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Australian Comparisons with Chinese Export Coal Sector

Australian Comparisons with Chinese Export Coal Sector. Presented by Gary Cochrane Managing Director Resource Management International Pty Ltd Director Millennium Coal Pty Ltd, Bounty Industries Ltd. Chinese Coal Industry 2007.

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Australian Comparisons with Chinese Export Coal Sector

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  1. Australian Comparisons with Chinese Export Coal Sector Presented by Gary Cochrane Managing Director Resource Management International Pty Ltd Director Millennium Coal Pty Ltd, Bounty Industries Ltd

  2. Chinese Coal Industry 2007 • Very large industry producing over 2.4 billion tonnes of coal per annum; • Main producing areas are Shanxi, Shaanxi, Inner Mongolia, Beijing, Shandong Provinces; • Almost 95% of coal production is by underground mining methods, government requires 70% recovery; • All types of coal mined including lignite, bituminous coal, anthracite, coking coal; • Exports at 58 million tonnes in 2007; • Imports were 57 million tonnes; • Coal can be trucked, railed and shipped very large distances from Central China to Southern China. Resource Management International Pty Ltd

  3. Significant Production Growth in China over the last 10 years Resource Management International Pty Ltd

  4. Chinese Industry Demand 2006 • Total - 2,200 Mt • Power – 1,165 Mt • Construction – 368 Mt • Steel – 350 Mt • Chemical – 134 Mt • Others 192 Mt Resource Management International Pty Ltd

  5. Australian Production Growth Resource Management International Pty Ltd

  6. Export Coal Structural Issues • Proximity to the coast: • China has rail haulage up to 1,000 km and increasing; • Australia has rail haulage up to 280 km. • Major types of mines: • China has up to 95% underground mines; • Australia has approx 50% underground • Resource Depletion: • Chinese u/g mines on the coast up to 800 m deep • Australian mines max depth of 450 m Resource Management International Pty Ltd

  7. Operating Cost Issues • Chinese mining wages increasing by at least 15% per annum, Australia at around 5%; • Chinese inflation running at over 7%, Australia at 4%; • Deeper mines in China with high gas and spontaneous combustion; • Chinese export tax reimbursement decreasing from 13% to 0% over the last 4 years; Resource Management International Pty Ltd

  8. Coal Quality Issues • Thermal coal quality changing to lignites in Inner Mongolia for many new mines (with mine mouth power stations); • Coking coal quality very poor and limited to two areas including Shanxi and Heilongjiang Provinces (long rail distances); • Significant investment in mine mouth coal to liquids (oil and methanol) with strong demand increasing to over 200 mtpa. Resource Management International Pty Ltd

  9. Geographic Issues • Increasing demand in Southern China with limitations on supply from Central China where major coalfields are located; • Reduced competitiveness with Australians and Indonesians to Southern China; • Increased concern over sovereign risk with Government banning all exports for the next two months. • Currently importing over 20 mtpa from Vietnam who will soon move to be a net importer. Resource Management International Pty Ltd

  10. Chinese Industry Rationalisation • State Owned Enterprises consolidating and also listing subsidiaries on the Chinese and international stock markets, Shenhua (2nd largest coal company in the world behind Peabody), Datong, China Coal, Yanzhou; • Govt closing 40,000 -50,000 small and illegal mines; • Power utility split into 5 large groups all wishing to acquire coal mines in China; • Large conglomerates wishing to invest overseas like Yanzhou (Austra mine in Australia), Huadian (Millmerran) • Entrepeneures developing small projects in Inner Mongolia; • Still have very high mortality rate although 20% reduction in 2006 to just over 4,000 workers Resource Management International Pty Ltd

  11. Chinese Industry Rationalisation • Chinese companies now considering larger acquisitions inAustralia; • Rapid energy demand and closure of small mines leading to severe shortfalls, recently compounded by snowfalls – govt has banned coal exports until mid March • Government starting to limit foreign investment in key commodities, some minor limitations on coal at present • Shortage of senior management leading to spiralling wages for executives now comparable to Australia; Resource Management International Pty Ltd

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