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A YEAR IN COAL: 2014 ROUNDUP A YEAR IN COAL: 2014 ROUNDUP(0)

As 2014 draws to a close, it is often prudent to take stock of the year just gone; to reflect on those moments that made us pause; that made us think.

Without further ado, therefore, World Coal presents the biggest news stories from the global coal industry that made headlines over the course of 2014.

A testing year

Oh how the best laid plans of mice and men oft’ go awry! Those heady days of the coal industry boom years are fading from memory like a shadow in the light. 2014 began with coal mining companies releasing financial results for 2013: and these worrying bottom lines highlighted the continuing struggle against low coal prices, which have persisted throughout 2014. Indeed, the release of these results marked the start of yet another testing year for the coal industry, perhaps epitomised by Rio Tinto’s sale of its Mozambique coal assets for just US$50 million. The sale drew the line under what has been a disastrous adventure for the mining giant, which originally bought the assets from Riverside Mining Ltd for US$3.7 billion in 2011. Times have indeed been tough across the board for coal industry players, but in the US especially, the gruelling battle between coal and the US Environmental Protection Agency (EPA) has taken its toll. In June, the EPA announced proposals to cut emissions from power plants by 30% from 2005 levels by 2030. The EPA’s own estimates suggest this will see coal’s share of the US energy mix drop from around 40% to 30% in 2030. Such estimates do not paint a pretty picture for the US coal industry, or for those who work in it: employment in the coal industry has fallen to its lowest level since 1Q09.

Is China’s love affair with coal now over?

It has long been the case that many coal industry players would concede that, yes, times may be tough: but there will always be China. The thought being that no matter what happens elsewhere in the world, the Asian behemoth will continue to require coal to meet its seemingly insatiable demand for energy. China could, therefore, be relied upon to support the coal industry through the inevitable dips of the natural boom and bust cycle of capitalism. However, as Bob Dylan once sang: the times; they are a changing. This is certainly true of China, where government policy over the second half of 2014 signalled a step change in direction and attitude toward coal. In September, the country announced it would ban the import and local sale of coal with high ash and sulfur content, in a bid to tackle air pollution and support the domestic Chinese coal sector. Just over one month later, China signed what has been hailed as a historic climate agreement with the US. As part of the deal, China committed to peak its CO2 emissions by 2030 – the first time the country has put a date on this – and also promised to increase the share of electricity generation by non-fossil sources to 20%. Meanwhile, the recently announced new five-year plan has also seen the country rule out any additional coal-to-natural gas projects. The obvious intent behind these policies is to mark China as one of the numerous developing countries to back (moderate) attempts to curtail the effects of man-made climate change. The question on the minds of all in the coal industry will no doubt be whether the policies mark the beginning of the end of China’s love affair with coal.

New leaders

2014 saw the world’s largest democratic election take place in India, where some 814.5 million people are eligible to vote. The result of this year’s election was something of a political earthquake, as the Bharatiya Janata Party (BJP) trounced the ruling Indian National Congress. The BJP, led by Narendra Modi, swept to victory on the promise of strong government and economic reform. Yet there is much to do. Despite boasting some of the largest coal reserves in the world, India suffers from a chronic shortage of coal and power, and the country’s coal industry has been engulfed in corruption scandals for much of living memory. Coal industry reform is essential if India’s economy is to pick itself up and get back on track.

The year also saw another key election in Indonesia, where Joko Widodo was sworn in following a campaign built on promises of high-profile infrastructure projects. As with India, Indonesia’s coal industry is in dire need of reform. Widodo was the preferable choice of candidate for foreign investors in Indoesia, yet his victory in the polls may prove hollow unless he is able to sort out the country’s coal sector.

Hope for the future?

After two and a half years of decline, the mining equipment market saw a slight increase in 3Q14, with unit deliveries more than 12% higher than in the previous quarter. The extent to which these patterns continue or are reversed as the market recovers is an open issue, yet it is certainly one sign that we may be at the tail-end of these dark and testing times. Another cause for hope is the recent flurry of investment by Japanese trading firms in high-quality coal assets. This investment suggests that the coal market may finally have reached a turning point. For an industry in desperate need of Christmas cheer, this news will be very welcome indeed.

