coal asia pacific magazine - october 2012

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M A G A Z I N EInside the Asia Pacific coal industry


Month 2012

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•Europeaninfluence–Basel&Cuxhaven’sroleintheregion•Portpower–additionalexportoptionsrequired•Regionalround-up–countriesmakingthenews•Coalpreparation–latestfromSedgman&Outotec•Contractors–Sandvik’snewnavigationalsystem

China journey still unfolding



october 2012

ISS

N 2201-1447

Cuesta Coal LimitedASX Listed Queensland Focussed Coal Explorer

Stock Code ASX: CQC

Current Share Price $0.10

Market Cap $19.20 million

Cash $19.25 million

2012 Exploration Budget ~ $8.0 million

Resources ~ 138Mt JORC Inferred Resource

Corporate Snapshot

Priority Projects

Recent Exploration Activity

Cuesta Coal Limited (“Cuesta”) listed on the Australian Stock Exchange on the 4th of May 2012 raising $20 million to fund an aggressive 2 year exploration, mine scoping and feasibility study program on four key projects areas in the Queensland Coal Basins.

Cuesta has assembled a diverse portfolio of thermal and coking coal exploration prospects within the Bowen, Surat and Galilee basins, the company’s core projects are well situated geographically with over 11,000km2 of exploration ground in total.

Map showing EPCAs 2079 and 2080 in the Eastern Galilee Basin

Photograph of chip samples collected from HP014 at Yellow Jacket Project

Joint Venture with QCI (Galilee)

Prospective Projects

Farm-In and JV Agreement with QCI (Galilee)Cuesta Coal have entered into a Farm-In and JV Agreement with QCI (Galilee), a wholly owned subsidiary of Hancock Prospecting Pty Ltd.

QCI right to earn up to 51% through $3 million expenditure

JV for EPCAs 2079 & 2080, over 1,028km2 in the Eastern Galilee basin

QCI to manage and develop the tenements with a collaborative JV committee

Exploration targeting shallow economic deposits of thermal coal.

East Wandoan – Thorn Hill Deposit (EPC 1955) 44.6Mt of total resources identified in its 2012 drilling

campaign – 22.1Mt in the Indicated Resource category, and – 22.5Mt in the Inferred Resource category

Resource defined from near surface to a depth of 100m Further exploration planning underway

West Bowen – Moorlands Deposit (EPC 1738) 39.5Mt JORC Inferred Resource at Moorlands – a 45%

upgrade on existing 27.3Mt JORC Inferred Resource Resource defined primarily to a depth of 150m Multiple coal seams intersected in 2011 drilling 2012 drilling due to commence end of September.

Eastern Galilee – Yellow Jacket Project (EPC 1802) 4 holes completed and geophysically logged, coal

intersections encountered in all holes, 3 holes averaging 8m cumulative thickness

North south strike length of ~ 4.5km – remains open to the south

13 open holes and up to 4 cored holes remain in the program, due to be completed mid-October

6 –10km2 exploration target area to be tested during 2012 drilling

Head office: Level 15, 31 Market Street Sydney NSW 2000

Tel: +61 2 9284 5900 Fax: +61 2 9284 5999 Email: [email protected]

East Wandoan ProjectThorn Hill Deposit (EPC 1955) Resource: 44.3Mt Exploration Target: 40 –200Mt Coal Type: Thermal Depth of Coal: <110m

West Bowen ProjectMoorlands Deposit (EPC 1738) Resource: 39.5Mt Exploration Target: 15–50Mt Coal Type: Thermal Depth of Coal: <250m

Eastern Galilee ProjectYellow Jacket Prospect (EPC 1802) Resource: 0Mt Exploration Target: 200 –1,000Mt Coal Type: Thermal Depth of Coal: <130m

West Emerald Project EPCA 2093 Resource: 0Mt Exploration Target: 50 –200Mt Coal Type: PCI/Thermal Depth of Coal: <150m

Eastern Galilee ProjectSnake Creek Joint Venture (EPCAs 2079 & 2080) $3m Joint Venture with QCI (Galilee) Pty Limited to earn 51% Wholly Owned Subsidiary of Hancock Prospecting Subject to successful granting of Cuesta Tenement

Montrose ProjectEPCAs 2128 0 –70Mt conceptual coking coal exploration target. Internal Desktop Study Underway

Amberley ProjectEPC 2127 54.7Mt JORC Inferred Resource Depth of Coal <150m

For more information please visit:

www.cuestacoal.com.au

Cuesta Coal coring at Amberley Project

For up to date news on the coal industry visit www.longwalls.com

featuresPolitically Speaking ...................4

Regional Round-up ..................18

Industry News .........................29

Contractors .............................32

Final Say .................................40

regular

featuresnews and

Published by Aspermont Ltd(ABN: 66 000 375 048)

06Cover Story: ChinaFormer Australian prime minister Kevin Rudd uses the release of a new paper on China, Fuelling the Dragon, to provide insight and commentary on Australia’s key trading relationship.

15Special Report: EuropeCoal’s future in the Asia Pacific, contrary to logical thought, is only partly linked to supply and demand in the region itself. An equally important influence is driven out of two obscure towns in Europe.

26Infrastructure: Ports Hostility toward development of coal export facilities on the West Coast is threatening to oblige Asia-bound US vessels to continue taking the long way around.

30Coal PreparationThe Asian coal market was key to Sedgman’s 45% profit lift; Outotec aquires mining services firm TME Group; and Sandvik releases high-capacity hybrid crushers.

MANAgiNg Editor: Michael CairnduffSENior Editor ENErgy: Noel dysonEditor At LArgE: Lou CaruanaWritErS: tim treadgold, Justin Niessner, Alison Middleton, Sarah ByrneEMAiL: [email protected]

ProduCtioN MANAgEr: Mata HenrySENior LAyout dESigNEr: diane igglesdenLAyout dESigNEr: Catherine Hogan

CHiEf SuB-Editor: gerald BradleySuB-Editor: Melanie Jenkins

AdVErtiSiNg SALES MANAgEr: Angela Smith AdVErtiSiNg SALES: Heidi Paracchini, Saithu NairEMAiL: [email protected]

AdVErtiSiNg ProduCtioN: isaac Burrows ([email protected])

SuBSCriPtioNS: PH: 61 8 6263 9100EMAiL: [email protected] issues per annum – Australia: $A55.00 (gSt included); regional (PNg, NZ, SE Asia): $A65.00; international: $A70.00.

ExECutiVES: Chief Executive officer – Colm o’Brien general Manager – trish SeeneyChief financial officer – John detwiler

HEAd offiCE:Aspermont Limited, 613-619 Wellington Street, Perth, Western Australia 6000Po Box 78, Leederville, Western Australia 6902 Ph: 61 8 6263 9100 fax: 61 8 6263 9148WEBSitE: www.coalapac.net

CoPyrigHt WArNiNg: All editorial copy and some advertisements in this magazine are subject to copyright and cannot be reproduced in any form without the written permission of the managing editor. offenders may be prosecuted.





editor’schair

from the

Building on a highly successful 2011-12 fi nancial year, Aspermont is following an aggressive growth path with both its print and online

publishing suite – with one of those projects being the launch of its third coal magazine, Coal Asia Pacifi c.

The company recorded substantial growth in all divisions in the past year and continues to demonstrate the ongoing strength of its business model as well as its support of the industries within which it publishes.

The fi rst edition of Coal Asia Pacifi c will mark the start of what will become a quarterly publication circulating widely in Australasian, South Pacifi c and Central Asian jurisdictions as well as keep a watching brief on relevant developments across the Indian Ocean on the subcontinent.

As the masthead suggests, the magazine will focus on the burgeoning coal industry within the region, including coverage of industry and market news, project features as well as reviews and profi les of products, services, hardware, software and technology from related service and supplier industries.

A regular feature will be the Regional

Round-up pages, where we will deal with individual countries in the region where there has been strong news-fl ow over the publishing cycle – in the fi rst edition these will include Indonesia, Australia and Mongolia.

Aspermont managing editor Michael Cairnduff said the launch of Coal Asia Pacifi c would complement Aspermont’s other established publications in the coal and energy space.

“Aspermont has one of the most experienced teams in the business-to-business publishing space when it comes to providing coverage of the coal and energy sectors,” Cairnduff said.

“This team already publishes the respected print offerings of Australian Longwall magazine and Coal USA as well as related online publications including International Longwall News, Energy News Bulletin and Energy News Premium.

“Coal Asia Pacifi c will deal in the main with regional coal developments, including the Australian surface mining coal industry which at present is not a focus of our existing publications.”

Cairnduff said the launch of this magazine

was timely given coal had been dominating mainstream media in Australia, albeit in an entirely negative light, due in part to the debate surrounding the federal government’s carbon pricing scheme and to a lesser degree the implementation of the Minerals Resource Rent Tax.

“Coal Asia Pacifi c will delve deeper into the regional coal industry which, despite languishing commodity prices, still attracts signifi cant investment from the private sector and indirectly the public sector,” he said.

“Whether respective governments or the general populace likes it or not, coal will remain one of the most signifi cant source of baseload power generating capacity in the region in at least the medium term.

“In the context of the projected economic growth profi le of China through to 2025 – see extensive commentary on this in our cover story – the sector still has a secure future in the Asia-Pacifi c region.”

Noel DysonEditorCoal Asia Pacifi [email protected]

3CAP I October 2012

AUSTRALIAN Minister for Resources and Energy Martin Ferguson announced in September that the federal government would not be offering fi nancial support to close highly emissions intensive power stations following the introduction of the carbon pricing scheme.

Ferguson said the Government could not be satisfi ed that entering into such arrangements would achieve value for money against the Contract for Closure program objectives and in light of that has ceased negotiations with the electricity generators involved.

“The Contract for Closure negotiations have taken place constructively and in good faith, but there remains a material gap between the level of compensation generators have sought and what the Government is prepared to pay,” Ferguson said.

Responding to the announcement, shadow Minister for Energy and Resources Ian

Macfarlane said the decision not to go ahead with the buy-out of higher emissions power stations was more proof that the carbon tax is a fl awed and destructive policy.

He said the Australian government’s carbon policy had always been about making electricity more expensive, by driving up the costs to produce and distribute coal-fi red power.

“It now risks causing further cost pressures and undermining energy supply by aborting the Contract for Closure program,” Macfarlane said.

Recently published forecasts for lower energy demand in Australia presented serious questions around the value for money evaluation of proposals for the program, according to Ferguson, and the recent announcement to link with the European emissions trading scheme and remove the price fl oor did not alter this outcome.

“I have said throughout this process that we had a set envelope of funding and were not willing to enter into contracts at any cost – this is about the responsible expenditure of public funds,” Ferguson said.

He said the Regional Structural Adjustment Assistance package would remain available to assist regions that may be signifi cantly affected by the introduction of the carbon price.

Five generators participated in the Contract for Closure program discussions – Alinta Energy, HRL, Hazelwood Power Partnership, RATCH-Australia and TRUenergy.

Macfarlane said along with there being no carbon price compensation for black coal-fi red power stations in Queensland and New South Wales, it was clear that the terms for negotiation under the Contract for Closure program were inadequate after the failure to meet the original deadline.

Australian carbon policy still evolving

POLITICALLY SPEAKING

Australian Minister for Resources and Energy Martin Ferguson.

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China has options for coal, iron ore supply: RuddAustralians should remember that there are other potentially significant suppliers of coal and iron ore to the Chinese market. By Michael Cairnduff

COVER STORY

I CAPOctober 20126

7CAP I October 2012

Addressing a resource conference in Perth last month, in his capacity as the Member for Griffi th, former Australian prime minister and foreign

minister Kevin Rudd painted a rosy future for China’s economic growth, despite recent softening.

Rudd’s presentation drew heavily on the release of the joint publication by the Australian Strategic Policy Institute and South Africa’s Brenthurst Foundation entitled Fuelling the Dragon, which he described as a timely and substantive contribution to the critical local debate on China.

“Today I would like to talk to you about a constant thing that affects [global] economies … and not just mining industries but more broadly our economies in their breadth and depth – and that is the question of China’s future economic growth,” Rudd said.

He said the core question confronting treasuries and fi nance ministries around the world at present was what were the near, medium and long-term prospects of the Chinese economy.

“The problem we all face, including those of us who have studied China closely, is that making robust predictions about the Chinese economy is diffi cult at the best of times,” Rudd said.

“When we add to that this year being a year of signifi cant political change in the Chinese leadership – by convention now a once every decade event – the complexity is enhanced further.

“On top of that, there is further complexity arising from the recognition of the Chinese themselves in their most recent fi ve-year plan released in 2010 that the Chinese growth model for the future must change.”

Rudd said most would be familiar with China’s economic record so far, where in the decades since China undertook fundamental economic reforms it had transformed itself from being a backward economy, closed-off from the rest of the world, into an increasingly open economy that was fully integrated into the global economy and was now the world’s second-largest economy after the US.

“The problem we all face, including those of us who have studied China closely, is that making robust predictions about the Chinese economy is difficult at the best of times.”– Former prime minister Kevin Rudd

8

“By any historical measure, this has been an extraordinary achievement. China is not only the world’s second-largest economy but on track to become the world’s largest – either in this decade or the next.

“China is also now the third-largest economy in terms of its international trade. Between 2005 and 2010, China accounted for more than 80 per cent of the increase in global demand for nearly all metal and energy products.”

