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Tracking the trends in coal mining

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World Coal,

Reuben Saayman

Each year brings with it new, and not so new, challenges for the global mining sector. This is certainly the case for miners generally but with coal and iron ore operators in particular given the continuing slide in prices.

Despite predictions (and hidden hopes) that the global mining sector will recover from its current downturn, the ‘down’ cycle continues apace. And what’s clear is that the cycle times between good and not so good are lengthening and more severe than ever seen before.

For the last past eight years, Deloitte has looked at the latest trends and trouble spots that should focus the minds of miners around the world over the next 12 months. And according to our Tracking the Trends 2016 report, our global mining experts across nearly 20 geographies collectively believe that, while it could take years to adjust to current market forces, things do still remain cyclical.

The report applies a broad bush to 10 key industry trends – from the pursuit of operational excellence through to workplace safety and security. Each is relevant to coal miners in different ways, but the following trends are of greater importance to coal miners.

Going lean: operational excellence remains front and centre

In an effort to achieve true operational excellence, sector leaders are leveraging best practices from other industries and tackling difficult issues, including labour relations.

This is the biggest issue for coal miners, with so many mines under significant pressure and high cost bases making the current pain that much worse. With take-or-pay liabilities not going away they need to do what they can on the rest of their cost bases. Certainly in Australia, some operators are negotiating new industrial agreements in an effort to manage traditionally very high labour costs.

Innovation: preparing for exponential change

Innovation is critical. Short-term strategies should include collaborative ecosystems, digital workforce engagement, improved asset management.

Innovation across mining operations, no matter the resource, and no matter where they are, is really a given in today’s environment. With energy one of the biggest costs to opencast coal mines, significant savings can be, and are being, achieved by miners in terms of better energy management in areas such as planning, transport and maintenance.

China’s transition: looking for the silver lining

Given China’s influence on the global economy, miners need to understand the global impact of its domestic market trends and develop plans relative to China’s offshore investment initiatives.

This has an obvious impact on coal miners given China’s (and let’s not forget India’s) insatiable demand, especially for metallurgical coal. While it fits just as neatly under innovation and moves away from fossilfuelled power generation, clean coal technology is clearly an area ripe for development – in response to both future demand and a world adjusting to climate change.

Adjusting to the new normal

Commodity demand might be down, but production isn’t falling.

In fact, some coal miners have ramped up output to reduce unit costs, fulfil take or pay obligations, consolidate market share or avoid costs of shutting down older mines.

Preparing for inevitable change

Fossil fuels will remain critical in the global energy mix, but the global move towards renewables threatens the outlook for thermal coal – and is inevitable.

The increase in energy demand will mostly be catered for by an increase in renewables – but primarily for those who can afford it. This is not the case in India, for example, where a reliance on coal is fundamental to this rapidly developing economy’s future.

Changing the nature of stakeholder dialogues

Old tactics no longer work, and a new form of stakeholder engagement is needed. Miners should align their investments with the underlying needs of their disparate stakeholders to fully maximise opportunities.

This is absolutely critical for coal miners who are under constant attack and pressure from a range of vested interests. Better engagement with local communities (and their political representatives) that benefit from everything safe and responsible coal mining can bring is vital.

The M&A paradox

Despite predictions of a pick-up in mining M&A, deal values and volumes continue to disappoint. Miners should take advantage of opportunities, consider buying counter-cyclically and think twice before divesting.

What is interesting on the M&A front is that, in the knowledge that the cycle will eventually shift, nobody is prepared to sell low. But on the other hand, buyers are looking for bargains. Availability of coal assets is at an all-time high, but given these opposing views, how likely are asset sales in the coal sector?

An expanded view of corporate and personal welfare

Risks related to both safety and security continue to grow. To enhance their safety records and security postures, miners may want to strengthen their safety procedures.

Safe and secure operations, increasingly driven by data analytics, are critical on a number of fronts, but miners still need to be mindful of adding layers that can stymie productivity but deliver no real safety improvement benefit.

Edited by .

About the author: Reuben Saayman is Deloitte Australia’s National Mining Leader – East. He is based in Brisbane, Australia.

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