline” projects that are also in the top tier bracket. The inference being that the best quality coal mining operations, both thermal and coking coal, are unsustainable beyond 2022 unless new discoveries are made in the meantime that can top-up the pool of Tier 1 and 2 pipeline projects. HARRADYNAMICS believes that such new discoveries are unlikely and therefore production from top tier assets will continue to fall beyond 2022. Graph 5 – Tier 1 and 2 Coal Project Production vs Project Pipeline Forecasts

Over longer forecast periods, say +10 years, a number of the top tier mining assets will not be able to maintain high production volumes or indeed remain top tier assets. All mining operations seek to implement an optimal and value maximising mine plan which sees the cheapest and best quality coal mined first. Over time each mine therefore mines deeper (if open cut) or further from mains, drifts, or shafts (if underground), and even if there is no fall off in coal quality, production costs invariably rise on a product tonne basis. The consequence of the top tier thermal and coking coal assets taking the lion’s share of forecast growth between 2018 and 2023 is depicted in Graph 4 and 5 above. These graphs also suggest that expanding top tier (‘brownfields’) mines ultimately reach an upper limit on their ability to grow further or to take more market share from lower tier assets. Both Graph 4 and 5 confirm that Australian coal producers will increasingly have to look to ’greenfields’ coal projects beyond 2023 in order to prop-up total export volumes beyond the next 5 to 7 years. What we don’t know at this time of course includes the number of top tier mining assets likely to be discovered in the future that would increase the pipeline of top tier assets beyond our current knowledge base. That said it is also true that the recent mining boom created a significant uplift in resource and reserve knowledge across the Australian and global coal sectors. At no time in the past have we seen a period of less resource knowledge across both the existing coal mining operations or the ‘greenfields’ project development space. It is HARRADYNAMICS opinion therefore that the top tier pipeline will indeed fall over time as a


natural consequence of the industries desire to develop or expand the best coal mines ahead of the rest. Perhaps the best way to explore and define the challenges ahead for the Australian coal mining sector is to broaden the field of investigation and look at all of the current coal mines and coal development projects. HARRADYNAMICS has analysed all Australian coal production figures (excluding WA and VIC) from 2018 and then compiled a list of production forecasts that cover the 2018 to 2023 period – for both thermal and coking coal mines. Production figures include domestic thermal coal volumes to get a sense of the size and production capacity of the complete thermal coal sector. Some noteworthy observations:

1. Forecast production volumes are not being constrained by either rail or port capacity in QLD or NSW. Unlike the mining boom there does not appear to be any rail or port capacity limitations that could impact on the growth forecasts across the QLD and NSW coal industry from 2018 through 2023. If anything the rail and port charges over the forecast period are showing signs of softening in a competitive market for rail and port services that is experiencing little volume growth and low utilisations. That said we note the ongoing speculation about the financial viability of some coal terminals such as WICET and AAPT in QLD and to a much lesser extent NCIG in NSW. Whilst those ports have long term take-or-pay (TPC) contracts under-pinning their financials it is what happens after those TPC contracts unwind that is of concern over the forecast period.

2. Aggregate production forecasts for thermal and coking coal show moderate growth over the forecast period but at the individual mine level there is substantial variability across the coal mining industry. For example there are some ‘greenfields’ projects forecast to come online in early 2019 (eg Qcoal’s Byerwen mine and MACH Energy’s Mt. Pleasant mine). There are also mines forecast to close such as the Burton open cut and Charbon underground mines.

3. The project pipeline is heavily dominated by thermal coal projects and the larger of those projects are located in Queensland’s Galilee Basin. Whilst there are several large scale thermal projects proposed for the Galilee Basin the most prospective of those projects (perhaps Adani’s Carmichael Coal, and GVK Hancock’s Alpha Coal) are still unlikely to be developed over the forecast period due to unfavorable economics, some approvals related constraints, and long lead times typical of such mega-projects.

4. Over the forecast period we are seeing more tenements being relinquished back to the State along with some that are being purchased by the State (eg: BHPB selling the Caroona EL back to NSW Government for $220m). There has been a significant fall off in investment capital finding quality coal mining projects which in part may explain why some tenements are being relinquished after a number of years of exploration and pre-development effort.

5. Even with the recent improvement in both thermal and coking coal revenues during 2018 asset sales that have occurred over the past 12 months suggests the financing community is still somewhat sceptical about things “coal” and specifically the thermal coal sector. We see this perhaps neutral sentiment continuing throughout 2019 unless the US & Chinese economies do something positive for one another or at least the rest of the world’s major economies.

HARRADYNAMICS have presented in Graph 6 through Graph 9 below the relationship between the coal mining forecasts and the project pipeline forecasts for both thermal and coking coal over the full range of projects. That is to say all projects have been ranked Tier 1 through Tier 10 and the relationships between the projects and pipelines gives some insights into the financial viability of the Australian coal mining industry well into the future.