Commentary in the Fuelling the Dragon publication from federal government advisor Professor Ross Garnaut, according to Rudd, claimed that in the “absence of prodigious growth in Chinese demand for most energy and metallic mineral commodities, reasonable growth in the developing world – beyond China – would have merely offset the weaknesses in growth in developed countries and prices would have languished below trend”.

In other words, Rudd said China had constituted the single differentiating factor of any significance in the recent economic downturn.

“So, what is the significance for Australia? The paper also draws our attention to the fact that Australia’s terms of trade have not been as high for more than a century – 65 per cent above the twentieth century average level and 80 per cent above the twentieth century trend level.”

Australia’s GDP, according to analysis within the publication, was about 13% higher in nominal terms than it would have been in the absence of the relative price changes.

“Resources currently make up around 57 per cent of our exports, the largest proportion of which comes from the state of Western Australia. This has risen from 41 per cent of our total exports nationally back in 2005.

“This in turn has been driven by metallurgical coal and iron ore, with a 500 per cent increase in iron ore export volumes since 2005 as well as significant recent growth in coal exports.

“Of course, this is not the entire picture of the Australia-China resources trade but it is a significant part of it and that part of it is driven by the demands of China’s steel industry.”

According to the publication, China’s steel

production over the past decade was used in the following ways: the construction industry (50-60%); machinery manufacturing (12-18%); automobile manufacturing (5-6%); and domestic appliances (2%).

China’s own efforts to meet the needs of its prodigious domestic demand have been hampered by the low quality of its iron ore resources and by the geographical separation of resources from the country’s principal production centres. Geography was also a factor in the Chinese domestic coal industry.

“In both of these cases for most of the past decade, China has reached the rational conclusion that it is in its overall economic interest to meet this demand through large-scale imports, initially from Australia but also increasingly from Latin America and Africa.

“Australians need to remind themselves that they are not the only potential significant source of supply for the Chinese market – although we are significantly advantaged by geographical proximity relative to both Africa and Latin America.”

But the core question for both the Australian and global resources and energy sectors was the sustainability of China’s medium to long-term demand for steel in the context of its own future economic development profile.

Further commentary within the publication suggested that China had entered the mid-phase of industrialisation, which was more minerals and energy intensive than

cover story

I cAPOctober 2012

Former Australian prime minister and foreign minister Kevin Rudd.

“china is not only the world’s second-largest economy but on track to become the world’s largest – either in this decade or the next.”– Former prime minister Kevin Rudd

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10

the earlier, labour-intensive phase. The publication also outlined two conflicting analyses of where China’s resource consumption could go to in the future.

One possibility – based on the trajectory seen in Japanese economic history of recent decades – concludes China will not reach peak steel consumption per capita until 2024. In quantitative terms, current Chinese steel output is more than 600 million tonnes and by 2024 it will surpass 1 billion tonnes.

The publication then puts forward a contrasting view, from Garnaut, who argues that while absolute energy consumption will continue to increase, climate change and other considerations will cause the greater growth in energy consumption to diminish consistent with Chinese policy directions – reducing emissions intensity for overall Chinese production.

Specifically, Garnaut claimed resource intensity of production would decline rather more rapidly than seemed to be the expectation.

“In a further analytical contribution to this debate, the publication also draws on historical patterns of resource usage in other global economies based on their respective economic histories,” Rudd said.

The analysis of historic pattern of consumption levels relative to income reinforces the view that China is in its mid-phase of industrialisation.

“The key question then is that if this is the mid-phase, then what does the final stage look like in terms of absolute demand for resources and energy and its relative growth over the next decade.”

This was where the degree of complexity with the analyses became acute, according to Rudd. However, he said many factors remained encouraging including the analyses of the massive projected increase in the size of China’s middle-class, rising to 1.1 billion people by 2030.

“Leaving aside major problems like traffic management and environmental pollution, China’s automobile penetration ratio is only 5 per cent at present of that of the United States. The publication concludes that China is projected have almost 20 times the motor vehicles in 2030 as it had in 2002, which is a comparable level of vehicle ownership to that of Japan in the 1970s.”

China’s automotive manufacturing industry is the largest in the world and at present accounts for 7% of Chinese GDP.

A further positive for demand is China’s urbanisation, where in 2011 for the first time in China’s history more people lived in cities than in the countryside.

Although the high rate or urbanisation is likely to diminish, the infrastructure demands from China’s “mega-cities” and so-called second-tier cities – that is the 100-plus Chinese cities that now have populations in excess of 5 million people – will continue to

generate significant demand for energy and resources.

“The publication wisely cautions us that one of the strengths and weaknesses of China’s national planning system – combined with its tradition infrastructure-intensive stimulus spending in times of global and national economic downturn – is that there has been significant anticipatory investment in the Chinese infrastructure sector, thereby potentially reducing future investment demand.”

For the purposes of visualisation, Rudd pointed to a recent survey which outlined anecdotal examples of the urbanisation related drivers of China’s resource demand through until 2025.

“Consider these: 350 million more people moving to the cities; 221 Chinese cities with a population greater than 1 million people, compared to the 35 such cities in Europe today; 1 million kilometres of new road; 28,000km of new metro rail; 170 new mass transit systems, twice the number in all of Europe; 1.6-1.9 billion square metres of new floor space; 50,000 new skyscrapers, the equivalent of two Chicagos each year; 97 new airports; and, in fuelling the above, 1000 megawatts of additional coal-fired generating capacity to be commissioned every week. As I said, that is enough to take everyone’s breath away.”

Drawing his own conclusions from the publication, Rudd said although recent Chinese economic indicators suggested some softening in Chinese demand, the country’s

actual economic growth performance in the year 2012 was still likely to be north of 12% – ahead of market expectations.

“On balance, I am cautiously optimistic about where this will leave China’s demand curve for energy and resources out to 2025. What this means in the interim, however, is the Australian economy and Australian business must begin to embrace fully the dimensions of the diversification of the Chinese economy and our engagement with it, to one that is not exclusively based on the resources and energy sectors.”

It may open future opportunities in agribusiness; materials manufacturing; financial services; health services; education services; construction, engineering and design services; mining services; environmental services; and tourism.

Rudd said Australia and China should rapidly conclude their bilateral Free Trade Agreement to underpin this broadening of economic engagement for the future.

“Given the critical importance of investment flows in underpinning an economic relationship with Australia, Australia should maintain its current open and non-discriminatory investment policies towards China.

“And, consistent to Foreign Investment Review Board policies, consider each application on its merits, rather than yield to politically driven populism that we’ve seen from some in recent times, including Tony Abbott and from his political and intellectual soulmate Barnaby Joyce.”

cover story

cap

I cAPOctober 2012

China is opening the door to its tradtionally closed-off economy.

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12

In releasing the company’s annual directors’ report and financial statements, New Hope Corporation chairman Robert Millner said the

taxation and administrative burden placed on the company by government continued to increase.

“During the past year, two new taxes, the Mineral Resources Rent Tax and the Carbon Tax, were added to the significant number of existing taxes and charges imposed on the company,” Millner said. “Additionally, current labour laws and increasing green tape contribute to a continuing loss of competitiveness of investment in the coal industry in Australia.

“Through these actions, Australian governments are encouraging investments in foreign coal basins in Mongolia, Mozambique and Indonesia that will, in future, reduce the national income available to Australians.”

Although production performance from operations during the year was a record 6.29 million tonnes, safety performance was not at a level acceptable to management or the board, according to Millner.

“The board, being fully aware of the importance of safety performance as part of our social licence to operate, is supportive

of an increasing focus on safe operations, and a number of management initiatives are focused upon improvement in safety performance over the coming year.

“The coming year will likely be challenging, with a high exchange rate and lower coal prices. However, New Hope is comparatively well-positioned to weather the current downturn.

“The company has defensive investments in infrastructure through QBH and its largest mine, New Acland, is a low-cost producer.

“In fact, the current climate has the potential to create acquisition opportunities for the company at valuations more attractive than those available over the past several years.”

The company posted a net profit of $A171.1 million for the 2012 financial year after tax, but before non-reoccurring items. This figure included a net profit contribution of $A113.1 million from operations, which was up 35.3% compared to last year’s result – equating to earnings per share of 20.6c.

“New Hope has an enviable record of dividend payment to shareholders. Dividends paid or declared upon the performance of the 2012 financial year totalled 31c per share,” Millner said.

“Dividends paid during the financial year totalled $215.9 million. Over the past four years the company has paid a total of $1,224 million to shareholders in dividends – all fully franked at the 30% rate.”

Due to approaches from several parties, the New Hope board decided in October 2011 to undertake a formal process to determine whether a proposal for New Hope was available on terms that were in the best interests of all shareholders. The process endedin March 2012, as discussions with interested parties did not produce a definitive proposal which, according to New Hope, appropriately reflected the strategic value and growth prospects of the company.

Tax and administrative burden growing: MillnerThrough their regulatory actions, Australian governments are encouraging investment in coal basins in Mongolia, Mozambique and Indonesia, according to New Hope chairman Robert Millner.

“Current labour laws and increasing green tape contribute to a continuing loss of competitiveness of investment in the coal industry in Australia.”

PRojeCT News

I CAPOctober 2012

cap

EAsT Energy Resources has released an updated resource statement for its Blackall coal project which confirms a total resource of 1.74Bt of thermal coal at the project 177km northwest of Charleville in Queensland’s Eromanga Basin.

“Based on the contents of the JORC report, and the area explored to date, we remain very confident that our exploration target of 1.8-2Bt of thermal coal for EPC1149 is easily achievable once the balance of the northern area is explored,” managing director Mark Basso said.

“The board is extremely pleased for what we consider to be an excellent result.

“For us it confirms our long-held belief that this site should have a long mine life, even at very large tonnages per annum.”

According to East Energy, the resource

was mainly contained in seams with an average individual thicknesses ranging from 0.52-2.82m.

The resource calculation has been limited to 150m below the surface, as this is generally considered to be the limit for an open cut mining operation.

“We are very pleased with the overall result,” Basso said

“This report has provided for an increase of 1Bt, which we consider to be an outstanding achievement by our exploration team.

“We are also pleased that within the results, 627 million tonnes has been classified as an indicated resource.

“These results continue to give us ongoing confidence to move forward with further development of our Blackall project.”

east energy puts on 1Bt

East Energy managing director Mark Basso.

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15

Basel, a pleasant Swiss town on the Rhine River, close to where Switzerland shares borders with France and Germany, is home to

the Bank for International Settlements and the Basel Committee on Banking Supervision.

What a clutch of Swiss banking gnomes has to do with coal might elude people in the mining industry. However, to understand who really makes the rules that govern the global economy – and that also means determining how much electricity and steel the world requires – then Basel is the place to start.

The second obscure European town determining the future of coal is the German port of Cuxhaven, near the mouth of the Elbe River as it flows into the North Sea.

Somewhat smaller than Basel, Cuxhaven is one of the load-out points for the specialist construction barges and supply ships building the world’s greatest collection of wind farms in the German section of the North Sea.

Banking and wind, while having an amusing correlation for anyone who has dealt with a blow-hard banker, are the primary forces pitted against coal.

One controls the flow of money that greases the wheels of commerce. The other turns the electricity-producing turbines that Germany and some other countries believe will put coal out of business.

Right now, some bets are being placed on banking and wind winning the competition with coal.

More thoughtful bets are being placed

by people able to see that money and wind are facing big problems which, when they become more obvious to politicians (and the people who elect them), will re-ignite demand for coal thanks to one enormous advantage – price.

Coal’s cost advantage will be particularly evident to industrial power users who must have reliable and cost-efficient baseload power, of the sort that drives factories and production lines.

Baseload power for the Asia Pacific is where coal’s future lies, though what has happened to it over the past year is painfully obvious to everyone working in the coal industry.

Plunging prices have triggered job losses and pit closures. Mine development and expansion plans are on hold.

Part of the reason for the coal price fall is rising supply in traditional coal-exporting countries and the expansion of US coal exports thanks to the price of gas in that country collapsing.

In theory, lower coal and gas prices ought to be welcomed by governments and electricity consumers around the world. Ironically, they are not because as coal and gas prices fall it makes it tougher for government-sponsored renewable energy projects to compete with traditional sources of power, such as coal, which in turn leads to higher government subsidies for renewable power projects at a time when many governments are under severe financial stress.

It is the trail of money that leads a coal industry follower to Basel and Cuxhaven because it is in those two small European towns that money and power are bumping into each other with potentially explosive consequences.

In Switzerland, the BCBS has drawn up a set of international banking rules designed to dovetail with much tighter regulations governing how much money a country can borrow.

It is all part of a process aimed at preventing a re-run of the global financial crisis. Basel 3, as the banking rules are called, when combined with the crackdown by the European Central Bank on spendthrift governments means subsidies for electricity production are about to become much tougher to justify.

The detail of Basel 3 is immensely boring but what the rules essentially mean is that commercial banks will have to retain more capital, lend less and only to the best clients – and certainly not to prop up governments dishing out subsidies to electricity consumers.

Meanwhile, in Cuxhaven the world’s greatest wind-power experiment is in deep trouble, running three years behind schedule and over budget – with some of its problems falling into the immensely amusing category.

In theory, the great German wind-power project calls for the development of 126 separate “farms” housing 8900 turbines, all sitting atop giant “monopoles” driven into the bed of the North Sea.

