We need to talk about Kevin

Australia’s coal sector is facing tougher times; it is operating on thinner margins, and there has been – and will continue to be – layoffs.

But there is still strong development on the cards with the Queensland State Government approving the Indian-owned Kevin’s Corner project in Central Queensland.

The project located in the state’s Galilee Basin, is run by GVK Hancock Coal which is also developing the Alpha Coal project, rail infrastructure and a shipping terminal in the region.

“Gina Rinehart who is still a large minority investor has had a very strategic long term view of the development of the Galilee Basin,” GVK Hancock group managing director Paul Mulder told Australian Mining.

Employment opportunities

GVK has estimated about 1800 workers will be needed to kick start the $4.5 billion project and 1600 staffers when mining begins, the company said recruitment is expected to begin next year.

The total workforce is expected to peak at 2500 workers during construction but Mulder said that number could blow out to between 4000 and 6000 workers.

“The Galilee Basin presents a huge employment opportunity not just in Queensland but in Victoria and New South Wales, there’s a massive amount of flow on jobs,” he said.

Mulder said the company’s recruitment drive will focus on diversity, honing in on cleanskins, women and indigenous candidates.

In terms of the site’s ongoing operational workforce Mulder said creating a highly productive culture is the priority.

“We aren’t going to simply try and recruit workers from other basins and plonk them into Alpha and say ‘start mining’,” he said.

“We’re very particular about creating an extremely productive culture, and to that end we are going to conduct a significant amount of training where we have a huge amount of skilled and semi-skilled labour.”

The company will also utilise a fly-in, fly-out workforce.

“We’re interested in regions such as the Gold Coast, Brisbane, Sunshine Coast, Cairns and Townsville,” Mulder said.

“There’s a great opportunity to take people that are very willing, very keen to be productive and don’t want to be involved in any unproductive operations to be retrained, we will be recruiting the elite out of the industry.”

Construction

Kevin’s Corner will supply 30 million tonnes a year of thermal coal to Asian markets, utilising the T3 terminal at Abbot Point port near Bowen.

Both Kevin’s Corner and Alpha have a similar construction time frame of between two-and-a-half to three years.

Mulder said the Alpha project will come online first, with first coal production expected in 2017, and Kevin’s Corner will come online 6 to 9 months after.

GVK Hancock secured Federal Government approval for the shipping terminal in October 2012.  

With state approval under GVK’s belt the Kevin’s Corner project now needs to be approved by the federal environment minister, which the company expect to be delivered next month.

“The process has been a very detailed one, but milestones have been consistently achieved along the way irrespective of the economic climate,” Mulder said.

Cautious coal

Dropping commodity prices and rising labour and operational costs has seen Australia’s coal sector shed almost 9000 jobs in Queensland and New South Wales over the past 18 months, sparking concerns around high cost investments.

“If you have a look at productivity in Australia compared to five years ago we’ve gone backwards,” Mulder said.

“We’re becoming a high cost destination, we can’t compete, and if we can’t sell our product there will be no job creation and no revenue delivered to the State.”

With increasingly mobile capital, investors have the freedom to analyse investments on a global scale.

“When people start looking at the cost to start building in Australia, and see the labour costs that one has to pay to build in Australia, we are an extremely high cost destination,” he said.

Mulder added that the coal sector is going to go through a period of optimisation and rationalisation and deposits that are long term, stable, and profitable will continue to be developed.

But lower cost countries like Indonesia continue to steal Australia’s coal market share.

“Over the last five to ten years Indonesia has consistently continued to steal our market share,” Mulder said.

“If we can become more productive and lower costs customers will buy from us, we need to improve our productivity.

“In the mining boom cost was not an issue, it was tonnes.

“When the commodity prices drop to where they are today your cost profile doesn’t drop, so you’re stuck with a legacy cost and a lower price, so miners have no margin.”

After years of a persistently high Australian dollar, recent relief is going to help Aussie coal producers but intensity of labour, lack of efficiency, and utilisation of equipment all add up on a mine’s cost profile.

“We’re not going to be swayed by the high commodity prices that continue to come and go, we want to be economic no matter the commodity cycle up and down,” he said.

“Therefore we’ve been positioning this operation to be the most cost effective even in today’s environment and it’s still very robust.”

Free on board costs for both Alpha and Kevin’s Corner sit around the $US55 a tonne mark.

