A New Hope - Australian Mining Monthly
15 December 2015
Coal has had a tough time of it in the past few years. Commodity prices are down, and opposition to some projects is on the rise. But admidst the doom and gloom one miner is making things work.
By Andrew Duffy
As printed in Australian Mining Monthly December 2015
That miner is Queensland-based New Hope, which operates a number of projects along Australia's east coast. The company actually lifted profitability over the past 12 months and, unlike large swathes of the mining sector, it is debt free.
Even better, it is sitting on a cash pile worth more than $1 billion. That money was recently used to buy a stake in Rio Tinto's Bengalla mine in New South Wales, and New Hope boss Shane Stephan says more deals could be on the horizon. That is good news for the company, which has been roundly praised by analysts over the last few months.
However, while there is plenty to smile about Stephan is under no illusions about the challenges ahead. Productivity growth will be crucial to staying ahead of the curve, and that is an area where New Hope has already made some big inroads.
Cost cutting key
New Hope made solid productivity gains over the past 12 months, with the overall cost of sales for financial year 2015 down 17% or $57.7 million. Administration costs were down 26% and the company booked a solid improvement on the back of lower oil prices.
Some of the most significant gains, however, came from using a Wirtgen surface miner. The machine is a bit of an odd fit for the coal sector, and is best known for its use in
the Pilbara. In fact, New Hope is the first company to use the machine in the local coal sector. It was purchased last year after a 10 month trial.
"We've successfully used the Wirtgen surface miner at our Acland operation, and that's generated cost savings as well as environmental benefits," Stephan told Australia's Mining Monthly.
"It generates less noise and dust, and it's more productive because it's taking the place of two dozers and one loader.
"It's also more fuel efficient than using the three pieces of gear to do the same amount of work."
Eye to the future
While those productivity improvements are all about the here and now, the Bengalla acquisition is a longer term play. The mine produced 8.6 million tonnes last year, with Rio' Tinto's share coming in at 3.4Mt. New Hope picked up Rio's 40% stake for $850 million, however, the deal still hinges on joint venture partners, including Wesfarmers, waiving their right to launch a rival bid. Taking stock of the deal, Stephan said the acquisition was part of a wider strategy to supply high quality coal to China. It's one of several growth options on the table - along with an expansion at Acland - and the company's healthy balance sheet means there is more room to move.
"We own an awful lot of our assets 100%,"Stephan said.
"We have the financial flexibility in order to look at appropriate opportunities as they present themselves."
And while Stevens was cagey on the potential for further deals, there is little doubt that it is a buyer's market at the moment.
"From our actions you can determine that we believe it's certainly an appropriate time to put our balance sheet to work," he said.
Think global, act local
The expansions underway show New Hope is more than confident about coal's place in the world energy mix. Nevertheless, Stephan recognises the rising challenge of renewables and the policy push for clean energy. At the moment clean energy provides only a tiny portion of the world's needs and its high cost makes it a tough fit for emerging economies. That is where high quality coal from Australia fits in, and technological advances should put more strength behind the little black rock.
"Currently there's a lot of sulphide power stations in Asia that were developed in the 1960s and 70s and they're likely to be replaced over time with new super critical and ultra-super critical units," Stephan said.
"These are boilers that operate at higher temperatures and pressures, and they're much more efficient.
"For the same amount of energy they produce around 25% less carbon dioxide than something that was built in the 1970s."
However, while New Hope sees itself as part of a global system, it also has a vision for the local community. The company is a leader on mine rehabilitation and engagement, and established Acland Pastoral almost lOyears ago at the Acland mine. That initiative runs cattle and crops near the project on rehabilitated land. So far New Hope has had up to 3000 people tour the area.
"We see ourselves as land managers, not just miners," Stephan said.
"We believe that mining and agriculture can operate side by side. They're not mutually exclusive."