The power of coalThe future of coal in the Asia Pacific, contrary to all logical thought, is only partly linked to supply and demand in the region itself. An equally important view of where coal is headed can be found in two relatively obscure towns in Europe. By Tim Treadgold

special reporT

cap I October 2012

Germany has thrown a lot of its power eggs

into the wind basket.

The aim is for Germany to be producing 35% of its power from wind by 2020 and 80% of the country’s power from wind by 2050.

So far, as high-quality German news magazine Spiegel reported last month, not much is going to plan in the construction phase and that almost certainly means delays to the overall project, as well as a cost increase, targets missed and consumers paying more for electricity than they ever have before.

Get the picture?Banking rules are being tightened.

Wasteful governments, which have driven entire countries to the edge of bankruptcy, are being brought to heel by Switzerland banking gnomes and the ability of governments to artificially prop up inefficient and high-cost alternative sources of electricity is being curtailed.

At the same time, the great wind-power hope of Germany, if not the world, is starting to look like a monumental cock-up.

Consider some of the problems plaguing the North Sea power project, including:• An environmental restriction on when pile-

driving equipment can work because at 160 decibels the noise might upset harbour porpoises during their summer breeding season, which means pile driving has to take place in winter months;

• Major German engineering companies, such as Siemens and ABB, struggling to make the essential (but huge) high-voltage direct current converting equipment required to transmit the power to consumers from far out in the North Sea; and

• The first wind farm expected to be complete by the end of next year but not expected to be transmitting any electricity

16

SPECIAL REPORT

I CAPOctober 2012

Rather than act as a marketing icon for the wind power industry, Germany’s North Sea experiment is becoming a marketing icon for the coal industry.

because vital components in the complex system will be missing because of design and installation delays.The problems with Germany’s grand

experiment in wind power as a replacement for coal and nuclear power is starting to reverberate around Berlin where politicians and industry groups are demanding to know when the project will start working or whether it will work at all.

Or, as Spiegel asked: “A battle has been raging over who should pay for the [construction] slowdown.”

More pointedly: “It is already clear that everything will become more expensive.

“The offshore operators are already paid up to 19 euro cents per kilowatt hour in

compensation for electricity fed into the grid.

“It’s estimated that the average household will pay an additional €50 next year for electricity because of the many green-energy subsidies … but the full effect of the calamities on the high seas will only become apparent after that, driving prices up further.”

Rather than act as a marketing icon for the wind power industry, Germany’s North Sea experiment is becoming a marketing icon for the coal industry.

As well as showing industry (and household consumers) how expensive alternative energy can be, the German experiment is becoming an example of how dangerous it is to make a

fundamental change to a critically important part of a country’s economy until it can be proved that the alternative is better, or cheaper.

Wind power in German is proving to be neither of those things.

With world watching there is every reason to believe that other countries will avoid the same mistake and retain their commitment to coal, especially as the recent price falls have made coal even more competitive than ever.

It is when the changes underway in the worlds of banking and alternative energy are weighed up that the picture for coal becomes much brighter than the market appears to be indicating.

17CAP I October 2012

cap

Basel may play a very important role in the future of coal.

Cokal hopeful of direct ship-style operation at BBM

Cokal has upgraded resources at its advanced Bumi Barito Mineral project in Central kalimantan, including adding 7 million tonnes of indicated and 10Mt of inferred resources from the project’s J seam.

Total resources at the project, 210km north of Palangkaraya, stand at 7Mt of indicated and 70Mt inferred metallurgical coal.

Cokal executive director Pat Hanna said the upgrade was wholly attributable to the recently defined J seam.

“This increase is 100 per cent premium coking coal confirming our view that the coal quality of the BBM project continues to develop as a primarily coking coal project as we progress towards the east,” he said.

“Drilling is continuing to define further coal resources, which are generally in areas of low strip ratio and with higher percentages of coking coal.”

BBM covers an area of 19,920 hectares, immediately adjacent to BHP Billiton’s Juloi tenement, straddling the Barito River and it has numerous outcrops of bright coal. another Cokal tenement covering a 13,050ha area is located adjacent to BHP’s nearby Maruwai tenement.

Cokal managing director Jim Middleton said that the J seam exhibited the same remarkable coking features as the B, C and D seams.

He said the coal had very attractive attributes, being very low in impurities while containing the right essential metallurgical attributes sought by asian steel makers, which allowed coke makers to enhance the performance of other coals purchased for their coke blends and offset elevated contaminants.

“The low in-situ ash content indicates there is a reasonable opportunity that a direct-ship style operation can be developed, avoiding the need to construct a coal washing plant which would involve significant time and capital – this is indeed a distinct advantage,” Middleton said.

“Cokal has a prefeasibility study underway which is focused on an early production scenario utilising open cut mining methods producing a direct-shipped product using river barging on the Barito River.

“The additional indicated and inferred resources identified in J Seam are sufficient to underwrite a 1-2 million tonne per annum initial production rate.”

Cokal has previously announced an exploration target of 200-350Mt down to a depth of 200m. as exploration continues the focus will be on converting the exploration target to inferred and indicated resources, with a view to expand the initial production rate.

Confidence growing in Katingan Ria

kaTingan Ria has ticked another box for Realm Resources, as the company works towards a bankable feasibility study on the indonesian coal project.

Realm recently announced completion of a project study at katingan Ria – independently reviewed by Xenith Consulting – which supported a further drilling program to increase geological confidence and assist in completing a BFS.

The project, 175km northwest of the regional capital of Palangkaraya, includes a mining concession covering some 4258 hectares within an area that has already been subject to commercial forestry operations.

Development can only be contemplated after the final forestry permit is issued. originally expected in the first quarter of 2012, Realm said the permit had been delayed and was now expected by its partner goku Resources in Q4 2012.

indonesia

in SePTeMBeR, oRPHeuS energy secured a coal trading licence from the indonesian Ministry of energy and Mineral Resources which considerably broadened the company’s commercial opportunities in indonesia.

orpheus executive chairman Wayne Mitchell said the company had been working on securing its own coal trading licence for some time.

“i am delighted that we are now able to add the next element to our overall indonesian vertical integration strategy of coal exploration and production, coal trading and infrastructure,” Mitchell said.

The trading licence provides orpheus with a new potential profit centre as it enables the company to not only sell its own coal but also coal from other miners – targeting power stations and trading groups from india, south China and Thailand.

“Trading our own and other miners’ coal provides the flexibility and diversification to protect and enhance company earnings, particularly in a low coal price environment.”

Holders of such licences are regulated by the Ministry of energy and Mineral Resources and various presidential and governmental decrees relating to coal mining operations, the exporting of and domestic use of coal production, as well as pricing benchmarks.

it was anticipated, according to Mitchell, that orpheus would ramp up its current trading volume of about 30,000 tonnes per month to several hundred thousand tonnes per month over the coming year. Coal trading in indonesia typically earns a $1-$3 per tonne net margin for the coal trader.

orpheus also announced it had appointed specialist coal trading executive arun Valliyamai to join its Jakarta-based team.

Valliyamai has 17 years of experience, including the past five years in indonesia, and has specialised in thermal coal, from

Regional Round-up

I CapOctober 2012

orpheus licensed to expand

18

Drilling commences at the Citra Bara Prima project in South Kalimantan.

sourcing through all coal selling activities. Shortly after securing the coal trading

licence, orpheus announced a new round of exploration drilling at the company’s Citra Bara Prima coal project, 91km southeast of Banjarmasin in South kalimantan.

The 12-hole program will target resources to a depth of 100m adjacent to one of PT arutmin’s major operating coal mines and about 6km from orpheus’ kintap aDk project.

The exploration target is 2-4.5 million tonnes.

The Citra Bara Prima tenement covers an area of about 195 hectares and has been previously drilled. orpheus’s technical team conducted desktop analysis on earlier exploration results and identified two coal seams varying in thickness from 4-12m near surface.

During the current CBP drilling program, orpheus is developing its preliminary mine plan so the project can rapidly move into production, which is planned for Q4 2012.

at this stage, it is anticipated that the CBP project will be mined at a rate of 50,000tpm when in steady-state production.


The conceptual base case for the project involves a design to mine 1-1.5 million tonnes per annum of coal, ramping up to 3Mtpa within three years. The existing resource stands at 10.2Mt indicated and 92Mt inferred.

The company proposes to use a truck and excavator fl eet to produce a thermal coal product for the domestic and export markets, initially over a period of 15 years.

Coal would be transported from the minesite to the Pegatan Anchorage at the southern coast of Central Kalimantan for loading to ocean shipping vessels and export.

The total transportation distance to the anchorage, including road and barge, is approximately 450km.

The coal deposit, according to Realm, was structurally simple and had a large area of relatively homogenous low strip-ratio coal, minimising mining costs and establishing the projected life-of-mine free-on-board operating costs at $US39.20 per tonne.

“The quality of a raw coal product should satisfy the specifi cations for Indonesian 4200kcal/kg [gross as received] low-sulphur coal and be readily accepted in rapidly growing markets in China, India, Korea and Thailand. Permitting is well advanced, supporting forecast production and ramp-up from mid-2013,” Realm said.

The company is working to incorporate

Xenith’s recommendations into a new technical program, which with additional engineering studies could allow for some conversion to a reserve estimate and the production of a BFS.

Altura buys in to Indonesia

DIVERSIFIED explorer Altura Mining has taken an 80% stake in two coal projects within a well established and prosperous fi eld in South Kalimantan.

The PT Kodio Multicom and PT Marangkayu Bara Makarti projects are located immediately south of the existing three Tabalong coal project joint venture tenements.

Altura has been working on due diligence since it announced its intentions to the ASX back in April and it plans to manage each tenement in addition to coordinating and guiding their development and operation with support from the local partners.

The fi nancial consideration for the acquisition is $US1 million per project in addition to a royalty to the vendors of $2.50 per tonne of coal mined and sold from each area.

Additionally, the vendors will be provided with a carried interest in the projects, with repayments for the carried interest recovered

from profi ts once the projects are in operation.“The vendors will also be provided with

a loan facility of up to $4 million to assist in their plans to provide possible long-term transport solutions to the Tabalong region,” Altura reported.

Green light for Paser investment

PADANG Resources plans to move quickly to advance exploration and mine planning at the Paser project, after gaining approval for its acquisition.

Following shareholder approval to acquire 70% of Paser, 125km southwest of Balikpapan in East Kalimantan, Padang said it would accelerate a drill program to be followed, subject to results, by a mine plan.

“Interpretation of previous surface mapping, resistivity surveys and drilling has highlighted a number of near-surface coal targets,” Padang reported.

“The proposed drill program will be designed to confi rm coal quality and the depth, thickness and spread of coal seams below surface.”

Padang was continuing to review additional projects, subject to specifi c investment criteria, within Kalimantan and in particular the Paser region.

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Confidence grows in South Gumbardo Creek

The phase two drilling program at south Gumbardo Creek has been a success for International Coal, where it has identified “better and thicker” coal seams across project area at depths of 35-150m.

International coal has now drilled 25 holes over 16 locations at south Gumbardo Creek, formerly known as the south Blackall project.

“ICX expects a substantial increase to its previously announced inferred coal resource of 728Mt to date,” International Coal said in an announcement.

“Coal quality and quantity from phase two is likely to improve the overall results from our original drilling program.”

The current inferred resource at south Gumbardo Creek stands at 728.8Mt, with exploration continuing to upgrade this and identify additional economic areas of coal mineralisation.

Drilling typically extends down to 150m, however approximately 20% of holes were drilled to 250m to identify the potential for deeper resources, with 39 seams of which 22 were deemed suitable for modelling based on consistency across the tenement and thickness greater than 0.20m.

Correction of coal seams to geophysical logging was currently in progress, with slightly thicker seams being encountered in phase two drilling.

Interpretation of individual coal seams was still challenging, according to International Coal, as all boreholes were being logged through steel rods and drilling in the eastern part of the tenements had demonstrated depressed groundwater levels, such that the boreholes were often dry until about 80m.

a feature of south Gumbardo Creek is that weathering is comparatively deep with fresh coal often not located until a 30m depth, with coal identified above the weathering profile having been excluded from the resource estimate.

Coal price puts brakes on Lightjack Hill

In followInG-up its maiden drill program and the discovery of coal along a 2.4km cross-section at the sisters Bore prospect, Tpl Corporation sort independent verification of the commercial potential of the lightjack hill project.

after receiving drill core analysis from the program, Tpl engaged Csa Global to complete a brief report on prospect of commercial viable coal production from the tenements.

“In the current coal market, given the superior quality and availability of the Indonesian low energy coals, Csa have advised Tpl that it is unlikely that there would be a demand in the short to medium

AuStrALiA

CuesTa Coal added considerable weight to its amberley coal deposit in september, posting an inferred resource of 54.7 Mt – a large step up from its previous 5.1 Mt.

amberley, in Queensland’s Clarence Moreton Basin, was subject a 14 open and three cored drilling campaign totalling 2,040m in May and June, which was combined with 44 historic drill holes to produce the revised resource calculation.

“we are very pleased with the results from the drilling at the amberley project and overall at all projects so far this year,” managing director Matt Crawford said.

“each drill program completed by the company to date has resulted in significant increases in coal resources with two more drill programs to be completed at Yellow Jacket and Moorlands.

“we are especially excited about the prospects at Yellow Jacket as we have intersected coal outside the traditionally known Galilee Basin margin at shallow depth.”

