By R. Bruce Striegler
After decades of having maintained a low profile, coal is suddenly big news in British Columbia. A steady stream of stories through the year has detailed proposed or actual expansions of coal export facilities through Port Metro Vancouver. Until July, the talk was of U.S. coal from the Powder River Basin region of Wyoming and Montana transported by rail to Vancouver for export to Asia. But in July, unexpected news broke of a weekend of meetings and luncheons in Vancouver with Indian Steel Minister Beni Prasad Verma along with other senior Indian government and industry officials conferring with Premier Christy Clark, B.C. International Trade Minister Teresa Wat, staff from the British Columbia Ministry of Energy and Mines and provincial coal industry representatives.
The newly created B.C. Ministry of International Trade responded to questions from Canadian Sailings, saying, “Our new ministry is guided by the central premise that B.C. must secure its place in markets that are and will continue to be drivers of global economic growth.” The B.C. Jobs Plan shows British Columbia’s current priority markets are China, India, Japan, Korea, the United States and the European Union. The Ministry notes, “Our activities in those markets are strategically aligned with our key sectors: forestry, mining, natural gas, agrifoods, transportation, technology, international education and tourism.”
David Ewing, Vice-President Environment and Technical Affairs of the Mining Association of British Columbia says, “The meetings and other events were an opportunity to better understand the objectives of the Indian Government and some of the corporate heads of India’s steel companies about coal imports from Canada. It was an opportunity to meet and better understand where we could create alliances.” He points out that B.C. is in a position of strength when it comes to international competition from countries such as Australia, saying, “We have stable government, transportation infrastructure, proximity to the Asian markets and we have a good product,” adding that B.C. needs to maintain cost-effective power rates to the mines in order to maintain competitive access to Asian markets.
In 2012, British Columbia coal exports to India were worth $161 million, up from $72 million in 2011 and represented 99.98 per cent of Canada’s coal shipments to that market in 2012. B.C.’s Ministry of International Trade notes that last year, Australia and Indonesia supplied the majority of India’s coal worth over $6 billion, representing 39.9 per cent of India’s imports. Indonesia shipped $5.5 billion worth of coal to India in 2012, or 36.2 per cent of its imports. “That said, it is very important to note that most of the coal mined in B.C. is used to manufacture steel, rather than thermal coal that is burned to generate electricity, which is the bulk of Australian and Indonesian exports,” says the Ministry.
According to the Coal Association of Canada, B.C. is rich in coal, having 12.9 billion tonnes of mineable resources. Eight billion tonnes of that are located in the southeast of the province, another 4.9 billion tonnes in the Peace River coalfield in northeastern B.C. The province has ten operating coal mines, nine of which produce metallurgical coal and one on Vancouver Island that produces thermal coal. There are additional sites around the province under exploration or in stages of advanced development. Both government and mining officials are quick to point out that over 95 per cent of the coal mined in B.C. is metallurgical coal which, when burned, produces lower volumes of greenhouse gases than thermal coal.
India, the world’s fourth largest steel producer is adding between five to six million tonnes of additional steel-making capacity, but while the country has domestic coal reserves of 286 billion tonnes, fifth-largest in the world, they consist of mostly thermal coal used for electricity generation. Mr. Ewing from the Mining Association says, “The conversations I had with delegates were around the ways in which we might get more metallurgical coal to India and what possibilities existed around partnering with, or acquiring, coal mines to support their increasing steel production.”
India’s hunger for the commodity is being discussed by analysts who are predicting that imports of both coking and thermal coal are headed for significant growth. Reuters reported this spring that demand for metallurgical coal imports will grow by 8.7 per cent to 35 millions tonnes in the 2013-14 period alone. Thermal coal imports are on track to hit approximately 145 million tonnes this fiscal year. These increases will absorb all the excess production from the Pacific region and provide unexpected momentum for global coal producers, particularly those producing metallurgical coal.
In the face of considerable environmental opposition to coal mining and export, Mr. Ewing says, “The companies I work with in my role see the environmental side of their operations as having key importance now and in the future. They recognize that social licence is very important to them, as is reputation, so they are motivated to maintain standards well within or that exceed, those set by government.” He adds, “Many of the people who are making these decisions live in the communities where the mines are active, so it’s also in their personal interest as well as their company’s, to ensure their environmental standards remain high.”
B.C. and the global mineral supply chain
In Australia, the industry is retrenching as coal prices have plummeted, causing lay-offs in the past year of more than 11,000 workers, a fifth of its workforce. These steps are part of a desperate attempt by companies to cut costs as the spot price of thermal coal used for power generation has fallen by about 30 per cent over the past several years to under $80 a tonne, while contract prices for coking coal have dropped 50 per cent to $145 a tonne. In a recent report, Deutsche Bank estimated that the costs at BHP Billiton’s and Rio Tinto’s Australian coal operations had increased 320 per cent since 2005. Last month, Peabody Energy, the world’s largest private coal company revealed that the gross margin per tonne from its 11 Australian mines across New South Wales and Queensland had fallen from $36.25 a year earlier to $13.05 in the three months to June. At the 9th Annual Coaltrans Australia conference held in mid-August, a number of speakers reported that miners were targeting 20 per cent reductions in cost per tonne by cutting jobs, limiting wage hikes, trimming contractors and delaying or abandoning new projects, and in fact, some US$ 29 billion worth of new projects have been already deferred.
