Metallurgical Coal
Feature Articles
Status of Australia's New Coking Coal Projects
April 2021
It has been long while since Australia witnessed a new greenfield coal project moving on to become an operational mine. The last project to come online and ramp up to full production capacity was Qcoal’s Byerwen coal project back in 2018. This feature article will look at some of the major development projects in the pipeline that have the potential to become operational within the next few years.

Eagle Downs Project

The Eagle Downs Project was expected to be one of the next major greenfield projects to be developed in Queensland’s key metallurgical Bowen Basin region. The project was fully approved and was under construction. However, advancement stalled as the main contractor WDS went into voluntary administration in 2015. WDS was initially contracted to drive access drifts over two years for A$142.8m (US$129m).

In 2018, South32’s agreed acquisition of Vale’s 50% stake for US$133m was anticipated to breathe new life into the project with advanced feasibility study work scheduled to be finalised by late 2020. However, on completion of this study, the market was in downturn and the result was not favourable. South 32 stated that the project has potential to become a long-life operation, but the returns were not in line with the company’s capital management framework. Thus, the project was placed on hold indefinitely. AME anticipates that the project has potential to be revived in the future if the coal market turns favourable with a recovery in prices.

If developed, Eagle Downs is expected to produce around 4.5Mtpa by longwall, targeting three thick seams in several stages. It has the potential to place in the first quartile of the global cash margin curve when ramped up to capacity. Sufficient resources exist to support around 50 years of mining, with the potential for the addition of a second longwall after ten years of operation. Combined with the rail distance of 450km, 50% owner Aquila’s contractual commitment to utilise 1.6Mtpa of its Eagle Downs output through the expensive Wiggins Island Coal Export Terminal will result in elevated freight costs compared to other mines in the area.

 

 

Olive Downs South Project

Olive Downs South is also one of the few remaining large scale greenfield development projects in the key metallurgical coal region of Queensland’s Bowen Basin.

In 2016, current owner Pembroke Resources purchased a 100% stake in Olive Downs South from Peabody and CITIC limited in a package deal worth around US$77m. Pembroke Resources is an Australian based company backed by Denham Capital.

The Olive Downs South initial advice statement was lodged with the Queensland state government in January 2017, followed by the draft terms of reference in April. In June, the terms of reference for an EIS were released, with Pembroke commencing preparation for a draft submission. Over a year later in September 2018, the draft EIS was submitted and released for public comment. The Queensland government approved the Olive Downs South project in September 2020. 

After flying through the approval process, Pembroke is currently seeking a financing option for the project. This has been a long process for Pembroke on the back of unfavourable market conditions and the relatively high cost associated with high strip ratios. Not helping matters, banks have been distancing themselves from coal investments due to increasing ESG concerns and decarbonisation pledges. Despite being a metallurgical coal project, the availability of financing options for all coal projects have now become more limited.

AME anticipates the Olive Down Project to become operational once it acquires the required funding with first production expected within two years post finalisation of financing.

If developed, the project is expected to produce up to 9Mtpa of predominately semi-hard coking coal and PCI for sale to the export market. Resources are anticipated to support a mine life in excess of 70 years. The strip ratio is expected to be higher compared to other mines in the region, averaging around 14-15:1 over the life of mine.

 

 

Dendrobium Extension Project

While South32’s Dendrobium is not a new greenfield project, its extension project was blocked by the Independent Planning Commission in February 2021 on environmental grounds. The proposed extension was aimed to expand the life of Dendrobium until 2048 and produce an additional 78Mt of ROM coal for another 25 years.

The company has three months to launch a judicial appeal in the Land and Environment Court. Another alternative option is to lodge an alternative plan with smaller footprint with less impacted area by long wall mining to address the key conures raised by the IPC. However, this process is expected to take up to 5 years to fully finalised the process.

South32 is the largest coking coal producer in the Illawarra and Port Kembla region, providing employment for over 2,000 employees and contractors. If the decision is not overturned, all of these jobs are in jeopardy when current reserves are exhausted.

South32's Appin mine and BlueScope’s integrated steel facility would also be at risk if Dendrobium’s future is uncertain. Appin and Dendrobium have relied upon each other in order to produce the flagship Illawarra Blend product, which is South32’s main export from the combined operations. Thus, if the Dendrobium mine extension fails to get approval, then Appin’s viability has to be reassessed as a standalone mine and BlueScope’s steel works will have to source part of its coal needs from other suppliers, which may mean shipping coal from Queensland.