Coal measures in this region are banded walloon Coal measures and amberley is situated along strike extensions of existing known coal deposits.

The mineralisation is found in eight seam groups, with Cuesta’s drilling intersecting between two to eight seams with individual seam plie thickness varying from 0.1m to 1.9m.

sufficient confidence in seam correlation was achieved, according to Cuesta, with future project work to include step-out drilling from the current resource area to expand it further as well as infill drilling to upgrade the resource category and optimise

stripping ratios, and also large diameter coring to conduct washability tests and assess geotechnical parameters.

amberley comprises 12 sub-blocks covering an area of 36.5sq km and is located 8km south-east of the Jeebropilly coal mine and 5km from the former producing ebenezer mine, which produced both domestic and export quality thermal coal.

“The company has been extremely busy since listing in May this year. we are hitting every target we have set ourselves and in some cases exceeding them.”

Cuesta has defined coal resources down to a relatively shallow depth of 150m totalling 138.5 Mt across the company’s projects, with 44.3 Mt at Thorn hill in the surat Basin and 39.5 Mt at the Moorlands deposit in western Bowen Basin adding to the upgraded amberley resource.

“The total coal resources have been upgraded from 56.3 Mt of JoRC inferred resources prior to listing to 138.5 Mt total JoRC resources (22.1 Mt Indicated and 116.7 Mt Inferred) with two drill programs to be completed this year.”

Cuesta has assembled a diverse portfolio of thermal and coking coal exploration prospects within the Bowen, surat and Galilee basins, with the company’s core projects well situated geographically with more than 11,000sq km of exploration ground in total.

The projects are located in close proximity to current and future planned infrastructure, which underpins the company’s aggressive two-year exploration, mine scoping and feasibility study strategy on its four key projects in Queensland.

Cuesta managing director Matthew Crawford and director (technical) Brice Mutton overseeing drilling on its Queensland tenements.

reGioNAL rouNd-up

I CApOctober 2012

Cuesta upgrades Amberley resource 10-fold

20

21

term for any commercially mineable coal located at the Lightjack Hill,” TPL said in an announcement last month.

“As a result of the above market analysis and current seaborne prices the TPL board have decided to reduce the company’s immediate expenditures on its Canning Basin tenements.

“Further, given the costs associated with negotiating access to the tenements with the traditional landowners, and the attendant diffi culties meeting minimum expenditure commitments, the board has decided to rationalise its landholding.

“We will continue to review the company’s tenement holding, including the ground associated with Lightjack Hill, pending improvements in coal market conditions.”

Based on the analysis of core from the Sisters Bore prospect, according to TPL, it was likely that processed coal from the prospect would be similar to Rey Resources’ processed coal, the best comparator for the Lightjack Hill project,

Core from hole SB2 returned results on an as received basis (before processing) of: moisture of 9.2%, ash 29.5%, sulphur 1.56% and calorifi c value 4,499 kcal/kg.

In their most recent release of project economics, Rey Resources indicated operating costs of approximately $A70/t. In their release, the company assumed the sale price of the coal would be $US100/t when the Newcastle Reference Price was $US120/t (2011). However, the current selling price of 5500 Newcastle Coal is approximately $US82-85.

Applying the same discount of US$20/t, gives a sale price of US$62-US$65/t making the potential selling price of a TPL processed coal product now below the assumed operating cost of Lightjack Hill – assuming the above operating costs would also apply to TPL’s project.

Winton likely target for Baru

INDEPENDENT verifi cation of exploration targets on Baru Resources’ Longreach coal

project has confi rmed the Winton Formation outcrops over western portion of the project area and is the primary exploration target.

Independent consulting geologists Moultrie Database and Modelling estimated an exploration target of 582Mt to 6.17Bt of coal with thermal potential from the project within Queensland’s Eromanga Basin.

Baru is now planning a review of the available seismic data to identify areas of thicker near-surface coal seams as initial drill targets.

An exploration target – Winton, Mackunda and Westbourne Formations, and Hooray Sandstone – has been estimated for exploration permits and coal applications within the project area.

Once the coal tenements have been granted, Baru Resources Ltd will be in a position to complete an initial round of drilling targeting the highest priority areas.

An estimated coal thickness was produced by MDM after a process of interrogating the public domain data available for the surrounding area. At the end of this process conservative cumulative coal seam thicknesses were applied.

The Winton Formation was the primary exploration target and was intersected at depth potentially suitable for open-cut mining (20-250).

CAP I October 2012

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A Canning Basin landscape typical on the Lightjack Hill project area.

22

Prophecy’s Mongolian bid

VancouVer-based miner Prophecy coal submitted a formal proposal to the Mongolian government in September for its planned chandgana mine and power plant complex in the country’s central region.

The proposal designates a concrete-pour date of april 2013 and initial operations starting in the first quarter of 2016.

The long-term power off-take contract would provide uninterrupted power to the Mongolian grid from the planned 600-megawatt mine-mouth station. chandgana includes a measured and indicated coal resource of 1.2 billion tonnes and will source fuel from two mining licences containing a measured and indicated resource of 131Mt.

Prophecy reported it had identified coal seams at the project site with an aggregate minable thickness of 30m to 60m at depths as shallow as 267m.

Since obtaining the tenement late last year, Prophecy has been in ongoing discussions with the government to secure power

purchase agreements for a long-term energy supply across the country.

“Both Prophecy and the Mongolian government working group have been working hard for several months to reach this point,” chairman and chief executive John Lee said.

“all of us have high expectations for the chandgana project. everyone here at Prophecy and our government counterparts are quite excited.”

The miner expects a formal reply on the proposal prior the end of 2012.

Another hurdle cleared for Aspire

MongoLian coking coal explorer and developer aspire Mining has received licence approval from the Mongolian resource authority covering 5,758ha for its ovoot coking coal project.

This licence area, according to aspire, covered both the planned open pit and the potential underground mining area to the north-east of the pit.

Managing director David Paull said ovoot is one of the most important new coking coal projects in Mongolia and had the potential to significantly enhance economic development in northern Mongolia.

“achieving a mining license is an important step along the path of financing mine development and associated road and rail infrastructure,” Paull said.

under existing Mongolian minerals law, the mining licence has 30 years’ tenure from date of grant, with an option to extend for two additional 20-year periods. This certainty of tenure will greatly assist aspire as it moves closer towards securing project funding for ovoot.

a pre-feasibility study for ovoot was completed earlier this year, where it confirmed technical and commercial feasibility based on an open pit probable reserve of 178Mt, with work continuing to increase reserves. Ministerial approval has been granted for the alignment of a sealed road from ovoot to Moron to support project development, construction and initial haulage.

MongoliA

Terra energy’s South gobi project is on track to commence mining operations this quarter, with key milestones announced last month.

Terra, sister company guildford coal and their Mongolian subsidiaries control the South gobi project, 1,000km south-west of the Mongolian capital of ulaanbaatar.

The project is also strategically located 60km from the chinese border coal station of ceke, where coal produced in nearby Mongolian mines is currently transported by road through to china and 50km east of nariin Sukhait, which includes Southgobi resources’ ovoot Tolgoi mine and the MaK mine.

The South gobi project has a resource

of 70.4Mt of coking coal consisting of 39.7Mt in indicated and 30.7Mt in inferred resources, with a further exploration target of up to 892Mt independently estimated.

The project’s north pit was planned to ramp up to in excess of 4Mtpa of open-cut coking coal production, according to Terra, with mining to begin prior the end of calendar year 2012.

“The aim is to then progressively expand operations into additional pits conceptually identified on the project,” the company reported.

“These additional conceptual pits, to be confirmed by drilling this year, will be supported by the centralised infrastructure established for the start-up mine.

The initial design for the South Gobi project’s North Pit.

RegionAl Round-uP

I CAPOctober 2012

Mining to start at South gobi this year Terra has engaged a mining contractor top begin operations in the north Pit headed by the leadership team that managed the start-up of the erdenes Tavan Tolgoi project.

The mining contractor is an experienced Mongolian contractor, grand Power Mining, a subsidiary of grand Power LLc which has been working in the Mongolian energy and Mining sectors since the year 2000.

“The contract delivers total mining costs in-line with Terra’s expectations for the South gobi project and also meets the timelines for mining to commence this quarter.

The mining operation will be a conventional open-cut strip mine, utilising hydraulic excavator and truck combinations on overburden and coal mining activities.

The design of the initial pit has an approximate strike length of 1.3km and width from low-wall crest to high-wall crest of 700m, with nominal strip width of 60m.

coal will be crushed and screened to sub 250mm size fraction and delivered raw to a roM stockpile ready for sale to the project’s off-take partner.

“negotiations have progressed with short listed parties from the off-take tender process and a non-binding heads-of-agreement has been reached with Sojitz/erdos JV that locks in key terms, which will form the basis for the development of long form off-take agreement.”

The Sojitz corp is a diversified Japanese holding company that operates in a variety of industries including trading operations in machinery and aerospace, energy and metal resources.

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24

Project news

I cAPOctober 2012

Peabody Energy has slashed its Australian production targets by 20% to 40Mt by 2015 and deferred the expansion of three of its New

South Wales and Queensland projects in response to the lower coal prices caused by the slowdown in China.

Peabody chief executive Gregory Boyce told a conference in New York the company would also be responding to the changed conditions by seeking to increase productivity from existing operations by decreasing its reliance on contractors.

“[The] near-term view is cautious given decline in global commodity demand and pricing caused by recession in Europe, sluggish US growth and eased expansion in China,” he said.

“We are responding to macro conditions by further reducing capital spending, deferring early-stage expansion projects, reducing growth volumes and continuing to aggressively manage costs.”

The company will be reducing 2012 capital expenditure to about $US1 billion and expects to keep 2013 capex levels at or below 2012 levels.

The 3Mtpa open-cut expansion of the Wambo mine in NSW is “now outside of planning horizon”, the 3Mtpa PCI coal expansion of the Queensland based Codrilla mine has been deferred indefinitely, and there will be a 12-month delay in the expansion of the Metropolitan mine in NSW.

Boyce said Peabody would still be advancing late-stage projects to completion.

The Wilpinjong mine expansion has been completed on time and on budget and has expanded Peabody’s lowest-cost Australia thermal mine capacity by 30% to 13Mtpa.

The Millennium mine expansion is near completion and would double mine capacity to 3-4Mtpa.

The Burton mine widening and extension is nearing completion and will move to new

hard coal coking mining area in the third quarter.

The North Goonyella longwall top coal caving technology will add high-quality hard coking coal volumes and the Eaglefield co-development will extend mine life and add to HQHCC production.

The Middlemount permit has been received for eventual increase to 4Mtpa. Peabody still sees Australia as being central to its expansion plans in the future.

“It supplies 60% of world’s seaborne metallurgical coal,” Boyce said.

“It has a major competitive advantage with mines close to port and ports close to high-growth markets.

“It is the largest exporter of high-CV thermal coal and Peabody’s Australian margins greater than average US peer margins.

“Australian coal assets earn valuations significantly higher than US counterparts.”– Lou Caruana

Peabody to defer Australian projectsPeabody has proposed several strategies to respond to the changed market conditions, including seeking to increase productivity from existing operations by decreasing its reliance on contractors.

strategic foothold in new ZealandBATHUrST resources’ wholly owned subsidiary Takitimu Coal announced earlier in the year that it had completed the strategic acquisition of the adjoining property at its Takitimu operations in New Zealand.

Takitimu Coal is a subsidiary of Eastern Coal, which was acquired by Bathurst in March 2011. Takitimu Coal operates the Takitimu thermal coal mine at Nightcaps in Southland and is currently extending the mine into the nearby Coaldale block, which is located on the newly acquired land.

The Takitimu mine has been operating for 140 years and is currently producing 175,000 tonnes of thermal coal per annum.

The acquisition, for consideration of $NZ14 million, would substantially improve the economics of the Takitimu operations, according to the company, which continued to generate positive operational cash flows.

Bathurst’s managing director Hamish Bohannan said completing the strategic acquisition of this area was critical to the long-term planning for Eastern Coal’s operations.

“We are delighted to have acquired the land, which will remove an ongoing royalty impost, allow unencumbered operation and, most importantly, may lead to a significant additional resource upgrade,” Bohannan said.

Eastern Coal had a long standing royalty agreement with the landowner to mine the land and improving the economics of the Takitimu operations was Bathurst’s key motivation for acquiring the land.

The key benefits of the acquisition, according to Bathurst, included the removal of ongoing royalty payments to the land owner and having full access to the area that would result in a significant reduction in the costs of handling and storing overburden.

The acquisition will reduce the company’s cash balance. However, the payment will be made in two separate instalments over five months and the company is also looking to secure finance to fund the land value component of the acquisition. Pending this, the transaction will be funded from the company’s cash reserves, which stood at $A53.8 million at June 30, 2012.

Bathurst expects the Escarpment Mine project will continue to be fully funded by the cash balance and the $US90 million in borrowing facilities it anticipates getting from its off-take partners in the coming months.

Bathurst Resources managing director Hamish Bohannan.

25

IN THE wake of a failed takeover bid by China’s aluminum company Chalco, Mongolian coal player SouthGobi Resources has fired its president and chief executive officer Alexander Molyneux.

Termination of Molyneux follows immediately on the early September announcement that Chalco had dropped a $US926 million takeover bid for up to 60% of SouthGobi because of difficulty in obtaining regulatory approvals and political opposition.

