Coal & Allied: Hunter Valley Residents Have Legitimate Concerns About Mining

Residents of Australia's Hunter Valley have legitimate concerns about planned expansions to coal mining in the world's biggest export thermal coal basin, according to Coal & Allied Industries Ltd. (CNA.AU).

Community objections are making it harder to get mining permits and adding to the time necessary to develop projects, Coal & Allied Managing Director Bill Champion said Friday.

But these concerns are understandable, he said. "If I was a resident in (Hunter Valley towns) Singleton or Muswellbrook and I was hearing these plans to double output from the Hunter, I'd have to scratch my head and ask how the valley is going to be able to respond to that, given the stresses already placed on infrastructure," he said in an interview with Dow Jones Newswires.

Coal & Allied, 76% owned by Rio Tinto PLC (RIO), is the largest thermal coal exporter listed on the Australian Securities Exchange and one of the largest producers in the Hunter Valley. Australia is the world's largest coal exporter and the Hunter Valley's mines feed the port of Newcastle, the largest coal export port in the world.

Champion said demand from major Japanese customers is likely to be 4 million to 6 million metric tons lower over the course of the year due to problems restarting power plants after the March 11 Tohoku earthquake, but the slack has been taken up by consumers in China, South Korea and Taiwan.

"The big uncertainty is whether that's a near-term loss that might be made up later in the year, or whether you don't get back until 2012. There are concerns about how quickly the coal-fired plants that are damaged can come back on line," he said.

Miners have noted a tightening-up of regulations on coal mining in the Hunter Valley in recent months, amid community objections from farming and environmental groups and a change of state government in New South Wales.

On Tuesday, White Energy Co. (WEC.AU) dropped a planned A$500 million acquisition of Cascade Coal Pty. Ltd., a privately held company with projects in the Bylong Valley in the southwest of the Hunter.

White Energy cited "significant comment in the local area" and "a degree of uncertainty" around whether the project would get necessary permits in justifying the decision.

The conservative Coalition government that won New South Wales state elections March 26 had pledged to review certain mining permits granted under the previous government, understood to include Cascade's main projects.

"There's been a lot of pushback from the community up there," said a person familiar with the White Energy deal, who didn't wish to be named. "Getting a mining license up in today's environment is a lot more difficult than it was even 12 months ago."

Champion echoed that sentiment. "There's a lot more attention being put into permitting processes, so it is a lot more work and that adds a bit of time" to develop projects, he said. "It is a bit more difficult than it has been. The strength of the voices of opposition has ramped up significantly."

However, he said he met with state civil servants before Coal & Allied's annual general meeting Friday and is hopeful the region will be able to "have its cake and eat it".

"This isn't about one or the other; you have to capture the economic value (of mining) without disadvantaging the community," he said.

Coal & Allied had attributable production of 18.7 million tons during the 2010 calendar year. Four-fifths of that total was the thermal coal used in power stations, with the remainder consisting of semi-soft coking coal, a variety increasingly in demand in steelmaking.

In a speech to the miner's annual general meeting Friday, Chairman Chris Renwick said the miner's price settlement for thermal coal contracts starting from April 1 came in at US$129.85 a ton, the same as the benchmark price agreement for Australian thermal coal between Xstrata PLC (XTA.LN) and Japanese utilities.

Semi-soft coal was priced at US$180 a ton in the first quarter of 2011 but rose to US$264 for the second quarter to June 30, in line with the spike in prices of hard coking coal following floods in Queensland's Bowen Basin, which accounts for around two-thirds of the seaborne trade in the commodity.

Semi-soft coking coal has traditionally been used in both power stations and steel blast furnaces, but the boom in heavy industry in emerging markets in recent years has sharply driven up the price of harder coking coals through demand from steelmakers, dragging up the cost of lower-quality coking coals in tandem.

Coal & Allied is now pricing its semi-soft coal at a 20% discount to benchmark Australian hard coking coals, Champion said. Anglo American PLC's (AAL.LN) German Creek brand was the first to settle a price in the second quarter, coming in at US$330/ton.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

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