- Wesfarmers Resources has taken a 15% cut in the price it charges customers in Asia for its coking coals in mid-year negotiations, in line with recent market price settlements. - Coking coal prices are expected to fall around 13% in the second half of the year for Australian producers according to a Macquarie Bank forecast. - While prices fall, mining companies are successfully achieving low cost production targets and exports from major ports are reaching record levels.

1. ShiftMinerMagazine www.shiftminer.com
4 22nd July 2013
News
Production to drive profit in 2013
WESFARMERS has taken a 15 per cent cut
in the price for its coking coals in its mid-
year negotiations with customers in Asia.
Managing director of Wesfarmers
Resources Stewart Butel says the new
price is in line with recent market price
settlements for other coal miners.
“The continued trend from
steelmakers to lower grade
metallurgical coals has affected hard
coking coal pricing more significantly
than lower grade metallurgical coal,”
Mr Butel said.
The result is broadly in line with a
Macquarie Bank forecast that coking
coal prices would fall around 13 per
cent in the second half of this year for
Australian producers.
According Macquarie Bank, the
lower prices are in part about forcing
US coal producers out of traditional
Australian markets.
“We believe major Australian
producers will keep contract prices
at current levels until 10-15 million
tonnes a year of US swing tonnage exits
the market, which given the loss of US
competitiveness from currency moves
and the degree of current cash burn
seems inevitable,” Macquarie said.
“Australian miners are increasingly
seeing their US peers as unwanted
guests in their Pacific basin home.”
While prices fall, mining companies
appear to be successfully achieving low
cost production targets with exports out
of major ports reaching record levels.
Hay Point Coal Terminal posted its
highest coal export figure in three years
this week with more than 4.1 millions
tonnes of coal exported through
the BHP Mitsubishi Alliance-owned
terminal in June. That’s up more than
2.6 million tonnes compared to the
same time last year.
Queensland Resources Council chief
Michael Roche said higher coal exports
showed companies were increasing
volumes to maintain profitability.
“Companies know the way to make
money at the moment is through volume
because they’re not going to make
money through fat prices,” he said.
“In the June quarter in Gladstone,
Abbot Point, Hay Point and Dalrymple
Bay... all exports were up strongly on
this time last year.”
Mr Roche said the high export
volume was evidence BMA had “got on
top of its cost structure” but added not
all miners were in the same boat.
“We have... some mines that have
got on top of their cost structures and...
established a profit margin. There are
other mines that are yet to establish that
margin of profit... and there are mines and
parts of mines that may well not get into
profitability in this current environment.”
INEXPERIENCED managers have steered
the coal industry into a state of disrepair,
where costs have spiralled out of control
and the focus has been on production not
productivity.
That’s the frank assessment of coal
mining leaders recently surveyed by
specialist HR consultancy firm Confiance.
The survey backs anecdotal evidence
that in the post-GFC boom high commodity
prices saw priority placed on rates of
extraction rather than costs of extraction.
“Everyone was focused on how much
revenue they could get per tonne, not
on how much it cost to get it out of the
ground and on the boat,” one mining
executive told the survey.
“Production was being made at any
cost because the returns were so high,”
said another. “The problem is the industry
got fat and lazy.”
“The big miners are guilty of gross
incompetence on an industrial scale. They
took their hands off the cost steering-
wheel,” reported another business leader.
“The lack of vision and well-developed
strategy is staggering. For example, wages
were forced up because they competed
between themselves and within their own
companies (unforgivable) for the same
skilled labour pool, when large scale
cleanskin recruitment and training would
have avoided this.”
According to the survey, mining
executives regard poor leadership as a key
driver in plummeting productivity and
also think strong, capable leadership is the
way out of the current quagmire.
“The industry panicked when the
coal price was high, throwing money at
anything to increase volumes,” said one
survey participant.
“Good managers are the key to
maintaining a good business not just for
now, but for tomorrow, next week, five
years, 20 years.”
Confiance director Peter Cross said he’s
not surprised by the results.
“We have come out of an era of the
skills shortage and lots of people have
been appointed into roles a couple of
levels above their capabilities.”
He said it should be pointed out that
not all companies were in the same state of
disrepair, and those that were in bad shape
had largely made their own beds.
“Had the house been in order in respect
to cost control then the current climate
[commodity prices] wouldn’t hurt so much.
We certainly would not see the issues we
are seeing today.”
Cost woes industry’s own fault
What they were asked:
What’s been the main driver of
dramatically decreasing productivity
in coal mining over the past decade?
What they said:
“...there was a greater focus on
production, rather than productivity.”
“Production was being made at
any cost because the returns
were so high. The problem is
industry got fat and lazy.”
“Safety been taken to extreme
levels also affecting productivity.”
“Union intervention causing a vast
increase in process blowout.”
“Too rapid an expansion with
persons who have been poorly
trained and qualified being promoted
above their level of expertise.”