Most speculation on the collapse of the deal has pointed to wariness on the part of the Mongolian government about China’s growing presence in the country’s emerging minerals-based economy.

Molyneux will be replaced by Rio Tinto Coal Australia marketing general manager Ross Tromans following board approval.

SouthGobi deputy chairman Sean Hinton will manage the transition on behalf of the board and will lead the company in the interim.

Tromans has 30 years of marketing and sales experience in the coal and energy sectors covering the Asian and North American markets. At Rio Tinto, he has been responsible for the overall marketing strategy for coal.

“Ross brings a wealth of industry insight to SouthGobi after almost three decades in the

coal and energy sector,” SouthGobi chairman Kay Priestly said.

“The board is working with Ross and Sean to ensure a smooth transition as we focus on strengthening the company’s core business performance.

“We are committed to realising Ovoot Tolgoi’s production potential.”

In June, SouthGobi said operations at its flagship Ovoot Tolgoi mine had to be “entirely curtailed” due to regulatory and market-related setbacks.

Uncertainty regarding the then-pending Chalco deal was believed to affect progress of the miner’s agenda in Mongolia.

In April, Mongolia’s mineral resources authority sought a request to suspend exploration and mining activities at various SouthGobi licences, including Ovoot Tolgoi – a government move believed to be connected to the Chalco takeover bid.

SouthGobi estimates Ovoot Tolgoi to have a proven surface mineable coal reserve of 119 million tonnes. – Justin Niessner

SouthGobi fires CEO after fizzled takeoverDifficulty in obtaining regulatory approvals and political opposition within Mongolia has led to significant change for SouthGobi.

CAP I October 2012

Mining operations at the Ovoot Tolgoi mine.

IT IS probably little thought of by most in the resources sector – apart from the those people responsible for securing it – but a secure supply chain for timber remain an important industry element.

The industry has encountered problems in the past with sourcing a regular supply of basic timber items used in everyday mining operations.

With the sector continuing to grow, the issue is only going to get worse – potentially impacting production and indirectly profit.

A company offering a secure supply chain, Resources Timber, has recently entered the market, in association with well-established timber product manufacturing businesses.

The goal for Resources Timber is to

specialise in meeting the particular needs of the resources sector, including a large focus on the coal industry in Queensland.

“We understand the frustrations which companies can face in this niche area,”

Resources Timber told Coal Asia Pacific. “Our remit is to save those in charge of

purchasing both time and money. “We guarantee to be able to provide you

with a consistent supply of stakes and pegs, with flexible dispatch options to suit the individual needs of each mine.”

Strata control timber products are also available from resources Timber, with some innovative significant cost saving products to be released in the near future.

“Our objective is simple – to offer an efficient and convenient supply chain which saves the industry money.

“We understand timber and we take it seriously – this launch is good for the whole resources sector.”

Secure timber supply chain launched

26

INFRASTRUCTURE: PORTS

I CAPOctober 2012

Port powerFor a century and a half, access to shipping on the world’s two greatest oceans has been the birthright of American industrialists. But as international coal markets heat up, US miners are finding it difficult to get a piece of the export action. By Justin Niessner

Even a slow boat to China could help the US coal industry.

Hostility toward development of coal export facilities on the West Coast is threatening to oblige Asia-bound US vessels to

continue taking the long way around. This is exacerbating an oceanic isolation that already puts America’s coal at a distinct disadvantage to products from other heavyweight suppliers already well situated in the eastern hemisphere.

Meanwhile, coal producers wishing to hedge their bets on embattled Pacifi c port projects have scrambled to secure capacity at constrained East Coast terminals and Gulf of Mexico infrastructure where hopes are dim for a coal surge through the forthcoming Panama Canal expansion.

Also, coal export infrastructure has become more diffi cult to fund. The weak economic state of many US coal producers has made

banks more reluctant to fi nance big projects.This scenario, however, should not suggest

that the US is failing to realise its coal export potential. In fact, American miners have enjoyed a substantial increase in coal exports since 2009 and are on track to top 2011’s total of 107 million tonnes sent overseas.

The challenge is not simply to fi nd economic avenues for exporting coal but to take coal exports to the next level, double existing shipping fi gures and rescue an industry being left with an ever-smaller piece of the domestic energy pie.

In company earnings calls and industry think tanks, the two words on the lips of everyone in the US coal sector are “exports” and “metallurgical”.

However, while a phenomenal increase in met coal demand from Asia has been linked to export success in recent years, the thermal

market remains the key to bolstering national exports in a big enough way to compensate for the domestic plunge.

Industrialisation in developing Asia has been the driver of both met and thermal coal imports, with China alone having offl oaded 140Mt in the fi rst half of 2012, 96Mt of which was thermal.

Even the latest uptick in European coal use should mostly be attributed to thermal as a continent-wide debt crisis causes downshifting steel producers to cut US met coal imports and high European natural gas prices keep coal-fi red power plants in business.

This year alone, analysts suggest US thermal coal exports could reach as high as 50Mt, a 30% increase over 2011’s thermal exports and roughly double US thermal exports in 2009.

The US industry though is thirsty for more than that. Lifting US coal exports into high enough volume to balance lost domestic consumption will require some bullish development works and participation on all fronts from every player in the coal value chain.

The western front

There are no working coal terminals on the US West Coast.

Last year only 7Mt of American export coal made it to Asia and that was from ports in British Columbia and Alaska.

The low ocean freight rates that have allowed for the economical distribution of US coal from East Coast ports are not expected to last forever.

When the depressed Cape size rates rise

again, Asia will be that much further out of reach.

Turnaround on this issue is seen as a critical strategy for the relatively isolated Powder River Basin and has led to the proposal of no less than six coal terminals in the Pacific Northwest, tipped to increase the region’s coal exports from zero to 150Mtpa.

Hotly contested by environmental activists, community groups and local politicians buckling under the pressure of popular protest, three possible ports in Oregon and three planned in Washington have encountered more intense opposition than almost anyone expected.

Anti-coal arguments have appealed to both universal and personal interests among regional residents. On one hand, protestors speak broadly about the global warming hazard of serving coal-fired customers in Asia and on the other, they zero in on the risk of cancer from billowing coal dust from increased rail traffic.

A recent string of violent and sometimes deadly coal train derailments across the country has made it harder for cooler heads to prevail as emotions run high and resistance entrenches. Much emphasis has also been put on the US Army Corps of Engineers’ environmental impact statement and whether it will consider the cumulative, planetary impacts of driving coal to foreign markets.

In August, RailAmerica shelved its coal terminal proposal for the Port of Grays Harbor near Hoquiam, Washington, citing a more beneficial offer to use the facility for goods transport outside of coal.

Although the company has not indicated that public environmental concerns motivated their decision, the cancelled terminal represents a win for anti-coal groups continuing to press on related projects.

Despite setbacks such as this, coal analysts are largely unfased by the pressure on Northwest development and typically shrug off local protest as merely a speed-bump for overwhelming momentum to open West Coast doors. Coal terminals will definitely be built, the consensus seems to be, but whether or not they can ramp up enough capacity remains in question.

“When you’ve got a production basin that can do 500Mt a year without sniffing, and you’ve got a very challenged domestic market, an extra 10Mt or 12Mt is not really

going to move the needle,” Wood Mackenzie coal analyst Jonny Sultoon said on finding a western portal for the Powder River Basin.

“They need 50-100Mt to make their product move and keep their margins high.”

The two frontrunners in building up the necessary Northwest bulk are the proposed Gateway Pacific terminal near the British Columbia border and the Millennium Bulk Terminals facility on Washington’s Columbia River.

Those two ports alone would account for some 100Mtpa of Asia-bound coal.

With an expected coal throughput of 50Mtpa, the Gateway Pacific deep water port just 27km south of Canada would become the largest coal export facility in North America. SSA Marine is developing the terminal to include a 915m wharf that will berth three ships and a 380m trestle to link them to shore.

Expansion for the project beyond its 140ha scope seems likely as SSA Marine notes the Cherry Point industrial site where the port will be located encompasses 400ha of developable land.

Further south, Millennium Bulk Terminals is attempting to establish a 27.5Mtpa port near the mouth of the Columbia River. The company, which is owned by Ambre Energy and Arch Coal, estimates the facility could increase capacity to as much 48.5Mtpa with future expansion work.

Although the 160ha brownfield site has already been zoned for industrial development, Millennium, like all the Northwest port projects, has had to contend with delays and extended time frames.

“We are still waiting for the scoping to begin and that has taken longer than what we had originally expected,” Millennium president and chief executive Ken Miller said.

“The Army Corps of Engineers tells us we should expect 18-24 months for permit approval and construction thereafter would be one and a half to two years away.”

The long way around

Although the critical nature of the Northwest port projects necessitates their eventual development, progress has been slow and no one can be sure of what size and scope they will actually be able to achieve.

So, as bureaucracy and procedure keep the fabled Northwest passage as elusive as ever, miners and exporters are getting real about contingency plans to boost coal traffic elsewhere.

Transport infrastructure giant Kinder Morgan is leading the charge in the Gulf of Mexico, spending $400 million to expand its coal export terminals in the region and support growing interest from partners such as Peabody Energy and Arch Coal.

In July, Peabody signed with Kinder Morgan to increase the export capacity of


With an expected coal throughput of 50Mtpa, the Gateway Pacific deep water port would become the largest coal export facility in North America.

its Powder River Basin coal to 7Mtpa in the Gulf between 2014 and 2020. In a previous deal with Arch, Kinder agreed to expand Houston’s Deepwater terminal to have a 10Mtpa capacity and include a shiploader and rail loop capable of handling three 135-car unit trains.

For its part, Colorado-focused Cline Mining has approached Texas’ Ports of Corpus Christi regarding coal exports in the area and may help the port move 20Mtpa of coal by 2017.

The push to ramp up export capacity in the Gulf has coincided with excitement about the possibilities of an upcoming expansion of the Panama Canal, but the appreciable impact of widening the century-old shortcut is not likely to be game changer for coal.

“It will help but I don’t think it’s the be-all and end-all,” Sultoon said. “You’re only going from a panamax to a post-panamax. You’re not going to a Cape size – you’re going to a kind of mini-Cape or maxi-panamax.”

More precisely, a 6.5m increase in the width of the canal’s locks will allow passage of a class of panamax vessels some 17m wider than traditional panamax hulls. Long-haul Cape size ships most ideally suited for shipping to Asian markets have widths of 40m to more than 48m by comparison.

The canal expansion project, which is geared more toward containerized shipping is therefore unlikely to swell eastbound coal traffic, but industry optimism for increasing exports is not so easy to snuff out.

“Any opportunity to expand shipping is going to improve exports,” American Coal Council communications director Jason Hayes said.

“I’m hearing things where companies are partially filling Cape size ships and then

moving up to Newfoundland to finish filling them with panamaxes. There’re lots of creative things going on.

“It’s one of those things that if there’s expanded opportunity, there are smart people out there who are going to figure out how to make use of it.”

Playing to strengths

The fact remains, however, that even with the use of the Panama Canal, a coal ship leaving the Gulf of Mexico bound for northern China will have to travel about twice as far as a ship leaving Australia’s eastern state of Queensland. Indonesia, which boasts coal exports of 330Mt this year, is even closer than that.

While Powder River coal is slightly cheaper to mine than Indonesian coal, the Southeast Asian country’s transport costs are practically nil by comparison.

Indonesian ports are a lot closer to Indian markets, too.

Bluntly put, the US is not as competitive as regional coal suppliers in the Pacific Rim even when long-haul freight rates are low.

However, many Asia-Pacific customers such as South Korea and Japan are willing to

pay a premium to diversify their supply chain. And China – although prone to being a more opportunistic buyer– has such a huge coal appetite, America’s massive reserves will have to factor prominently into the equation.

“The US coal export play is strong, not because it’s competitive versus other guys, but because there’s enough for everyone,” Sultoon said.

“Whichever way you look at it, coal and coal imports are a very big part of the story in China. And a billion tons of coal [predicted to be demanded by China] will not come just from Australia and Indonesia, but from higher-cost basins too.

“The US has a big role to play in that.”Another key advantage that bodes well for

expanding US exports is the more established nature of the stateside industry.

The mines in the Powder River Basin are already producing. It is much easier to retask a mine from domestic to export than it is to open one up for the first time. This edge is particularly relevant against the intermountain region’s primary Asian competitor, Indonesia.

The Powder River Basin and Indonesia both offer the low-rank thermal coal Chinese and Indian power plants crave, but the capital expenditures associated with Indonesia’s greenfield projects are likely to help balance the island nation’s proximity advantage.

In the end though the US’ best advantage is – as usual – its ability to innovate and adapt.

None of the Asia-focused export plays on either coast illustrate this point better than the Morrow Pacific project developed by Ambre Energy on the Oregon side of the Columbia River. Planned as a rail-barge-ship transload facility, the site will connect oceangoing vessels in the state’s coastal Port of St Helens with a rail line terminating 320km downriver.

In a part of the country with no history of coal export traffic, specially designed barges and unloading processes had to be planned to contend with the region’s unique weather conditions and fierce environmental ethic.

The proposed operation will only export 8.8Mtpa at maximum capacity but seems to embody the philosophy that every little bit helps and that a synergy of efforts will be necessary to make overseas exports a major aspect of America’s coal scene.