Written by Sam Dodson

TURNING POINT FOR COAL? JAPANESE TRADING FIRMS SNAP UP COAL ASSETS TURNING POINT FOR COAL? JAPANESE TRADING FIRMS SNAP UP COAL ASSETS(0)

Only a few months ago, a potential buyer said Japanese trading house Marubeni Corp was prepared to sell a costly stake in a Canadian coal mine for as little as $1.

But a flurry of acquisitions of high-quality coal assets by Japanese firms in recent weeks signals that some trading houses at least are betting a depressed coal market where prices have halved in three years may be bottoming out.

This vote of confidence comes amid signs that coal demand in Japan and emerging markets such as India is holding up well despite weaker demand in markets such as China, where coal imports in the first 11 months fell nearly a tenth.

Japan is the world’s second-biggest coal importer behind China, importing almost 200 million tonnes a year.

Recent acquisitions include the first coal investment by Mitsui & Co in 10 years. It is purchasing a stake in a Mozambique mine operated by Brazil’s Vale, in which the trading firm has an indirect stake.

“The biggest reason for participating in the Moatize project is to retain excellent quality metallurgical coal that is scarce globally,” Tetsuya Fukuda, general manager of Mitsui’s coal division, said. “With the resource supercycle, we had been not able to buy any assets.”

The partnership will be welcome for Vale, which incurred a coal loss of almost $500 million in 2013, mostly from Mozambique.

Mitsui is paying $763 million to Vale for a stake in the mine and port and rail connections, and is also committed to spending $190 million to expand the mine.

Fukuda said Mitsui also had its eyes on other assets, without elaborating.

Coal prices soared from around $50 to over $200 a tonne between 2005 and 2008, making mining assets expensive.

But prices have halved in three years and are back below $70 as miners invested in new production and demand stalled due to alternative fuel sources and slower growth.

CHEAP ASSETS

The low prices are now triggering interest in buying cheap assets in anticipation of an eventual market pick-up.

“If you are interested in buying assets – they’re probably going to be more expensive in six months time from where they are today,” said Michael Elliott, global mining and metals leader at consultants Ernst & Young.

“So it’s an opportunity – can they get exposure to more volumes, potentially even better quality assets than they hold,” he added.

Itochu Corp said this month it was interested in joining bidding for the giant Tavan Tolgoi coal project after Mongolia relaunched an international tender.

“Tavan Tolgoi is one of the next big opportunities. Good quality coking coal projects definitely have scarcity value,” said Richard Gannon, head of metals and mining for Deutsche Bank in Australia, when asked what Japanese firms may target next.

Joining the buying spree, Idemitsu Kosan Co said in November it more than doubled its stake in Indonesian thermal coal miner PT Mitrabara Adiperdana,. State-owned Japan Oil, Gas and Metals National Corp has also invested in the early stages of Australian mines in recent months.

The picture only a few months earlier looked very different.

Sumitomo Corp announced the closure of a coal mine in Australia as part of $2.3 billion of writedowns, while a potential buyer – Hong Kong-listed Up Energy Development Group Ltd – said Marubeni was prepared to unload a stake in a Canadian coal mine for as little as $1.

Marubeni, which did not disclose financial terms, jointly paid about $1 billion for the mine in 2012, according to Thomson Reuters data. ($1 = 118.9200 yen) (Writing by Aaron Sheldrick; Editing by Henning Gloystein and Ed Davies)

CHINA LOWERS COAL EXPORT LEVIES TO BOOST AILING ECONOMY CHINA LOWERS COAL EXPORT LEVIES TO BOOST AILING ECONOMY(0)

China, the world’s biggest coal consumer, is cutting export tariffs for the fossil fuel beginning Jan. 1 and it will also correct those for a range of other commodities particularly some consumer products and parts to make high-tech devices.

The move, which aims to spur domestic demand and promote industrial upgrading, comes after relentless lobbying by the China National Coal Association, as a sharp drop in the commodity price has left about 70% of the country’s miners in the red

The move, which aims to spur domestic demand and promote industrial upgrading, comes after relentless lobbying by the China National Coal Association, as a sharp drop in the commodity price has left about 70% of the country’s miners in the red and more than 50% to owe wages, Reuters reports.

Other items that will see lower tariffs next year include camera lenses and lasers for fiber-optic communication systems, the Ministry of Finance said in a statement on its website Tuesday.

Last month the Asian giant signed a free trade agreement with Australia that eliminates a 6% import tariff on power-station coal and a 3% levy on steelmaking coal coming from Down Under.

