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Is the bubble about to burst?

World Coal,

At the 33rd Coaltrans World Coal Conference, Berlin, Michael Roche, CEO of Queensland Resources Council, explained the current and future outlook of Australia’s position as a global leader in coal exports.

Roche began his speech by explaining why Queensland had maintained a competitive advantage over other coal export regions over the past years. He explained that the region was fortunate enough to have a world-class, highly diversified natural endowment of natural resources, and had built a reputation as a willing seller and reliable supplier. With advanced technology available to mining companies and sophisticated infrastructure, Roche said, the region had been able to cement its position as a minerals and energy ‘supermarket’ supplying both domestic and international markets.

However, Roche said that there were four key challenges facing both Queensland and Australia from continuing in this prominent position. They were:

  • Rising production costs
  • Regulatory pressure
  • High taxation
  • Pressure from Environmentalists

Red-tape dilemma

Roche criticised the amount of red tape and bureaucracy facing mining and coal professionals, explaining that it was one of the reasons behind the Australian coal industry’s “Growing global reputation as a prohibitively expensive and complicated place to do business.”

High taxation

Speaking of high taxation, Roche explained that current thermal coal mines in Australia were often running at a loss, as they were hit by 30% company income tax rates, the so-called carbon tax introduced by then prime minister Julia Gillard, on top of capital replacement costs and the need to replace depreciated assets such as continuous miners and draglines, etc. Meanwhile, Roche drew on data regarding metallurgical coal production to show that producers in Queensland were often facing an effective tax rate of 50% – more than Mozambique, Mongolia, China and Canada.

Despite the pressure from these tax rates, Roche saw reasons for optimism in the form of new Australian Prime Minister Tony Abbott. The liberal party leader, though he has a number of left-wing and environmental critics, and despite a series of high-profile media blunders, has endeared himself to the Australian mining and coal industries as he promises the repeal of the unpopular carbon price and mineral resource rent tax. Abbott has also promised to adopt a ‘one-stop-shop’ model for environmental approvals.

This last point, Roche said, was of particular importance to the coal industry, as the long-winded route to starting operations at a mining or coal-fired power plant project can often lead the project open to attacks from environmental groups who know that long delays can kill projects in their infancy.

Environmental activism

Turning his attention to “environmental extremists”, Roche criticised the small number of environmental protestors who had attempted to hi-jack the Coaltrans World Coal Conference by posing as industry professionals so that they could then disrupt proceedings and cause mischief. Roche explained that such environmentalists were adept at manipulating public opinion, particularly through viral social media campaigns and the spreading of disinformation.

With so much of the world now connected and active on social media platforms, Roche said, environmental activists can hi-jack the good will of social media users and exploit this in order to spread a false message to serve their own purpose. Coal is now the popular fuel source to attack, Roche said. “The anti-coal groups play on ignorance to claim the Great Barrier Reef is at risk from the coal industry,” Roche claimed.

“Dredging is the new bogeyman for anti-coal activists. They know that by stopping dredging, they can shut down ports, etc.” Roche said.

In a classic example of the way environmental groups can spread disinformation, a number of ‘eco groups’ spread false or doctored images claiming to show negative effects of dredging and seaborne coal transport. Roche said that to believe this was in any way the case was entirely false, explaining that the coal industry and shipping industry has worked alongside reef authorities and their interaction with the Great Barrier Reef has been under close scrutiny for many years with no evidence that the industry does any damage. Roche also said it would not make sense for any industry professional to claim otherwise, or do anything that in anyway endangered the reef: “We all have a vested interest in ensuring the reef continues to survive,” Roche said.

Robyn Storer, of GVK Hancock, supported Roche’s assertions that this was the case: “I feel confident that we have a safe environmental record,” she said. “I’m a scuba diver: if I thought there was any threat to the reef caused by dredging or the coal industry, I’d be protesting as well. But there is no evidence that dredging or the activities of the coal industry is damaging to the reef.”

Reasons for optimism

Despite current challenges, Roche saw no reason to be despondent. He explained that by making the correct decisions now, the future of the Australian coal industry was a positive one.

When asked by a Coaltrans delegate – “What Australian coal price do we need to see to reinvigorate investment?” – Roche replied: “We can’t control global coal prices, but we can control cost structures. Everybody is looking at their numbers again and trying tow work out how they can bring this investment back. We need to work through the current oversupply.”

Storer echoed much of what Roche said as the third keynote session came to its conclusion. Storer said that the Australian coal industry “is itself to blame, because in good times we let our standards slide. We need the bad times to get our house in order.”

“We need to wait for a change in market sentiment […] investment will recover, because delayed projects will eventually lead to higher prices,” Storer continued.

“This is the best time to develop a coal mine. This is the best time to get into construction: and that’s our goal,” Storer concluded.

Written by Sam Dodson

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