“Being able to have this gateway is of extreme importance to the country and to the intermountain coal industry,” Morrow Pacific chief executive Clark Moseley said.

“It’s definitely the shortest ocean freight haul to the markets in Japan, South Korea, Taiwan and China. We’re probably the last large coal producing country that hasn’t accessed those markets and we have a product that they really need. “If it doesn’t happen, I think you’ll see tons drop off,” he said of Northwest coal port development.

“You’ll see impacts to the whole system.”

28 I CAPOctober 2012

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“Being able to have this gateway is of extreme importance to the country and to the intermountain coal industry.” – Morrow Pacific chief executive Clark Moseley

More coal export facilities are needed to fully accept the opportunities Asia offers. Picture courtesy Alpha Natural Resources.

infrAstruCture: Ports

29

Industry news

Stifling bureaucracy and an increasing tax burden have not been significant enough factors to reverse mining investor confidence in Australia’s political stability and infrastructure advantages, according to a global survey by Baker & McKenzie.

the report, which included interviews with 300 mining executives and lawyers, concluded that 79% of respondents believed investing in Australia had become riskier and more expensive over the past 10 years.

However, 86% were encouraged to invest in Australia due to its strong record of ensuring mining companies can enforce contractual rights. And 82% said they were encouraged by Australia’s solid infrastructure.

the survey compared the mining sectors of Australia, Canada, China, indonesia and South Africa, and found Australia trailed only Canada in attracting resource investment, due mostly to differences in tax and royalty regimes.

Responses from survey participants on Australia focused overwhelmingly on increasing costs, skills shortages and complexity of regulation.

“there is a growing perception amongst the industry of a complex maze of green regulations and red tape that must be navigated to deliver projects efficiently and effectively,” the report said.

“in Queensland, the approvals process is regarded as particularly complex.”

the survey said 75% of respondents found mining in Australia had become more

complicated. it revealed that 70% also said it had become more time-consuming, and 67% said they expected Australia to grow more complicated in future.

this perspective was contrasted by strong enthusiasm for Australia’s infrastructure and legal system, which effectively buoyed the country as the most attractive mining locale behind Canada.

Canada, which is not a major competitor

with Australia in the coal and iron ore sectors, was seen as the most politically stable country of those surveyed, with 88% believing it to be an encouraging environment for mining investment.

Although 73% said they expected Canada to become more complex in its regulations and tax policy, 73% also believed there was about the right amount of government involvement in Canadian mining.

Political stability trumps tax uncertainty: survey

CAP I October 2012

cap

Survey respondents were encouraged by Australian infrastructure.

SO it was. the boom that had been driving Australia’s fortunes for so long had petered out, according to the Bureau of Resources and Energy Economics (BREE).

Well, not strictly dead. More resting, really.the high prices may be gone but it is fast

becoming a volume game. this is where those with the biggest

projects and the economies of scale will do well. So too will those who can keep the tightest lid on their costs.

BREE says in its Resources and Energy Quarterly (September quarter 2012) that Australia’s resources and energy commodity export earnings are forecast to be $A189 billion in 2012-13.

Executive director and chief economist

Professor Quinton grafton said the latest forecasts of volumes and prices showed two distinct trends.

“first, the prices of many resources have moderated from historic highs in 2011 and further declines are expected over the medium term in US dollar terms relative to these peaks,” he said.

“Second, Australian export volumes, especially in terms of bulk commodities, are growing rapidly and are expected to do so for several years to come.”

for the majority of major minerals and energy commodities export volumes are forecast to increase.

the largest increases in volumes are forecast for lng (21%), thermal coal (14%),

metallurgical coal (12%) and copper (10%). growth in export volumes of iron ore are

also forecast to remain robust, increasing by 8% to more than 500 million tonnes in 2012-13.

the forecast increase in lng exports in 2012-13 reflects the start-up of the Pluto lng project, which will boost Australia’s lng capacity from about 20Mt to more than 24Mt.

“this forecast, as emphasised in the macroeconomic outlook, is based on assumed improvements in world, OECD and Chinese economic growth in 2013 and the assumption that the Australian dollar will remain close to parity with the US dollar in 2013,” grafton said.

the boom is dead. Long live the boom

30

That profi t result for the 2011-12 year came on the back of $650.8 million in revenue, up from the $555.1 million it recorded in 2010-11.

Earnings increased too, with underlying earnings before interest, tax and amortisation rising 50.5% to $64 million from $42.5 million. That increase was, however, in line with expectations.

Reported net profi t after tax rose 45.4% to $37.8 million from $26 million.

Underlying earnings per share grew to 20.6 cents a share, compared with 14.8 cents a share in the 2011 fi nancial year.

Revenue for Sedgman’s projects and operations businesses grew for the 12 months to June 30 on the back of key projects in Australia suchy as Maules Creek, Lake Cer mont and Daunia.

EBITA margins for the projects business returned to expected levels for the year. They

had been hit by foreign exchange losses and lower margins at three projects, mainly due to subcontractor performance.

Margins in the operations busniess improved as the integration activities instigated last year started to come to fruitioin.

Sedgman is, understandably, keen to grow its operations business because it offers a longer-term recurring income stream to the company.

Overall the company’s net operating cash fl ow rose to $48.8 million from $25.3 million in the previous corresponding period.

Sedgman managing director Nick Jukes said the company was well placed globally with a strong presence in Asia, South America and South Africa.

He is realistic about the company’s immediate future though, in light of some emerging problems.

“A softening in commodity prices and a high Australian dollar are though likely to dampen future growth in the short term,” Jukes said.

He said the company’s $477 million order book was expected to be supplemented by $485 millino of contracts for projects and oepratinos that are in negotiations.He said the company was in advanced negotiation in three projects and seven operations contracts worth about $500 million.

Sedgman specialises in the design, construction and oper ation of coal handling and preparation plants, although it has, in recent years, branched out into other aspects of minerals processing.

Its head offi ce is in Brisbane with international offi ces set up in Beinjing, Santiago and Johannesburg targeting the growth regions of China and Mongolia, South America and southern Africa.

Cranking coalCoal preparation plant work – with increasing forays into the Asian coal market – has been at the forefront of Sedgman’s 45% profit improvement. By Noel Dyson

COAL PREPARATION

I CAPOctober 2012

Sedgman has made its name from the design, construction and operation of coal handling and preparation plants.

Outotec expands APAC servicesOUTOTEC has bought mining services company TME Group, to boost its service offerings in the Asia Pacifi c region, for an undisclosed sum.

TME, which, offers grinding mill relining and mineral processing plant maintenance services throughout Australia, Africa and South East Asia.

The services company has annual sales

of about $US46 million. It also has 130 permanent employees and a large casual workforce.

Mineral processing technology specialist Outotec, which counts the widely used coal preparation fl otation processing technology among its offerings, aims to accelerate its service business growth.

Outotec chief executive offi cer Pertti

Korhonen said it planned to grow its global annual service sales to 500 million euro ($US654 million) by 2015.

“This acquisition will expand our offerings and strengthen our capabilities to provide operation and maintenance services to our customers in the mining and metals industries in the South East Asia Pacifi c region, Africa and beyond,” he said.

CAP

A range of hybrid crushers able to process up to 12,000 tonnes an hour has been launched into the region.

The crushers are capable of being used for primary, secondary and tertiary crushing applications, with the largest in the range able to take rocks of up to 1.8m in size.

Sandvik said the CR810 series of crushers featured counter-rotating rolls with an aggressive tooth design and a compression action that allowed them to handle soft to medium-hard materials, which have a tendency to be wet and sticky.

The CR810 can handle materials including coal, iron ore, overburden and limestone.

Various ore types, lignite, bauxite, different types of phosphates and similar raw materials are also easily crushed by the machines, along with clay, chalk, gypsum and marl.

Crushing and screening product support manager Marcus Benn said: “We are very excited about it. It’s a hybrid because we took two technologies – our double roll crusher and sizer and combined it into this one machine.

“Our hybrid crusher concept features a very compact design made possible by aggressive tooth geometry so that it requires minimal space.

“With throughput capacities up to 12,000 tonnes an hour, it offers the advantages of a classic double roll crusher, including hydraulic gap adjustment and overload protection, combined in a single machine.

“Its design also means it minimises the generation of unusable fine material and allows it to easily process wet and sticky material.”

The crushing rolls are driven individually by electric motors with coupling and gears and are equipped with an advanced hydraulic gap adjustment system.

Sandvik said an integrated overload protection allowed for a wide range of product sizes, while the machine was protected against foreign bodies such as tramp iron within the feed material.

In addition, the crusher rolls also act as flywheels, allowing them to store energy and better compensate for peak requirements in crushing power.

“It’s been out for five years now, running in Europe,” Benns said.

“We’ve brought this hybrid out from

Germany – it’s been running for the last year in Australia on a couple of sites, doing some testwork on uranium and iron ore.

“We bought a pilot plot in Perth to do some testwork with one of the major iron ore producers, Rio Tinto. Now we’ve brought it across to the east coast, hopefully to do some testwork on coal in the Hunter Valley.

“The hybrid loves wet sticky material and that’s definitely an opportunity for us there.”

He said with wet, sticky material the sizers had a tendency to back up and clog with the material, preventing throughput from the machine and often leading production to be stopped for the sizers to be washed out before restarting work.

“That’s a loss of production, which is obviously costly,” Benn added.

“The hybrid hasn’t had that problem at all. It loves the wet and sticky material.

“We feel it’s a huge opportunity for Sandvik to introduce this technology into the industry.”

The C810 series of crushers is not just aimed at the coal miners in the region. Sandvik is convinced the offering will prove successful with iron ore miners too.

Benn said: “In the Pilbara, traditionally

[iron ore mining] is done through jaws and cone crushers. And no cone crusher in the world likes wet sticky material, especially in the tertiary application. So the C810 is ideal.

“Not only can it effectively treat the material they’re having problems with, it’s also a capital expenditure saving if they put the hybrid in, versus a cone crusher.”

Benn said the C810 was high capacity, low profile and ideal for underground mining.

In addition, the machine itself is only 3m high, which brings further cost benefits onsite.

“Traditional gyratories are very large, heavy machines and need a big excavation underground – and that’s very costly. The hybrid is 3m high compared to a 15m machine, so there’s a very small excavation route required,” Benn said.

“It ticks a lot of boxes, it’s easy to maintain. The sizers out there today, have a fixed roll and are prone to damage with digger teeth going through the machines – that happens all the time.

“With a hybrid you don’t have that risk so the risk of losing throughput due to downtime is a lot less.”

Hybrid hopesSandvik Mining has released a range of high-capacity hybrid crushers which are suitable for a range of minerals, including both coal and iron ore. By Alison Middleton

Sandvik’s hybrid crushers can process up to 12,000 tonnes per hour.

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32

The TIM3D system uses satellite navigation to guide the location and angle of drillholes in accordance with a drilling plan containing the

target coordinates in three dimensions that can be imported to the rig via a USB memory stick using the international rock excavation data exchange standard.

The navigation system allows the operator to follow the penetration rate and hole depth, distance to target, number of required rods and feed alignment. Local base station or virtual reference station correction ensures accuracy to within 100mm.

Drilling stops automatically once target depth has been reached and the system also provides the status of the holes using colour codes.

Sandvik product line manager Michael Zirbel said the TIM3D navigation system improved hole quality and hole position accuracy, translating into better fragmentation due to straighter holes, less fi nes, shot rock and oversize.

“This results in increased effi ciency further in the production process, both in crushing and loading and hauling,” he said.

The system removes the need for surveying and hole marks, which brings two benefi ts.

Firstly it reduces the chance of marking errors, speeding up the drilling process.

It also removes the need for a human to go into the potentially dangerous pit environment to make the marks.

TIM3D is compatible with both the US GPS and Russian global navigation satellite systems, meaning a much wider range of satellites to draw a signal from.

The navigation system is integrated into the Sandvik DPi drill rig’s control screen with controls integrated into the armrest, producing an easy to use system with solid functionality.

The navigation system is designed for Sandvik’s DPi and DX series surface top hammer drill rigs.

Sandvik launched the navigation system on the back of the success of the range of surface top hammer drill rigs, launched in 2008, designed to achieve maximum environmental performance.

The company said customer feedback indicated the rigs outperformed their preceding generation in fuel economy and productivity.

The rigs achieve fuel consumption rates of around 15% less than their predecessors.

Sandvik said operators were happy with the working conditions provided by the rig and the intelligent control system made their work easier.

Global product line manager Pekka Kesseli said the DPi project had to address issues such as increasing energy costs, diminishing fossil fuel resources and high requirements for environmental performance.

“Our DPi series rigs consume 15 per cent less fuel than their counteparts, meaning a considerable drop in CO2 emissions,” he said.

“In a typical surface mining application where you might see 6700 engine hours a year, the difference is as high as 90 tonnes of CO2 a year, while in construction applications with 2500 engine hours annually, the CO2 output drop is 35t.

“Judging by the praise we have garnered, the product seems to respond to these challenges very well.”

Through its intelligent compressor control, the DPi rigs achieve lower fuel consumption by regulating the compressor pressure level and only increasing when necessary.

The rig has a reduced setting of 1800 revolutions per minute compared to the previous 2100rpm. The rig control system sets the engine revolutions per minute as required.

“A lower rpm also decreases noise and extends the service life of the engine,” Kesseli said.

Sandvik’s cooling fan with an alternating rpm is a new feature in the DPi range. It reduces fuel consumption by adapting to specifi c cooling requirements.

