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Australian Coal Industry


- An Overview

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INDEX

 Coal – An overview
 Types of Coal
 Australian Coal- Reserves
 Quality of Coal
 Coal Mines in Australia
 Coal Production
 Domestic Market
 Export Market
 Metallurgical Coal Market
 Thermal Coal Market
 Indian Companies in Australia

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Coal - one of the most important raw materials fuelling the infrastructure/
Coal manufacturing activities across geographies
 There are two types of coal:
Thermal Coal- used as a raw material for power generation, cement etc
Coking Coal- used as a raw material for steel production
 Proven coal reserves in world is estimated to be around 909 billion tonnes.
Coal is located worldwide - it can be found on every continent in over 70
countries, with the biggest reserves in the USA, Russia, China and India
 Coal contributes about 24 per cent of global primary energy demand, second
only to oil (35 per cent), and is used to produce 39 per cent of the world's
electricity and 66% of global steel production depends on coal feedstock

Literature Review on Coal

 Coalification: The name given to the development of the series of


substances known as peat, lignite or brown coal, sub-bituminous coal,
bituminous coal, and anthracite
 Degree of coalification: Also called the rank of the coal, increases
progressively from lignite to low rank coal, to high rank coal, to anthracite
 Hardness: The carbon content increases, while the oxygen and hydrogen
contents decrease throughout the series. The hardness increases, while the
reactivity decreases
 Difference in Rank: Different amounts of heat and pressure during the
geochemical stage of coal development cause these differences in rank

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Types of Coal Carbon/Energy Content of Coal High
High Moisture Content of Coal

Low Rank Coals


Hard Coals
47%
53%

% of world Reserves Lignite Sub- Bituminous Bituminous Anthracite


17% 30% 52% 1%

Thermal Steam Metallurgical


Coal Coking Coal

Largely Power Power Generation Power Generation Manufacture of Domestic/


Generation Cement Manufacture Cement Manufacture Iron & Steel Industrial
Industrial Uses Industrial Uses Including
Smokeless fuel

Uses

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 Australia has 78.5 billion tons of recoverable coal reserves, approximately 8.6 %
Australia of the world total making it the fifth largest in the world.
 Australia has more than 42 billion tonnes of economically recoverable reserves of
Coal Reserves black coal throughout Australia. The production for export markets is currently
based on deposits in Queensland and New South Wales
 Australia is the world’s largest exporter of black coal and the fourth largest
producer, behind China, the United States and India.
 Australia’s share of the metallurgical coal export market was more substantial
than thermal coal, representing 62 per cent of global trade.
 In 2006 Australia had around 72 billion tonnes of identified in situ black coal
resources enough to last about 180 years at current rates of production.

Identified In Situ Resources of Black Coal, Australia, 2006

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 The Australian coal industry produces a wide range of coals and has the flexibility

Quality of the Coal to tailor products to suit customer requirements.


 Main characteristics of the Australian coal are
 High energy content
 Low sulphur coal
 Limited Ash content
 Around 55 brands of thermal coal and blends
 Two forms of coal are mined in Australia, depending on the region: high quality
black coal and lower quality brown coal

 Black coal is found in Queensland and New South Wales, and is used for both
domestic power generation and for export overseas. Australian black coals are
typically high in energy, low in sulphur and of a low ash content.

 Brown coal is found in Victoria and South Australia, and is of lower quality due a
higher ash and water content.

 Australian coals have good coking properties and are generally low in sulphur (0.3
to 0.8 per cent) and many are low in phosphorus.
 Australian thermal coal is typically high in calorific value (energy content), has
moderate ash levels and is low in sulphur and heavy metal contents. Typical
characteristics are:
 calorific value in excess of 6000 kcal/kg and ranging up to 7200 kcal/kg;
 sulphur content of 0.3 to 0.8 per cent;
 ash content of 8 to 17 per cent;
 volatile matter content generally between 24 and 36 per cent
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 At the end of 2006 there were 118 producing black coal mines in Australia, up
from 105 at the end of 2005.
Coal Mines in
 By State, there were
Australia  62 mines in New South Wales,
 49 in Queensland,
 1 in South Australia,
 3 in Western Australia and
 3 in Tasmania
 The proportion of underground to open-cut mines has changed markedly over the
past ten years. In 1997 the numbers were roughly even, with 58 underground and
60 open-cut mines in operation. At the end of 2006 the number of underground
mines had declined to 44 - after reaching a low-point of 37 at the end of 2004. The
number of open-cut mines increased significantly to 74 over the same period.
 Labour productivity at Australian black coal mines has been rising steadily over the
past decade, reaching a peak around 2001 and 2002, and declining slightly
thereafter.
 The Australian coal industry comprises over a hundred privately owned coal
mines. The four major global coal suppliers, BHP Billiton, Rio Tinto (Coal and
Allied and Pacifi c Coal), Xstrata and Anglo Coal have a signifi cant presence in
Australia and account for around 71 per cent of Australian coal production.
 Queensland and NSW mines together account for 95% of Australia's annual coal
production. While both states produce both coking and thermal coal, production of
coking coal is significantly higher in Queensland, while NSW leads in thermal coal
production.