China’s dependence on coal is well known. Annual consumption exceeded 1 billion short tons per year in 1988 and has exploded since then, to about 4 billion tons last year. This means the Asian giant gets about 70% of its energy from the fossil fuel, a number the government hopes to reduce to 65% by 2017.

In the past three years Australia’s coal industry has experienced challenging times with prices for thermal coal, which consumed by power stations to generate electricity, dropping over 40%. More than 30,000 mining jobs have been lost in Australia this year amid a slump in the price of key commodities like coal and iron ore.

Cecilia Jamasmie

CHINA TO CAP COAL USE BY 2020 CHINA TO CAP COAL USE BY 2020(0)

China has said it will set a cap on coal consumption in 2020, following a statement from influential government think tank, which said China must cap its use of coal by 2020 to meet climate goals.

The State Council, China’s cabinet, released details of an energy strategy, which includes capping coal consumption at 4.2 billion t in 2020 and having coal be no more than 62% of the primary energy mix by that year.

Su Ming, a researcher with the Energy Research Institute (ERI), run by China’s National Development and Reform Commission, said while “peak coal” needed to come in 2020, industrialised eastern regions needed to start to cut consumption earlier if targets were to be met.

“We are trying to tell provincial officials how much coal they could use under a restricted nationwide quota,” Su said.

Beijing and the big consuming regions of Hebei, Tianjin and Shandong have already committed to cut coal use by a total of 83 million t over the 2012 – 2017 period, but Su said they need to cut at least 220 million tonnes by 2030 if they are to meet their air pollution goals.

Beijing alone would need to cut coal use by 99% to below 200,000 t by 2030, ERI said. Hebei, Tianjin and Shandong would have to make cuts of up to 27% by then.

The New York Times reported that coal burning for industrial use is the largest source worldwide of carbon dioxide emissions, which are the biggest catalyst of global climate change. China is the biggest emitter of greenhouses gases in the world, and it uses as much coal each year as the rest of the world combined. The power generation industry in China is responsible for half of the coal consumption in the country, and other heavy industries — steel and cement production, for example — are also direct users of coal.

The cap on coal use in 2020 is not necessarily a peak. In theory, coal consumption might increase beyond 2020, but some researchers say economic trends show the rate of growth in coal use slowing in coming years and peaking about 2020. That means the State Council’s timeline is consistent with the findings of those researchers.

Onlookers will closely wait to see if the numbers quoted by China’s State Council are formalised in the next five-year plan, the details of which will be released around March and will guide national development from 2016 to 2020.

According to Reuters, China is expected to announce a coal cap in the next five-year plan for 2016-2020, but it has not yet decided whether it will be binding, or how it will be allocated regionally.

The Shanghai Daily noted that China will likely look to increase use of natural gas, nuclear power and renewable energy as it transitions away from coal.

The announcement on coal use follows a recently announced goal of having carbon dioxide emissions peak around 2030. Last week, President Obama and President Xi Jinping of China made an announcement together in Beijing in which each leader pledged to cut or limit carbon dioxide emissions from their countries.

Edited from various sources by Sam Dodson

Mongolia approves Guildford Coal’s capacity expansion projects Mongolia approves Guildford Coal’s capacity expansion projects(0)

The Mineral Resource Authority of Mongolia (MRAM) has approved Guildford Coal’s proposed capacity expansion at the Baruun Noyon Uulcoal (BNU) mine in Noyon Soum of the Umnu Gobi province.

The approval was given by the MRAM’s Mineral Resources Profession Committee.

As part of the expansion, the mining capacity at the BNU will be increased to 1.5 million tons in 2015 and two million tons in 2016.
Guildford Coal managing director Peter Kane said: “MRAM’s approval to increase our mining capacity is a significant development for Guildford.

“It allows us to ramp up production at the BNU Mine beyond the recently announced targeted production figures for 2015, if it makes economic sense to do so.”

Meanwhile, the company said that washing and laboratory testing of the second trial batch of coal from the BNU confirmed that the project’s coal can be washed to produce a low-ash premium quality hard coking coal with low sulphur.

The lab tests were carried out at Alfred H Knight and Bureau Veritas laboratories in Ulaanbaatar.

Further test work is being conducted at the China Coal Research Institute in Beijing.

Mongolia approves Guildford Coal’s capacity expansion projects Mongolia approves Guildford Coal’s capacity expansion projects(0)

The Mineral Resource Authority of Mongolia (MRAM) has approved Guildford Coal’s proposed capacity expansion at the Baruun Noyon Uulcoal (BNU) mine in Noyon Soum of the Umnu Gobi province.

