ANALYSIS: Australia's Coal Mining Future
It’s likely that the classic adage of “all good things must end” has crossed the minds of a significant number of miners, businesses and investors throughout the Australian coal mining industry. It’s simple to see how so many might have adopted this negative perspective. Australia is coming off of its largest mining boom dating back to the gold rush that exploded in the 1850’s. While Australia was feeling financially flush, enjoying the benefits of $400 billion in investments over the last ten years of this immense mining boom, the recent, steady decline in investing has been creating some severe withdrawal symptoms. So then, this tapering off of investments begs the question: Is Australia’s coal mining future darker than its product, or is there light at the end of the tunnel?
Drop in Financing Darkens Coal Mining Outlook
Low commodity prices, rising production costs and labour disputes have been doing significant damage on their own, hindering the financial success of Australia’s mining industry. Among the most significant factors that have contributed to this darkening outlook has been declining financing for miners. Financing has dropped by 56 percent in the second quarter of the 2013 fiscal year. A year ago, financing for miners amounted to $6.12 billion. This casts a large shadow over the diminutive $2.28 billion that financers put forth in Q2 2013.
Poor Market Conditions Blacken Coal Mining Picture
Australia’s elected officials aren’t letting poor market conditions affect their position on royalties. West Australian Premier Colin Barnett made it clear that the state is not planning on executing any aggressive measures to provide relief from price-related misery, such as adjusting royalties within the mining industry. “At the end of the day the state government owns the minerals and companies pay the equivalent of 10 percent of the value of the mineral. I think that’s a pretty good price,” said Barnett.
Job Losses Dig Coal Mining Woes Deeper
Australia’s coal industry is currently accountable for approximately 55,000 employees, directly, and 100,000, indirectly. Recent job loss polling demonstrated depressing numbers, showing that approximately 11,000 people throughout the coal-mining sector have lost their jobs; this number could still increase.
Peabody Energy (NYSE:BTU) only served to sadden the news by recently cutting an additional 170 employees from its Australian operations; 5.7 percent of its total workforce in Australia. This followed in the wake of Peabody Energy severing itself from 450 contractor jobs, as reported during the second quarter of 2013.
Rejuvenating Growth in Coal Mining Sector
There’s significant potential for positive change in the coal mining industry within the federal elections to be conducted on September 7. The outcome of this election will undoubtedly have a profound effect on the short and long-term health of the coal mining industry, as well as the Australian economy as a whole. There will be an additional degree of responsibility adopted by the winner of the election, as they’ll be tasked not just with remedying an ailing coal-mining sector, but the increased difficulty of handling the transition from such an immense boom to a sharp decline. However, with this great responsibility comes some substantial potential to revitalise the coal-mining sector.
In addition, albeit a less desirable form of relief, Australian coal miners might also be granted some relief through a weak Australian dollar, recently reaching its lowest in three years.
Coal Mining Sector Could Receive Vital Boost from Local Power Utility Demands
In order to capitalise on the efforts, capabilities and stalwart mentality of individual miners, mining companies must also look to create, build and develop key affinity relationships locally. We can see a prime example of this in Peabody Energy’s approach. Despite their significant employee cuts and contractor job cuts, they still managed to succeed in turning a profit in the second quarter of 2013 by working more closely with local power utilities, optimising their operations by efficiently taking advantage of increased local demand.
Patience and Perseverance May Weather Cyclical Nature of Coal Mining Sector
It might also be possible to see light at the end of the tunnel when one considers the general nature of the mining industry as a whole. While Barnett acknowledged, “this is a tough time and some of the high-cost producers struggle,” he also reminded his audience that mining is a “cyclical industry.” This suggests that the current downturn in the coal-mining sector is only natural, and that this too shall pass, eventually leading to an increase in confidence, financing, employment and contractor jobs.
And the potential for another boom is demonstrated throughout the individual miners who refuse to relinquish hope. Raymond Burnham is a very unique, prime example of this refusal. This Australian miner actually presented the proposal to reward anyone who helps secure him a mining job with a bottle of rum each week for six months!
Here’s to Australia’s coal mining sector’s resurgence!
British Lithium Pressured Due To Calls for Electric Cars
The British demand for lithium is set to reach 75,000 tonnes by 2035 as the government works towards their ban on the sale of high-polluting diesel and petrol vehicles within the UK. This comes as automakers worldwide continue to insist on the benefits electric vehicles will have on slowing the rate of climate change.
It is estimated that the UK will require 50,000-60,000 MT of lithium carbonate a year by 2035 for battery production to satisfy government needs. This is assuming production remains at 1.2 million vehicles per year, and the amount of lithium required does not increase.
British Lithium, which hopes to begin constructing a quarry to produce 20,000 MT of lithium carbonate a year in a $400 million investment, are not without competitors, both within the UK and abroad.
Competition For Lithium Rises In Europe
After only five years after its initial launch, Cornish Lithium is setting its sights on becoming a UK powerhouse in mining lithium, aiming to begin commercial production in under four years. Jeremy Wrathall, a former investment banker and current managing director of Cornish Lithium, had the future in mind when founding the company.
“In 2016, I started to think about the electric vehicle revolution and what that would mean for metal demand, and I started to think about lithium,” he said in an interview with AFP. “A friend of mine mentioned lithium being identified in Cornwall, and I just wondered if that was a sort of unrecognised thing in the UK.”
Lithium was first discovered in Cornwall around 1864 and has not been mined again since 1914 when it was produced as an ingredient in fireworks. Now, however, Cornish Lithium is reportedly in the testing stage to see if the metal can be produced commercially to meet the growing demand required for the electric car sector.
Despite Cornwall’s close historic ties to mining lithium, Wrathall insists that the project is purely commercial.
Cornish Mining Revival For Lithium Production
“It’s not a mission that drives me to the point of being emotional or romantic,” he says. “It’s vitally important that we do get this technology otherwise Europe has got no lithium supply.”
The European Commission has also stated their goal to end the sale of new petrol and diesel cars by 2035 to aid the environment. That being said, the majority of lithium extraction currently relies on power provided by environmentally damaging fossil fuels─a slight contradiction.
Alex Keynes, from the Brussels-based lobby group Transport & Environment, is adamant that mining for lithium should be done sustainably.
“Our view is that medium-to-long term, the majority of materials including lithium should come from efficient and clean recycling.
“Europe from a strategic point of view should be looking at securing its own supply of lithium.”
Despite growing competition from abroad, British Lithium Chairman, Roderick Smith, continues to place importance on the mining of lithium within the UK.
“Imagine what the UK economy would look like if we lost our automotive industry,” Smith says. “The stakes are high for the UK.”
Smith expects the UK to compete with other European countries to secure a lithium battery plant in the near future.