BHP Billiton Opens Caval Ridge Mine in Australia Despite Struggling Coal Prices
As Australia’s coal sector continues to endure low prices and tough market conditions, BHP Billiton (ASX:BHP) (NYSE:BHP) is fighting on.
The Australian mining company announced on Monday the opening of its $3.4 billion Caval Ridge coal mine in Queensland’s Bowen Basin. The mine, which is a 50-50 joint venture with Mitsubishi Corp, was delivered ahead of schedule and under budget and expected to produce 5.5 million tons of coal per year.
“Today’s opening of the Caval Ridge mine is a significant milestone for BHP Billiton,” said Dean Dalla Valle, BHP’s coal president.
“The operation will produce metallurgical coal for the steel industry and has been constructed with the latest technology to be one of the most productive, sustainable and highly performing metallurgical coal mines in the world.”
The mine's workforce will include 21 percent females and three percent indigenous workers. In addition, 43 percent of the workforce will be new to the mining industry. BHP, which announced last month it would cut 700 jobs from its Queensland coal operations, confirmed the mine will create 500 new jobs.
“We are confident that if we maintain our productivity focus then we will continue to have a globally competitive business that will provide employment opportunities for generations to come,” Valle said.
Last week China announced it would impose tariffs on imports of certain types of coal, raising concerns among companies and analysts about the Australian coal sector’s outlook.
“The exact impact of an import tariff on domestic and seaborne volumes is subject to a range of coal price and demand elasticities,” said Commonwealth Bank of Australia analyst Lachlan Shaw.
“However, what is certain is that a coal import tax would be negative for China’s coal import demand and, by virtue of likely resultant slower seaborne demand, seaborne coal pricing.”
According to the Steel Index, the price of Australian coking coal has dropped more than 15 percent this year, to around $112 a ton.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”