The approval was given by the MRAM’s Mineral Resources Profession Committee.

As part of the expansion, the mining capacity at the BNU will be increased to 1.5 million tons in 2015 and two million tons in 2016.
Guildford Coal managing director Peter Kane said: “MRAM’s approval to increase our mining capacity is a significant development for Guildford.

“It allows us to ramp up production at the BNU Mine beyond the recently announced targeted production figures for 2015, if it makes economic sense to do so.”

Meanwhile, the company said that washing and laboratory testing of the second trial batch of coal from the BNU confirmed that the project’s coal can be washed to produce a low-ash premium quality hard coking coal with low sulphur.

The lab tests were carried out at Alfred H Knight and Bureau Veritas laboratories in Ulaanbaatar.

Further test work is being conducted at the China Coal Research Institute in Beijing.

THE MOST PRODUCTIVE COAL MINE IN THE WORLD THE MOST PRODUCTIVE COAL MINE IN THE WORLD(0)

Out in Wyoming, near rancher land, rests the single largest coal mine in the world—the North Antelope Rochelle mine.

Situated in the Powder River Basin, this massive undertaking in energy extraction, with its jutting structures and massive hauling vehicles, dominates the landscape. Owned and operated by Peabody Energy, the North Antelope Rochelle mine spans about 100 square miles, according to Scott Durgin, senior vice president of Powder River Basin operations.

“You’re looking at the world’s largest mine,” Durgin told The Guardian. “This is one of the biggest seams you will ever see. This particular shovel is one of the largest shovels you can buy, and that is the largest truck you can buy.”

The Powder River Basin is so prolific that operations there have caused Wyoming to overtake West Virginia and Kentucky as the largest coal production state in the nation. In fact, according to the U.S. Energy Information Administration (EIA), about 7.072 million tonnes of coal was produced in Wyoming last week alone. By comparison, West Virginia, the runner up, produced roughly 1.891 million tonnes over the same period of time, meaning Wyoming had about 374 percent of their output.

Inside the North Antelope Rochelle mine itself, which as The Guardian pointed out is roughly the size of Washington D.C., is a company-estimated 3 billion tonnes of coal reserves. While it’s difficult to even comprehend the amount of energy in that much coal, it can be put another way.

The EIA estimates that in 2013, coal accounted for roughly 39 percent of U.S. energy generation. Chris Curran of Peabody told The Guardian that roughly 12 percent of that coal came from the North Antelope Rochelle mine alone. That means that about 4.68 percent of the country’s energy comes from that mine alone.

Robert Spence

AUSTRALIA-CHINA TRADE DEAL OFFERS SOME RELIEF TO CHINESE COAL MINERS AUSTRALIA-CHINA TRADE DEAL OFFERS SOME RELIEF TO CHINESE COAL MINERS(0)

A landmark Australia-China free trade deal signed on Monday will delay the exemption of import tariffs on Australian thermal coal, giving Chinese miners a much-needed buffer for local prices to recover, traders and analysts said.

The memorandum of understanding, which Chinese President Xi Jinping signed on a state visit to Canberra, would eliminate a 3 percent coking coal tariff immediately and a 6 percent tariff on thermal coal within two years.

The agreement will give Australian producers of coking coal, used in steelmaking, some help in riding out a two-year price rout. However, thermal coal producers face two years of the tariffs, that caught the market by surprise when they were introduced in October.

In the long term, industry experts said mine closures in China and elsewhere were the only solution to tackling a crippling global supply glut that has already pushed prices to 5-1/2 year lows.

“Chinese coal miners can now breathe a collective sigh of relief. The two-year phase-in period for steam coal will give time for the market to rebalance,” said Zhao Zhichao, a coal analyst at Yongan Futures.

Steam coal futures on China’s Zhengzhou Exchange rose as much as 0.7 percent, while coking coal futures inched up 0.3 percent by 0647 GMT.

The Minerals Council of Australia, which had pressed for zero tariffs on coal immediately, welcomed the deal.

“That is a superior deal to that provided under the ASEAN-China FTA which phased coal tariffs out over four years,” Council CEO Brendan Pearson said in a statement.

Traders said the tariff relief on metallurgical coal was set to boost Australian orders, potentially even displacing some shipments from Mongolia, as local suppliers were more expensive.