 “The mine sits in the low part of the Australian and global cost curve, so even in economic times, such as today when commodity prices are where they are, we still have a very robust and economic project,” Mulder explained.

With this in mind GVK’s Kevin’s Corner and Alpha projects will be enlisting world’s best practice to ensure high productivity, low cost mines are developed.

“We will not be adopting Queensland and the Bowen Basin’s practices cost profiles in the development of the Galilee basin,” Mulder said.

“If you have a look at the cost profiles of those miners versus the commodity prices, they are being squeezed and making losses.

“When you look at our deposit geology we’re presented with a unique opportunity to move away from traditional mining methods that are conducted in Australia.”

GVK will be using surface miners to mine the coal, rather than the truck shovel method in a similar fashion to Fortescue at its iron ore operations.

The site’s primary overburden waste removal equipment includes six draglines and at least three compact bucket wheel excavators.

Mulder’s team has scoured mining operations around the world to source best practices; he said GVK will not accept “mediocrity”.

Mulder explained that traditional truck and shovel operations are labour intensive but by using bucket wheel excavators and draglines, and keeping operating staff on the machines for the full duration of their shifts productivity can be improved.

On average a truck shovel mining regime costs upwards of $2.5 a tonne whereas using a dragline and shovel costs between .80cents and $1.20 a tonne, Mulder explained.

Trial mining and coal demand

kevins-corner_1_300.jpgUnder the guise of Hancock Prospecting the company has already conducted a trial mine of 125,000 tonnes of coal to ensure the cost profile is correct and best in class.

With order books already filling up, GVK’s coal will be shipped into 19 different companies in nine different countries including Japan, Korea, China, India, and Thailand.

“We’ve got a good sense for the demand for this coal,” he said.

China’s recent draft policy restricting low coal quality imports will also work in the company’s favour– Galilee Basin coal is high quality, low in ash, is low gas and is low in sulphur which is far cleaner burning then a lot of the coal going into India and China from Indonesia.

“China’s making moves to ensure they do get a cleaner burning, lower ash, lower sulphur higher energy coal, which is what the Galilee has,” he said.

Queensland deputy premier Jeff Seeney said last month’s project approval demonstrates the government’s determination to enhance the state’s economy. 

Not only will there be significant jobs, and local development, there will also be additional revenues earned with both Alpha and Kevin’s Corner estimated to inject approximately $40 billion into the region over the life of projects.

The Kevin’s Corner development will include two open-cut and three underground mines, a workers camp which will accommodate up to 2000 workers, and an airport with a 2.5 kilometre run way.

The Kevin’s Corner deposit consists of four main thermal coal seams which vary in thickness from five to eight metres, making it suitable for low cost open cut mining and underground longwall mining.

GVK has indicated production will consist of three underground longwall operations which will be supplemented in the mine’s infant years by two open-cut pits.

The company said it will take between five and seven years to ramp up to full production after a construction period of two years.

Once online Kevin’s Corner has an estimated mine life of over 30 years. 

Infrastructure

The project’s critical infrastructure includes power which will be temporarily generated by diesel generators, until the power supply authority provides a connection from the Galilee Basin to the site which is expected to be completed during the construction phase.

Operations will commence with electric powered equipment.

Temporary portable water and sewage treatment plants will be installed on site to service the construction workforce, but both are expected to be decommissioned once permanent solutions are in place.

A dedicated ‘pit to port’ multi-user rail line will also be constructed to transport the coal along the 465 kilometre north-south rail corridor to Abbot Point.

Abbot Point port is Australia’s closest port to Asia and has a stockpile capacity of more than 60 Mtpa, which the company says is more than enough to handle capacity coming from both Alpha Coal and Kevin’s Corner mines.

The company’s shipping terminal will enlist quadrant shiploaders to improve efficiencies, reducing cycle times that the ship needs to be on the berth.

With Federal approval “imminent” Mulder is confident GVK is well positioned to sustain a viable and profitable operation no matter the economic climate.

“We’re the frontrunner in the Galilee Basin, we’re the only ones who have Native Title approved, we have a power source, a water source, an EIS granted for the mine, railway and the port from the State and Federal Governments,” he said.

“We’re the only ones that have all of that all together and we’re staring down the barrel of our final environmental approval at the port being a dredge and relocation approval and we’re seeking our mining lease, no one else has that position.”

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