EDITORIAL PAGE — Coal’s emerging giants

Coal may not be the most glamorous commodity mined in North America, but, in some parts of this continent, it is the most valuable.

British Columbia is a case in point. The province’s existing coal operations contribute significantly to government coffers, as well as to the economic health of numerous local communities.

In the years ahead, however, British Columbian coal — indeed, all Canadian coal destined for export markets — will face increased competition from developing countries that intend to develop new, low-cost operations. Coal operations in Australia, the United States and South Africa will likely experience the same competitive challenge.

A recent study by AME Mineral Economics, entitled Export Coal 1997: Emerging Giants, suggests that, by the year 2000, six of the 10 largest export coal mines will be situated in Indonesia, Colombia and Venezuela.

Already, the world’s two largest export coal mines are in Colombia and Indonesia (Cerrejon Norte and Kaltim Prima, respectively). The study says these will soon be joined in the top 10 by Arutmin (Indonesia), La Loma (Colombia), Adaro (Indonesia) and Paso Diablo (Venezuela).

Combined exports from these six mines are forecast to reach 65.8 million tonnes per year by 2000. At the same time, these new operations are expected to lower average world steam coal production costs.

In 1995, Indonesia and Colombia were the lowest-cost exporters of coal, with average free-on-board cash costs of US$22.01 and US$22.92, respectively. The study predicts “rampant export growth’ from Indonesia and Colombia in the years ahead, as they take full advantage of strong growth in demand for internationally traded steaming coal.

AME Mineral Economics says the driving force behind future demand for steaming coal is the huge forecast growth in Asian power requirements.

Several new, coal-fired electricity plants are already under construction in Japan, Taiwan and South Korea.

Even so, the study points out that increased coal exports from Indonesia, Colombia and Venezuela will not be sufficient to satisfy increases in demand over the next decade. This will ensure the viability of higher-cost mines in developed countries, namely Australia and the United States.

Australia, in particular, is expected to remain a dominant force in the world’s coal industry. The country has large quantities of high-quality coal situated near the coast and, despite current high costs for labor and rail transport, is better-positioned to reduce costs (in response to falling prices) than any of its competitors.

All these factors point to increased challenges in the years ahead for Canadian coal operations, where mining costs are generally high. The crunch for some of these operations will come in 1998, when current contracts with the Japanese expire. Prices will almost certainly fall, making it tough for some operations to compete with hard coking coal mines in Australia and the U.S.

Canada’s western coal mines carry the added disadvantage of being situated in the Rocky Mountains, which translates into typical haulage distances of around 1,100 km. These distances, combined with the need to traverse mountainous terrain, have the effect of keeping average rail transport costs in the US$16.50-per-tonne range. Compounding the problem are high mining costs, which are due, in part, to the faulted and folded nature of numerous western deposits.

On the plus side, the study notes that Canadian export coal mines have achieved a “commendable’ average productivity rate of 8,600 tonnes per man year. While there is a limit to productivity improvement, our bet is that Canada’s innovative mine operators have not yet reached it.