The Swedish company is continuing to work on developing drilling technology.

It has a project focusing on the development of drill tubes to allow further compressor optimisation.

Another fuel saving measure relates to the electric load-sensing system of the rig hydraulics.

Sandvik has launced a three-dimensional navigation system for surface drills aimed at improving drilling accuracy and efficiency – just the sort of things contractors in the Asia-Pacific coal market are looking for. By Sarah Byrne

CONTRACTORS

I CAPOctober 2012

Drill point accuracy

Fuel economy and, when matched with the Sandvik navigation system, even better drilling efficiency are stocks in

trade for the Sandvik DPi family of rigs.

CAP

33

Thiess managing director Bruce Munro said the six-year agreement would expand operations and continued Thiess’ responsibility for

mine operations and maintenance.Jellinbah chief executive Greg Chalmers

said the continuation of Thiess as a long-term mine operator ensured the ongoing delivery of cost-competitive coal from the mine.

“We look forward to working closely with Thiess to maximise the value of Lake Vermont and continue the mine as a safe, reliable, responsible and productive operation, “ he said.

Lake Vermont mine is located 20km north of Dysart and has a workforce of more than 350. A favourable strip ratio and generous seam thickness means the mine is highly productive.

Overburden drilling and blasting is followed by conventional removal with truck and shovel and dozer push.

Coal is then mined using the truck and excavator method and is processed in an 800 tonne per hour coal preparation plant.

Sampling and online ash analysis takes place during the processing.

The coal is then directed to either hard coking coal or pulverised coal injection product coal stockpiles.

The product coal is loaded onto 7500t trains for despatch to the port.

Lake Vermont is able to rail to either Gladstone port or Darymple Bay coal terminal and Abbott Point port on completion of the “northern missing link” rail infrastructure.

The contract was an endorsement of the relationship between Jellinbah Group and Thiess, which began with the establishment of the Lake Vermont mine in 2007, Munro said.

“Thiess is very proud to continue its involvement at the Lake Vermont mine where we’ve been working with the Jellinbah Group from the very beginning to plan, build and operate the mine,” he said.

The Thiess site team at Lake Vermont is

gearing up for the new contract and looking forward to the challenges ahead.

Thiess Australia mining executive general manager Michael Wright gave credit for the contract extension to the onsite team and the quality of its leadership.

“The contract is reward for their performance, their daily commitment to the safety of our people and to meeting our client’s objectives,” Wright said.

“We are mobilising ultra-class mining fleets to meet the increased production requirements and we are truly excited by the opportunities this brings to the people of the Dysart area.”

Rolling in JellinbahThiess has won a $2.3 billion contract to extend mining operations at Jellinbah Group’s Lake Vermont coal mine in Queensland’s Bowen Basin and to double production to 8 million tonnes per annum. By Lou Caruana

CAP I October 2012

Downer’s profits up 17% CONTRACTOR Downer EDI has managed to increase its underlying net profits by 17% to $A195.3 million for the 2012 financial year, driven in part by a strong performance from its mining division.

Announcing its financial results today, Downer also said underlying earnings before interest and tax had increased by 18.6% from the previous corresponding period to $346.5 million. Total revenue was up 22.5% to $48.5 billion as a result of all the company’s businesses recording revenue growth.

Downer Mining’s revenues soared 67.9% to $2.5 billion, while revenues in its infrastructure division jumped 11.7% to $4.6 billion.

Downer chief executive Grant Fenn said the company had delivered on its promises.

“The strength of the business is clear in

this result,” Fenn said. “We now have a good handle on our input costs at the required rates of production.”

Fenn said its mining division had performed exceptionally well, with EBIT up 45.1% to $173.5 million on the back of securing new open cut mining contracts and receiving record levels of work in the blasting and tyre-management businesses.

“Downer Mining has done a great job minimising the growing pains normally associated with ramping up on such a scale,” Fenn said.

“There has been a lot of investment over the past two years and the mining business is delivering.”

Looking ahead, Downer said there was an increasing level of uncertainty around the

level and timing of government and private sector investment in infrastructure in both Australia and New Zealand.

“That said, Downer is well positioned in terms of the percentage of work already secured that will impact on the year ahead,” the company said.

Downer is forecasting EBIT of around $370 million and NPAT of about $210 million for the current financial year.

Downer’s work in hand remains at about $20 billion. Coinciding with its financial results, Downer announced that AXA and AllianceBernstein Australia had disposed of about 328,000 shares in the company to the sum of $933,961.

Shares in Downer were up 9% to $3.40 in morning trade.

Thiess is expanding Jellinbah Group’s Lake Vermont coal mine.

cap

Eickhoff away

HARDWARE

I CAPOctober 201234

ANOTHER two Eickhoff shearer loaders are being delivered to Inner Mongolia.

An Eickhoff SL750 and an Eickhoff SL300 have been bought by Linyi Coal.

Linyi is targeting 30 million tonnes of coal for 2012, which will increase its annual coal production by 500% in fi ve years.

The company is operating seven mines and plans to open another fi ve in coming years.

The Linyi shearer loader orders take Eickhoff’s fl eet of shearer loaders to 27 units operating in the Inner Mongolian region.

Eickhoff has 168 SL shearers ib China.The company’s headquarters are in

Bochum, Germany.

36

French modelling technology behind the development of aeroplanes and cars is being integrated with mine software to improve safety and

efficiency at Australian mine sites.Design simulation software provider

Dassault Systèmes took over Gemcom Software International in July and renamed it Geovia.

Teams of experts from both companies joined forces to create 3D modelling and simulation of all stages of a mine life, from planning to production.

Giving a real-world view on a virtual platform, the companies are working on “joining the dots” on existing mining industry software to develop tools, share knowledge and maximise efficiency.

Existing Dessault technology, typically used for testing aircraft, is being integrated into Geovia’s mining software. The first prototypes are due to be shown to miners within months and onsite by the end of the year.

Dassault Systèmes president and chief executive officer Bernard Charlès said most planes, cars and energy systems were designed with Dassault design simulation software.

“The acquisition of Gemcom is not an accident – it was planned,” he said.

“We observed what Gemcom has been doing in the mining industry to help increase

safety, efficiency and better planning, using modelling simulation software.

“While we are coming from serving different sectors, the theme of digitalisation, on better predictability, about what you do, how you do it in an efficient way is exactly aligned with the core of Dassault Systèmes.

“They have done a pretty good job in serving many mine leaders around the globe, especially in modelling and simulation and better efficiency.

“I think mining is now going through an interesting set of challenges. Everyone talks about costs, efficiency, and we have good ideas to help.”

Rapid resource modelling, sophisticated wire framing techniques and CAD functionality are the first solutions the companies are turning their attention to.

Research and development teams are also looking at geomechanics and safety tools for underground mining.

Software that supports field operations through enabling an expert to advise a colleague or client thousands of miles away through modelling, simulation and online access to virtual platforms is also being developed.

Paris-based Dassault is devoting a chunk of its $700 million annual research and development budget towards its move into resources.

Charlès said the solutions provided good results in the field but were “point solutions” for modelling, logistics, planning, scheduling and optimisations.

“The key thing is to connect those dots,” he said.

“In three years, I think we will provide a global collaborative platform for mining exploitation, connecting logistics with modelling and simulation.

“The realistic aspect of the collaborative platform is that people see things even better than if they were on site. You have very precise modelling – it’s astonishing.

“When you look at all stages of mine exploitation, investigation, pre-planning, orchestration of work, optimisation of mine, we have point solutions for each of these tasks.”

Based in Vancouver, Geovia has about 120 staff in Perth, Western Australia, and Brisbane, Queensland, providing geology, engineering and operational software for the Australian mining industry.

Geovia senior vice-president Andrew Pyne said the industry was facing major challenges from the lack of skilled technical labour, and cost of production, in addition to mines getting deeper and more remote.

“We’re really excited about the innovative culture in Dassault – they solve problems,” he said.

“We were constrained by our size to really deal with some of those issues for our customers. Now we’re not.

“We have the ability to help them solve those issues through building new generation technology for the industry.”

Pyne said Geovia could apply Dassault technology developed to analyse stresses on aircraft to the mining industry.

“All of a sudden we have the ability to deploy a technology that’s been used for a number of years in aerospace into the mining industry and build products to make mines safer underground,” he said.

“If we can deploy that to understand the stresses on rocks the way these guys understand the stresses on aircraft, then that’s fantastic.

“We need to give our stakeholders something tangible quickly. We’ve started working with the R&D team within Dassault.

“We’re looking to prototype and show our customers by September.”

Mining matrixAn ambitious collaboration between French and Australian software experts promises to take 3D modelling and simulation from aircraft to mines. By Alison Middleton

SoftwAre

I CAPOctober 2012

The next generation of modelling technology is making the transition from

aircraft design to mining.

cap

37

At the massive mining mashup that is Minexpo, Atlas Copco pulled the covers from its latest Pit Viper drill, the PV-311, which is slated

to be the first model in the PV-310 series.Like the PV-351 this is a rotary rig set up

for single pass work, but is also able to drill deeper holes if needed.

Also like the PV-351, the tower is an interchangeable unit, but the PV-310 series’ one is deeper to accommodate larger sheaves and to be suitable for use on both the single and multi-pass drilling versions.

The weldments also have been improved.When the tower is horizontal a ladder from

the deck provides access to decking in the tower above the rod changer.

The PV-311’s tow rest design allows replacement of a non-drilling end jack cylinder without removing the rest.

This machine also comes with the automatic hydraulic clutch that was first introduced as an option for the PV-235 in 2010.

That clutch disengages the air compressor from the engine when the air end is switched off.

In a traditional power package the compressor uses about 30% of its rated power when on standby.

This clutch also allows for a low idle speed. The air compressor also is disengaged during rod changes, levelling or moving between holes so horsepower – and with it fuel – is saved.

The power pack for the rig may be either an electric motor or a choice of diesel engines.

The two Tier 4-compliant engine options are the Caterpiller C32, rated at 840 kilowatts at 1800 revolutions per minute, or the MTU 16V Series 2000, which turns out 970kW at 1800rpm.

There also is a choice of three Tier 2 engines: the Cummins QSK38, rated at 940kW at 1800rpm; the Cat C32, rated at 840kW at 1800rpm; and the MTU 16V2000, rated at 900kW at 1800rpm.

The PV-311 provides a maximum weight-on-bit of 490 kilonewtons with an operating weight ranging from 140,600kg to 154,000kg, depending on the specifications.

The stnadard diesel fuel tank has a 2650 litre capacity, holding enough fuel for 12 hours of operation.

It is nomally teamed with a 4550l water tank.Alternative fuel-water combinations are

5300l and 4550l, providing sufficient fuel for 14-hours of operation or 2650l/7200l, which provides enough water if the rig is fitted with a water injection and dust collection option.

The diesel machines also come with a ground level battery disconnect switch, battery equaliser and jump start hook up.

The hydraulic system has the same drive set-up as the PV-351, with P14 closed loop feed and rotation.

However, like the PV-235, it has a load-sensing piston pump serving the auxiliary units that increases machine efficiency.

This load-sensing should bring fuel consumption reduction as well as increased speed for auxiliary functions.

It also helps improve machine life and reduce the risk of system failure.

The engine and air compressor have separate air intake filters located at the non-drilling end of the machine.

The filter rack has engine, compressor and hydraulic system filters.

The rig’s cooling package is rated for up to

52 degrees Celsius. It incorporates air coolers for the hydraulic and compressor oil and an engine charged air cooler.

With the tower up, the machine stands 30.6m tall, and about 8.7m long when the tower is down.

The main frame is made with wide flange structural steel I-beam, similar to that on the PV-351.

However, this frame comes with newly developed cross members designed to increase frame fatigue life.

To make for faster servicing, the PV-310 series offers optional 360 degree access decks with standard full deck service Fibergrate catwalks and railings.

There also is 500mm of service room between the power pack and the coolers.

On the deck, hose and cables are locked in trays. There also are dedicated runs in the frame with improved access.

The fast service system provides ground level, quick connect fitting for filling and evacuation of fuel, hydraulic oil, engine oil, engine coolant and compressor oil.

Striking forthMinexpo has marked the entry of a new series of large blasthole drills.

induStry newS

CAP I October 2012

An artist’s impression of the PV-311.

cap

38

Industry news

AN UPGRADED system for scanning conveyor belts for damage or breaks to the steel cords embedded in the rubber belting is proving to be a boon to sites, particularly those with extensive lengths of belting.

Earlier scanning proceduers produced a report as a waveform graph line.

The trouble with this is the results are not always clear cut.

The replacement system developed by Veyance Technologies, the exclusive manufacturer of Goodyear Engineered Products, delivers a coloured image that allows an accurate assessment.

Known as Cord Guard, the system allows continuous monitoring in real time and delivers a report that can be easily understood and interpreted.

Managers at site can then decide whether detected damage can be simply noted, marked for later repair or whether they need to muster the conveyor belt repair crews immediately.

Sections of the report also can be used to present to management for visual evidence of the damange and confirmation of the work needed.

Cord Guard also can monitor the belt speed. With other systems the conventional way of belt scanning requires the belt be

stopped while a speed indicator is fixed in position inside the conveyor structure.

Veyance Belting Australia general manager David Stone said with Cord Guard there was no need to stop the line as a laser reader mounted on a trip 2 metres away from the moving belt allowed a readout of belt speed.