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 The world coal production was 6195 million tons in 2006 .
 The production of coal in Australia in 2006 is 374 Mt making it the fourth largest
Australia producer in the world and the largest exporter of coal
Coal Production  With exports of 257 million tonnes in 2005, Australia accounted for around a third of world
coal trade
 Total production of raw black coal in Australia in calendar year 2006 exceeded the 400
million tonnes (Mt) mark for the first time. The 405 Mt produced represented a small
increase of 1.6% over the calendar year 2005 figure of 399 Mt.
 After processing, 317 Mt of metallurgical and thermal black coal were available for
both domestic use and export in 2006, an increase of 3.0% over the 307 Mt produced in
2005.
 While the coal sector is highly export oriented, coal also makes an important contribution
to the domestic economy. Coal provides the primary fuel for 76 per cent of total electricity
produced in Australia.
 New South Wales and Queensland produced 97% of Australia's saleable output of black
coal - as well as 100% of Australia's black coal exports.

Black Coal Production by State

9 Million tonnes
 Australia is the world's largest coal exporter, and black coal is Australia's largest
commodity export, worth nearly $A22.5 billion in 2006-07.
Coal Export Market  Australia exports 75% of its coal production, making the country the largest coal exporter
in the world - a position Australia has held since 1986
 The Asian market accounts for 80% of Australian coal exports with the top three markets
being Japan (47%), Korea (12%) and Taiwan (9%)
 In the metallurgical coal market, Australia is competitive in exporting coal to the Asian
region and Europe.
 In the thermal coal market, Australia is competitive in exporting coal to the Asian region,
with its main competitors being China and Indonesia.
 Australia is less competitive in exporting coal to the European market due to shipping
distances, and as such the main competition is from South Africa, Colombia, USA, and
the Russian Federation.
 Contract prices for premium hard coking coal have been settled at approximately
US$115 a tonne, an 8 per cent fall from the 2005 price of $125 a tonne. Prices are
forecast to fall a further 13 per cent in 2007 to US$100 a tonne. The lower price is
indicative of a slight easing of demand and increased supply, predominantly from
Australia.

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Coal Export by Destination
Metallurgical Coal
Australian
Metallurgical Coal
Market

 Following a decline in 2005-06, Australian exports of metallurgical coal are forecast to rise
by around 10 per cent to 132 million tonnes in 2006–07. However, the value of exports is
forecast to fall as lower prices more than offset higher volumes.
In 2007-08, Australian exports of metallurgical coal are forecast to increase by a further 5
per cent to 139 million tonnes, reflecting higher mine output and increased export capacity
in Queensland. The value of Australia's metallurgical coal exports in 2007-08 is forecast to
rise, reflecting higher export volumes and the expectation of higher prices. The main threat
to Australia not achieving these exports is capacity in coal supply chains, particularly in
Queensland.
Australia's metallurgical coal production is forecast to rise by 3 per cent in 2006-07 to 137
million tonnes and a further 5 per cent to 144 million tonnes in 2007-08
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Thermal Coal
Australian
Thermal Coal Market

 In 2006-07, Australian thermal coal exports were 111.6 million tonnes, an increase of less
than 1 per cent on the previous year. The moderate growth reflects capacity constrained
export infrastructure and the loss of around 2.5 million tonnes of throughput because of
natural calamities
The value of thermal coal exports in 2006-07 was $6.8 billion, a 6 per cent fall from 2005-
06, largely attributable to the appreciation of the Australian dollar against the US dollar.
 Associated with higher production and infrastructure capacity, Australia's thermal coal
exports in 2007-08 are forecast to increase by 8 per cent to 121 million tonnes. Reflecting
increased export volumes and higher prices, the value of thermal coal exports in 2007-08
is forecast to increase by 11 per cent to $7.5 billion.