Graph 6 – Tier 1 through 4 Coal Project Production vs Project Pipeline Forecasts




Graph 9 – Tier 1 through 10 (All) Coal Project Production vs Project Pipeline Forecasts


Australian Coal Rail Freight Business Australia’s rail transport industry currently consists of 25 operators, primarily located in Queensland, New South Wales, and Victoria. The resource rich regions such as Western Australia’s Pilbara, Queensland’s Bowen Basin, and the Hunter Valley in New South Wales account for the majority of the bulk commodity rail freight business. The large mining companies also own and operate their own rail haulage fleets as indicated in Table 2 below. The bigger mining companies, such as Rio Tinto and BHP, dominate the iron ore rail haulage market whilst BHP, Anglo, Glencore and Yancoal dominate the QLD and NSW coal haulage business. The coal haulage business in QLD and NSW continues to undergo structural change with increased competition and new entrants to the rail freight business across the coal sector. In 2016 Glencore sold its Grail business to Genesee & Wyoming and there were a number of other structural changes in the ownership and operations of existing rail freight businesses such as Pacific National. HARRADYNAMICS has taken the coal production forecast analysis described in this briefing paper and looked at the numbers from a rail freight perspective. The coal haulage market in Australia is dominated by Aurizon (QLD dominant) and by Pacific National (NSW dominant). The traditional markets for each of these two major players is now open to more competition in the above rail sector and over time Aurizon has made its mark in the NSW market just as much as PN has entered the QLD coal haulage business. Each of the coal mines operating in QLD and NSW has been identified and sorted by rail freight service provider. In addition each of the coal projects identified as likely to proceed within the 2018 – 2023 forecast period has been assigned a rail freight service provider if that information has been defined and available in the public domain. For those “pipeline” coal projects that HARRADYNAMICS has defined as not likely to be developed over the 2018 – 2023 forecast period there exists an opportunity for any rail freight service provider to win that potential business. Those rail freight opportunities have been defined as “OPEN” or contestable at some point in the future. There are also a number of coal mines currently in production that don’t export and also do not require rail freight services. Those mines are captive coal mines to adjacent power stations which typically also own and operate the mines for the exclusive use of the power station. Such mines are defined as “None” in the rail freight analysis given they do not require rail freight services from any provider. Refer to Tables 3 and 4 below for the details.


Table 2 – Rail Freight Service Providers


Table 3 – Australian Coal Freight Service Providers

Table 4 – Aurizon and Pacific National Coal Freight Forecasts

Table 3 above defines Aurizon as the dominant rail freight service provider in QLD and Pacific National (PN) as the dominant rail freight provider in NSW. The table also indicates that “Other Rail Freight Providers” do not make up the majority of the rail freight business and are therefore not seen as dominant or indeed capable of setting the market rate for such services. Table 3 notes that the identified market for rail freight services that are not currently assigned over the 2018 – 2023 forecast period (“OPEN for competition) is small and all but insignificant prior to 2020. By 2021 the “OPEN for competition” market rises to 32.1Mtpa for all asset qualities. However if we limit the asset qualities to just Tier 1 – 4 then the 2021 “OPEN for competition” market falls to 22.1Mtpa. The contestable rail freight market defined as “OPEN for competition – pipeline” is large and reflective of the number of large scale thermal coal projects that are not likely to be developed in the 2018 – 2023 forecast period. As stated elsewhere in this report the likelihood of the majority of the “OPEN for competition – pipeline” projects being developed over the 2018 – 20213 forecast period is considered very low. When we limit the asset qualities to just Tier 1 – 4 then the 2021 “OPEN for competition - pipeline” market falls from 345.1Mtpa to just 61.1Mtpa or less than 17.7% of the project pipeline. Once graphed the analysis becomes clearer. Graph 10 below shows the relationship over time between rail freight service providers and their secured volumes. Aurizon’s QLD business along with PN’s NSW business dominate. Aurizon’s interstate businesses appear to plateau at around 2017 volumes or 51Mtpa. On the other hand PN’s interstate business appears to fall over the forecast period by some 8Mtpa however that reduction is more than compensated by a forecast increase in PN’s home state volumes of approximately 13Mtpa.