“The particular system does not require the belt to be isolated and thus there is no costly

delay associated with stopping of the line,” he said.

“This results in significant time savings – hours on many sites – and, in addition, there are no related OH&S [occupational health and safety] issues associated with stopping the conveyor system and the process of attaching a belt speed reading device inside the structure.”

Belting along

I CAPOctober 2012

cap

The Cord Guard system at a site where the laser scanner is located close to the belting. This allows scanning to take place wihtou the need to stop the line.

Brown coal fights back AUSTRALIA’S brown coal-fired electricity producers have hit back at claims they are better off under the Federal Government’s carbon pricing scheme.

In September, Frontier Economics released modelling showing the federal government’s recent decision to remove the carbon price floor from 2015 meant brown coal power stations would be between $400 million and $1 billion better off than if there was no carbon tax package.

“What happened here was that the [Australia] government compensated the generators on the basis of the Treasury price forecasts of carbon, which were prepared some time ago, and since then the European price has really cratered, really fallen quite low, and it’s expected to be low for some years to come,” Frontier Economics managing director Danny Price told ABC Radio.

“The floor, as you can tell from earlier statements by the government over the last couple of years, was a critical part of the scheme and the removal of the floor meant that the compensation was no longer in line with the rest of the scheme parameters.”

But Energy Supply Association of Australia chief executive officer Matthew Warren said the analysis by Frontier Economics was inaccurate.

“This isn’t modelling, it’s back-of-the-envelope arithmetic,” Warren said in a statement. “It doesn’t consider the effect of crucial factors like weaker electricity demand and soft wholesale prices on the viability of these power stations.

“Frontier has based its results on unrealistic assumptions, like assuming continued strong growth in energy demand when for the last five years it has been flat-lining or falling.

“More zero emissions renewable energy coming online to meet renewable energy target obligations will further eat into the production of these generators. These are readily available facts that Frontier has chosen to ignore.”

Warren said the real measure of the financial health of the generators was the difficulty they faced refinancing their operations over the past year.

“The combination punch of a carbon price, soft wholesale electricity prices, weak

demand forecasts and deepening market uncertainty are clearly hurting the bottom line of Australia’s coal fired power stations,” he said.

“For Frontier’s Danny Price to say on ABC Radio that generators are ‘jumping for joy’ is just astounding. The reality is that all coal generators are facing big challenges and the carbon price makes their life harder not easier.”

Australian Climate Change Minister Greg Combet responded on Sky News by saying the government believed its own modelling was more accurate than Frontier’s “and we are very confident that our policy position is bang on track”.

According to The Australian, New South Wales government-owned generator Delta Electricity said told black-coal stations in NSW, Queensland and Western Australia would be worse off after the government scrapped its contract for closure program, which sought to compensate dirty power generators for closing around 2000 megawatts of highly emissions intensive generation capacity in Australia by 2020.

39

FOLLOWING the Queensland government’s royalty hike, BHP Billiton has not ruled out closing more coal mines or deferring development on its $A1.6 billion Daunia and $2 billion Caval Ridge projects under construction in the Bowen Basin, says chairman Jac Nasser.

The cash-strapped state government this week surprised the industry by announcing it would lift the royalty rate for coal sold above $100 per tonne by 25% and would introduce a levy of 15% once the price hit $150/t – effectively a 50% increase.

It will rake in $1.6 billion over the next four years with the new measures.

Nasser defended the quality of resource companies from claims by Queensland Premier Campbell Newman that bad management was the cause of the recently announced mine closures and job losses and asked that governments stop using mining as a cash cow.

“If I look at the top team of BHP Billiton and with respect to all of the other natural resources companies around the world, I wouldn’t swap that team for any other team and that says something,” he told an Australian Financial Review seminar in September.

“We’re prepared to take the risk. To me, (governments) want to take the upside and want someone else to take the downside.

“They wanted to take out a shotgun and shoot some of the best athletes in the left foot. Now, why would they want to do that when you have got an industry that could be globally competitive, that can generate so much flow-on research, investment, employment, really good-paying jobs and it’s sustainable over decades?”

Last month BHP said it would shelve its planned 2.5 million tonne per annum

expansion of the Peak Downs mine in Queensland, but would continue with the Caval Ridge project as it sought to ramp up overall production by 50% by 2014.

BHP chief executive Marius Kloppers said at the time: “In reality what we are talking about is just slowing the rate of (capital expenditure) growth going forward.”

Nasser said the royalty increase was negative in the short term because it meant jobs would be lost and production would slow down or cease.

“In the long term, it reintroduces this level of uncertainty for long-term investments,” he said. “At the moment, no change in taxation policy in Australia is a good change because it seems to me that every time they change it is to the detriment of industry and economic growth.”

Nasser said governments needed to take a long-term view to working with resources companies over the duration of its growth cycle.

“There has to be a recognition that you invest for 20, 30, 40, 50 years and you would like to believe that there is a partnership and, yes, things will go up, things will go down and there is no such thing as 100% certainty,” he said. “And I think maybe going through what we are going through now is a wake-up call to everybody, including people in the industry, that God didn’t intend for this to stay this way forever.

“It is a cyclical industry in a cyclical global economy.

“I don’t know whether we’ve reached the bottom of the cycle from a commodity viewpoint. We don’t try and pick cycles. They’re very difficult to pick.

“What we try and do is look at the long term and we feel very good about the long-term demand.” – Lou Caruana

BHP won’t rule out more mine closures

CAP I October 2012

THE Australian Coal Association (ACA) has called for the Renewable Energy Target (RET) to be abolished, with existing property rights to be grandfathered or compensated.

ACA chief executive Dr Nikki Williams said renewables had a clear role to play in the energy mix, but we needed to make decisions on energy policy “with our eyes wide open”.

“A national conversation about the implications of major changes to our energy mix is urgently required as all energy choices have consequences for cost to the consumer, environmental outcomes and energy security,” she said.

“The RET is a policy intervention that is increasing costs without adding to abatement outcomes. For this reason it should be removed.

“Mandating fuel sources or technologies reduces choice and distorts markets.

“The RET effectively picks winners in the form of mature and expensive renewable technologies instead of supporting R&D and motivating market players to commercialise the most efficient low emissions technologies.”

Williams said the RET had been made redundant by the Australian federal government’s carbon tax.

“It is now merely adding to the cost of abatement as opposed to improving the abatement outcome,” she said.

The government is reviewing the scheme. The ACA has made a submission to the review.

One of the ACA arguments is that renewables have proven to need the backup of conventional fuel sources.

Renewables are great, but solar power is for nought when the sun does not shine, and wind energy can become becalmed.

It points out that Germany, long held up as an exemplar of renewable energy development, opened the world’s largest brown coal power station in August.

The station was designed to support renewables in the grid.

ACA calls for RET removal

ACA chief executive Dr Nikki Williams.

China supply deal reflects optimismNASDAQ-listed coal and coke processor SinoCoking Coal and Coke Chemical Industries has signed a supply agreement with state-owned coal producer Datong Coal Mine Group for up to 120,000 tonnes of thermal coal.

The deal will see Datong transport the coal by sea from either Qinghuangdao or Jingtang ports in Hebei Province during September.

SinoCoking chairman and chief executive Jianhua Ly said he intended the arrangement to establish a long-term relationship with Datong as the miner was an ideal candidate for steady coal supply.

“Datong Group is one of China’s

largest coal producers and is well-known domestically and internationally for its low-ash, low-sulphur and high-energy content coal,” he said.

“Our business plan is to continue to diversify our product portfolio to take advantage of market conditions for coal and coke products.”

Ly said SinoCoking planned to use the purchased coal by reselling it to power plants, processing it and selling it as a washed coal product when market conditions were favourable or manufacturing metallurgical coke for a market he expected to recover in 2013.

40

FINAL SAY

PAN ASIA continues to demonstrate that coal mining and the environment can co-exist in an acceptable manner, following completion of its dry season baseline data collection at its fl agship TCM coal project in south Kalimantan, Indonesia.

The company had an ongoing commitment to environmental reporting, according to chief executive Alan Hopkins, who said the company would continue its commitment to meet world’s best practice for environmental and health standards at the TCM project.

“Sampling has been conducted by and under the direct supervision of PT Hatfi eld Consultants, who were commissioned by the company to revise and update the existing TCM AMDAL [Indonesian Environmental Impact Assessment] expected to be completed by March 2013,” he said.

“This environmental survey is being

completed to a standard that meets the Equator principles and International Finance Corporation standards and forms a part of the company’s ongoing commitments for inclusion in the revised AMDAL.”

Samples were collected over a wide area for ambient air, noise, river water, ground water, aquatic biota, fi sh and soil.

Flora and fauna observations and transportation surveys were also completed, along with socio-economic, cultural and public health surveys at Rejosari, Mantewe and Sakadamai villages.

These villages are situated outside the concession area.

Pan Asia’s intention is to become a major supplier of key resources into the expanding Asian markets and it is endeavouring to engage a strong local partner network as part of the foundation of this ambition, hence the emphasis on best practice.

Best practice key to local engagement

I CAPOctober 2012

CAP

Well water sampling at Rojosari village as part of the ground water survey.

Fish net used for sample collection as part of the aquatic biota survey.

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Cuesta Coal LimitedASX Listed Queensland Focussed Coal Explorer

Stock Code ASX: CQC

Current Share Price $0.10

Market Cap $19.20 million

Cash $19.25 million

2012 Exploration Budget ~ $8.0 million

Resources ~ 138Mt JORC Inferred Resource

Corporate Snapshot

Priority Projects

Recent Exploration Activity

Cuesta Coal Limited (“Cuesta”) listed on the Australian Stock Exchange on the 4th of May 2012 raising $20 million to fund an aggressive 2 year exploration, mine scoping and feasibility study program on four key projects areas in the Queensland Coal Basins.

Cuesta has assembled a diverse portfolio of thermal and coking coal exploration prospects within the Bowen, Surat and Galilee basins, the company’s core projects are well situated geographically with over 11,000km2 of exploration ground in total.

Map showing EPCAs 2079 and 2080 in the Eastern Galilee Basin

Photograph of chip samples collected from HP014 at Yellow Jacket Project

Joint Venture with QCI (Galilee)

Prospective Projects

Farm-In and JV Agreement with QCI (Galilee)Cuesta Coal have entered into a Farm-In and JV Agreement with QCI (Galilee), a wholly owned subsidiary of Hancock Prospecting Pty Ltd.

QCI right to earn up to 51% through $3 million expenditure

JV for EPCAs 2079 & 2080, over 1,028km2 in the Eastern Galilee basin

QCI to manage and develop the tenements with a collaborative JV committee

Exploration targeting shallow economic deposits of thermal coal.

East Wandoan – Thorn Hill Deposit (EPC 1955) 44.6Mt of total resources identified in its 2012 drilling

campaign – 22.1Mt in the Indicated Resource category, and – 22.5Mt in the Inferred Resource category

Resource defined from near surface to a depth of 100m Further exploration planning underway

West Bowen – Moorlands Deposit (EPC 1738) 39.5Mt JORC Inferred Resource at Moorlands – a 45%

upgrade on existing 27.3Mt JORC Inferred Resource Resource defined primarily to a depth of 150m Multiple coal seams intersected in 2011 drilling 2012 drilling due to commence end of September.

Eastern Galilee – Yellow Jacket Project (EPC 1802) 4 holes completed and geophysically logged, coal

intersections encountered in all holes, 3 holes averaging 8m cumulative thickness

North south strike length of ~ 4.5km – remains open to the south

13 open holes and up to 4 cored holes remain in the program, due to be completed mid-October

6 –10km2 exploration target area to be tested during 2012 drilling

Head office: Level 15, 31 Market Street Sydney NSW 2000

Tel: +61 2 9284 5900 Fax: +61 2 9284 5999 Email: [email protected]

East Wandoan ProjectThorn Hill Deposit (EPC 1955) Resource: 44.3Mt Exploration Target: 40 –200Mt Coal Type: Thermal Depth of Coal: <110m

West Bowen ProjectMoorlands Deposit (EPC 1738) Resource: 39.5Mt Exploration Target: 15–50Mt Coal Type: Thermal Depth of Coal: <250m

Eastern Galilee ProjectYellow Jacket Prospect (EPC 1802) Resource: 0Mt Exploration Target: 200 –1,000Mt Coal Type: Thermal Depth of Coal: <130m

West Emerald Project EPCA 2093 Resource: 0Mt Exploration Target: 50 –200Mt Coal Type: PCI/Thermal Depth of Coal: <150m

Eastern Galilee ProjectSnake Creek Joint Venture (EPCAs 2079 & 2080) $3m Joint Venture with QCI (Galilee) Pty Limited to earn 51% Wholly Owned Subsidiary of Hancock Prospecting Subject to successful granting of Cuesta Tenement

Montrose ProjectEPCAs 2128 0 –70Mt conceptual coking coal exploration target. Internal Desktop Study Underway

Amberley ProjectEPC 2127 54.7Mt JORC Inferred Resource Depth of Coal <150m

For more information please visit:

www.cuestacoal.com.au

Cuesta Coal coring at Amberley Project


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coal asia pacific magazine - october 2012

Documents

coal intersections

mt coal type

thermal depth of coal

qci galileecuesta coal

cuesta coal limitedasx

resource resource

queensland coal basins

mt exploration target