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 Australia is the world's fourth largest coal producer. It exports approximately 60% of its
annual production, making it the largest net exporter of coal (28% of global coal exports).
Coal Export Market  Australia is dominant in the market for coking coal, where it is responsible for over half of all
world exports. Australia also leads the world in thermal coal exports, although it accounts for a
smaller share of that market (around 21%).
 Australia's thermal coal exports recently began to face new competition from China, raising the
possibility that its share of that market may shrink in the future.
 Japan remains Australia’s largest market for metallurgical coal, purchasing 34 percent of
metallurgical coal exports in 2005 . The European Union (18 per cent) and India (13 per cent)
were the next most important export markets for Australian metallurgical coal.
 North east Asia (Japan, the Republic of Korea and Chinese Taipei) was the dominant regional
destination for Australian thermal coal in 2005, accounting for around 86 per cent of thermal
coal exports.
 With total coal exports valued at $24.5 billion in 2005-06, coal accounted for 20 per cent of
total commodity exports. This share is expected to increase further in the short term with the
value of exports forecast to exceed $26 billion in 2006-07 (ABARE 2006). Coal provides the
primary fuel for 76 per cent of total electricity produced in Australia.
 Australia has a distinct competitive advantage in exporting thermal coal to the rapidly growing
areas of the Asian region, largely as a result of lower freight rates.
 The principal exporters of metallurgical coal are Australia, Canada, and the United States.
Australia has a freight rate advantage over other major metallurgical coal producers,
including Canada and the United States, in supplying the fast growing markets in India and
China.
 In addition, Australia has larger reserves of hard coking coal than other producers. As a result,
Australia’s share of global metallurgical coal trade is projected to grow strongly over the
outlook period, from 62 per cent in 2005 to 67 per cent in 2025

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 Australia has a three-tiered federal system of government - Commonwealth, State/Territory and
Local.
Government Policies  Coal resources in Australia are managed by the State/Territory governments. Conditions for
mineral exploration and development in Australia are generally set out in State/Territory Mining
Acts and related regulations which specify the procedures to be followed for coal exploration and
exploitation.
 Other State/Territory legislation covers a broad range of issues including safety, employment,
environment protection, royalties and transport within Australia. State governments also levy
taxes and charges for rail transport and in some cases for coal loading.
 In recent years, the Commonwealth Government has relaxed or abolished many regulations
affecting the coal industry. It has deregulated financial and foreign exchange markets, reduced
taxes and charges, relaxed foreign investment guidelines and removed export control powers on
coal.
 According to Australian foreign investment rules, any foreign investment can be made into a
company up to 14.9 per cent without prior approval.
 The Government has overseen reforms to workplace relations arrangements, which encourage a
more direct relationship between employers and employees, with reduced third party intervention.
 In the four years following the implementation of the reforms in 1996, coal mine productivity
increased by 72 per cent.
 Competition policy reform is also having significant impacts on improving business
competitiveness through third party access for coal freight.
 New South Wales and Queensland have fully embraced these changes, which has resulted in
significant reductions in rail freight rates. In June 2005, Federal and State government leaders
agreed to the further development of the national competition reform agenda.

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Indian Companies in  Gujarat NRE is the first and only Indian company to own and operate coal mines in

Australia Australia. Through its listed subsidiaries in Australia, the company operates two mines in
the New South Wales region, with combined resources of more than 560 million tonnes
of premium quality hard coking coal and their ownership accords the company the much
sought after cover against erratic supplies

 World's sixth largest steel maker Tata Steel had purchased a a 5% stake in Carborough
Downs Coal mines in Queensland, Australia. Currently its is undertaking a large scale
expansion of the mine to ensure annual production of 4.9 million tons raw mineral (ROM)
to yield 3.7 million tons of coking coal and PCI coal from third quarter of 2009

 Mr L.N. Mittal of Arcelor Mittal, announced that he had picked up 14.9 per cent stake in
Macarthur Coal, one of the top five companies in that sector in Australia.

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Thank you …

For Further Information Contact:


Rajeev Phanse phanse@singhi.com, +91- 98201 43350
Neha Tandon neha@singhi.com +91- 98191 26661

Singhi Advisors Ltd.


903, Raheja Centre, Nariman Point, Mumbai 400021.
Tel: 022-6634 6666 Fax: 022-6637 0383

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