China’s imports from Australia, which supplies almost half of China’s total coking coal imports, reached 20.87 million tonnes in the first 10 months of 2014, while second-ranked supplier Mongolia shipped 10.7 million tonnes.

“For anyone in the met coal business this is a significant relief for them,” said James Rickards, spokesman for Yancoal Australia Ltd.

With some 70 percent of its miners in the red, Beijing has rolled out a string of support policies, including import tariffs and cutting ancillary fees.

Trade sources said Beijing is also considering a proposal to cut coal export taxes to 3 percent from the current 10 percent to give its oversupplied market a potential sales outlet. (Reporting by Fayen Wong and Sonali Paul; Editing by Richard Pullin)

BHP, RIO TINTO CALL FOR GLOBAL DEAL TO PUSH CLEAN COAL BHP, RIO TINTO CALL FOR GLOBAL DEAL TO PUSH CLEAN COAL(0)

Two of the world’s largest mining companies, BHP Billiton (ASX:BHP) and Rio Tinto (LON:RIO) called world leaders on Thursday to seek a deal setting an international price on carbon.

Their plea comes amid fears a climate change deal reached Wednesday between the U.S. and China could hurt coal miners in Australia, the world’s second largest producer of the fossil fuel.

The miners worry a one-sided action to stop increases in carbon dioxide emissions may lead to the imposition of future trade barriers.

The miners worry a one-sided action to stop increases in carbon dioxide emissions may lead to the imposition of future trade barriers.

According to The Australian, BHP chief executive Andrew Mackenzie was the first to raise his point, saying that while the impact of the agreement was “hard to tell at the moment,” it would rushed to assumed “anything to do with climate is bad for coal’’:

“It needn’t be if the right technology is developed, and people also want to solve the issue of keeping energy affordable and ­secure,” Mr Mackenzie said.

The deal should not mean “that you drastically move away from coal”, Mr Mackenzie said, advocating that the “the world moves quickly to deal with offsetting technologies like carbon capture and storage”.

Rio Tinto’s Sam Walsh, in turn, also emphasized the role of carbon capture and storage technologies, saying he hoped they would be lead to a more environmentally friendly way of producing commodities such a coal and steel.

“We have spent $100 million on carbon sequestration projects. We’re very much aligned with this agreement between the U.S. and China and we look forward to the assistance they can provide in bringing these technology advances ahead,’’ he said in a TV interview with ABC.

Both mining leaders will be attending the G20 summit this weekend in Brisbane, Australia, recently under attack for resisting calls by the U.S. and other countries to place climate change on the meeting formal agenda.

Cecilia Jamasmie

YANZHOU COAL INJECTS $2.8BN INTO TROUBLED AUSTRALIAN UNIT YANZHOU COAL INJECTS $2.8BN INTO TROUBLED AUSTRALIAN UNIT(0)

Yanzhou Coal, one of China’s largest coal miners, will inject $2.8 billion (A$3.2bn) into its Australian subsidiary Yancoal (ASX:YAL) in an attempt to keep it afloat as coal prices flirt with five-year lows.

Yancoal, which has seven mines in Australia, said on Monday it would raise A$2.3bn through a subordinated capital notes rights offer to pay down a mounting debt pile and fund its existing operations.

The Chinese group, which owns 78% of Yancoal, has also given an undertaking that it will “ensure Yancoal remains solvent,” for as long as it remains majority shareholder.

The Chinese group, which owns 78% of Yancoal, has also given an undertaking that it will “ensure Yancoal remains solvent,” for as long as it remains majority shareholder.

Yancoal stock closed down 27% at 16 cents on the Australian Stock Exchange following the announcement. So far this year it has dropped 71%, a much bigger fall than its closest local rivals Whitehaven Coal and New Hope Coal.

The global coal industry is in a prolonged slump following a decade-long investment boom that saw a glut of supply overtake demand.

Coal markets have been hurt by a glut of raw material, as supply rises from mining operations in hubs like Australia and demand growth in Asia eases.

Prices of thermal coal used to create electricity and metallurgical coal, which is consumed by steelmakers, have been trading near multi-year lows.

In Australia alone more than 10,000 jobs have been shed over three years as companies mothball mines and slash costs.

The package of funding injection comes after Yanzhou Coal ditched a plan to buy out the minority 22% stake in its Australian arm earlier this year.

Cecilia Jamasmie

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