In an ironic twist that clearly demonstrates today’s global mineral supply chain, and may well influence Indian import decisions, amendments are underway to South Africa’s Mineral and Petroleum Resources Development Act. India has been increasing its imports of South African coal, and the country is well-positioned to meet those increases. However, one of the potential new clauses of the amendments includes a declaration of strategic minerals in an attempt to control supply and pricing of national commodities, with coal already identified as a strategic resource. Analysts don’t believe India would continue its South African imports if the strategic declaration clause were included. In the meantime, the government is taking comments on the proposed amendments, the final version expected in early September.
India potential an opportunity to grow B.C. coal production and jobs
With Indian government forecasts that by 2017 the country will need twice as much metallurgical coal, the conditions are ripe for B.C. coal producers. The additional 47 million tonnes of metallurgical coal India forecasts it’ll need every year is more than B.C.’s entire current annual production of 24 million tonnes. Teck Resources is the largest metallurgical producer with its operations in southeastern B.C. Vancouver-based Teck received approval from the B.C. government earlier this year to restart the closed Quintette mine at Tumbler Ridge in northeast B.C. and a spokesperson is quoted saying, “We have delayed the final stage of development and will not commence production until the steel-making coal market recovers. If a decision is made in early 2014 to proceed with the reopening, the operation could be in commercial production by mid-2015.”
The Quintette mine operated from 1982 to 2000 and closed due to low coal prices, putting nearly 600 people out of work. Teck’s other operation in the area, the Bullmoose mine, closed in 2003, caused the layoff of a further 300 workers. In addition to Teck, there are several other metallurgical coal mines in northeastern B.C. which include operations owned by Walter Energy and Anglo American. A handful of others have projects in development in the northeast sector including Xstrata, Cardero Resources and Colonial Coal.
Vancouver-based, Chinese-owned HD Mining International Ltd. is reviewing plans for a $300-million coal operation 13 kilometres southeast of Tumbler Ridge. HD forecasts that its Murray River project could produce up to six million tonnes a year and create 600 jobs. In May, the Federal Court of Canada dismissed a challenge by two unions over HD’s hiring of 201 temporary workers from China to begin a preliminary phase, including extracting bulk samples of coal.
In mid-August, Anglo American PLC opened the Roman Mine, expanding its coal operations in the Tumbler Ridge region, after investments of $200 million. The London-based miner expects the expansion will ensure the jobs of more than 420 workers by extending coal production for up to 16 years as Anglo American’s Trend Operation will be depleted in the next four years. The mine is currently producing about 1.5 million tonnes which will increase to 2.5 million tonnes as the Roman operation comes on-stream.
So certain of its decision, Anglo American has acquired the 102-room Trend Mountain Hotel in Tumbler Ridge, reserving more than 50 rooms for mining staff. The company announced it was setting aside 1,852 hectares of its tenures to protect caribou habitat and will contribute $2.56 million towards the Government of British Columbia’s Peace Northern Caribou Plan. In further environmental remediation efforts, the company plans on building the first selenium water treatment facility in the northeast.
The high quality of the coking coal and the relative ease of transporting the commodity on an underutilized rail line to the Ridley Island terminal at Prince Rupert are expected to boost Anglo American’s Asian steelmakers’ market strategy. The low sulphur content of B.C. coal and an expansion project to more than double the capacity of Port of Prince Rupert’s Ridley coal terminal by the end of 2014 will give northeastern British Columbia coal a competitive export edge.
Working to broaden the trade relationship with India
In statements to Canadian Sailings, B.C.’s Ministry of International Trade said, “We have recently expanded our trade and investment team on the ground in India. B.C. has opened new offices in Mumbai and Chandigarh, tripling the number of trade and investment experts we have in India. One of the results has been that Indian companies such as Rashtriya Ispat Nigam Limited (RINL), an Indian state-owned steelmaker, have increased their interest in B.C. coal in the past year.”
The trade delegation that visited Vancouver was the result of cooperative efforts by B.C and Federal Trade and Development counterparts, and during the Vancouver visit a letter of intent was signed, an initial commitment to connect RINL with suitable partners in B.C. “Our trade and investment teams in Vancouver and India will continue working with RINL over the coming months to make those connections. We have a mandate to accelerate B.C.’s export opportunities, and our Ministry will continue to work toward engaging and enabling British Columbia’s businesses to succeed abroad,” Minister for International Trade Teresa Wat said. “Part of my mandate this term is to attract major firms to invest in and set up head offices in B.C., and to ensure the province plays an active role in trade agreement negotiations.”
In recent years, the Government of British Columbia has implemented an aggressive strategy to assist B.C. companies expand their business internationally. The new Ministry of International Trade operates the Asia-Pacific Trade Centre in Vancouver employs key trade sector specialists and has expanded its network of international trade and investment representatives at offices throughout Asia, Europe and the United States. In addition, the government has implemented a number of other resources including the B.C. Business Network, a directory of leading B.C. suppliers and exporters, which uses global business accelerators in China, India and California who offer localized expertise, strategic advice, international business contacts.
The Ministry says, “By focusing our resources on opening and expanding markets for B.C. goods and services, our government plays an important role in increasing international trade and encouraging the economic diversification that will drive new job creation across British Columbia.”