Forecast Year 2018 2019 2020 2021 2022 2023

Aurizon QLD 139,541,196 149,235,000 151,340,000 156,100,000 154,100,000 150,600,000

Aurizon NSW 62,775,690 58,600,000 57,500,000 54,450,000 52,100,000 50,600,000

Pacific National NSW 93,827,320 100,550,000 104,600,000 109,895,000 115,345,000 118,205,000

Pacific National QLD 65,932,171 66,715,000 66,590,000 68,150,000 66,200,000 54,350,000

Other Freight Providers 59,217,518 64,220,000 70,200,000 71,850,000 71,750,000 72,700,000

OPEN for competition (2018 - 2023) 0 0 6,550,000 19,000,000 28,700,000 35,050,000

OPEN for competition - pipeline 336,975,000 336,975,000 336,975,000 336,975,000 336,975,000 336,975,000

TOTAL 758,268,895 776,295,000 793,755,000 816,420,000 825,170,000 818,480,000

Australian Coal Rail Freight Service Providers

Forecast Year 2018 2019 2020 2021 2022 2023

Aurizon (QLD + NSW) 202,316,886 207,835,000 208,840,000 210,550,000 206,200,000 201,200,000

Pacific National (QLD + NSW) 159,759,491 167,265,000 171,190,000 178,045,000 181,545,000 172,555,000

OPEN for competition (2018 - 2023) 0 0 6,550,000 19,000,000 28,700,000 35,050,000

OPEN for competition - pipeline 336,975,000 336,975,000 336,975,000 336,975,000 336,975,000 336,975,000

TOTAL 699,051,377 712,075,000 723,555,000 744,570,000 753,420,000 745,780,000

Aurizon vs PN in Australian Coal Freight


Graph 10 – Australian Coal Rail Freight Forecast 2018 – 2023

The rail freight services market defined as “OPEN for competition – pipeline” appears large and constant in Graph 10 because those “pipeline” projects are already defined and are unlikely to change either in number, scale, or probability of being developed within the forecast period according to HARRADYNAMICS. To get a better sense of the contestable rail freight service business the numbers were looked at in a slightly different way. Graph 11 below excludes rail freight service providers other than Aurizon and PN (now owned by Australian Logistics Acquisition Investments Pty Limited). Graph 11 includes the rail freight services business not secured by either Aurizon or PN in the categories of “OPEN for competition” and “OPEN for competition – pipeline”. By 2021 the volume of business not secured by Aurizon or PN in early 2018 is approximately 32.1Mtpa of which 22.1Mtpa is considered probable of being developed given those projects fall into the Tier 1 – 4 category. If we assume Aurizon and PN have an equal chance of picking up those 22.1Mtpa then the 2021 forecast volumes for Aurizon would increase to approximately 219Mtpa and those for PN would increase to 191Mtpa.


Graph 11 – Aurizon vs Pacific National Rail Freight Forecast 2018 – 2023

What we don’t know in the above analysis is the timing of the take-or-pay rail freight services contracts and more importantly when those contracts are due to expire. That information is tightly held and no doubt ‘commercial-in-confidence’ between the rail freight service provider and mine owner. What we do know is that both Aurizon and PN are holding contract renewal discussions with mine owners’ mid-term in an attempt to secure long term business. For example BHPB renewed its Mount Arthur Coal mine rail freight contract with Aurizon mid-term and in so doing BHPB secured a lower cost, on a tonne per kilometer basis, through to the Port of Newcastle for the renewed contract period. It is clear that rail freight and port service providers are facing strong competition given the coal export market is not forecast to be constrained by either rail or port capacity out to 2023. As and when rail freight services contracts fall due they are being replaced with coal haulage contracts on terms that benefit mine owners. This softening revenue trend for rail (and port) service providers is forecast to continue over the 2018 – 2023 period and on the basis that increased competition between Aurizon and PN continues to drive efficiencies and those cost savings are passed onto miners. In Summary

Of the numerous thermal and coking coal project developments that could be undertaken those that make the most sense are defined as top tier (Tier 1 through Tier 4) projects. Those projects contribute 100% of the likely to be developed thermal and coking coal projects over the 2018 – 2023 forecast period.

The ranking (Tier 1 through 10) for each and every coal project provides significant insights into the likely Australian export volumes for coking and thermal coal over the forecast period. In essence those projects ranked Tier 1 through 4 (as per Graphs 5


and 6) will be developed and those ranked Tier 5 through 10 are most unlikely to be developed before 2021.

HARRADYNAMICS have ranked each and every coal project on its fundamentals. This means the “quality” of each and every coal project can (and should) be used to define the likelihood of its development over the 2018 – 2023 forecast period.

Post the 2018 – 2023 forecast period the “pipeline” of top tier assets falls away sharply, particularly for coking coal projects. The Australian coal industry longer term will therefore experience a combination of rising costs and falling revenues based on the depletion of the best coal mines and the need to replace those mines with lower quality assets. There is clearly no ‘standing-still’ strategy for the coal industry!

harradynamics pty ltd · 2019. 2. 12. · brisbane po box 10012, brisbane adelaide street, brisbane...

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