Rmi Sydney Feb08

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Australian Comparisons with Chinese

Export Coal Sector

Presented by

Gary CochraneManaging Director

Resource Management International Pty Ltd

Director

Millennium Coal Pty Ltd, Bounty Industries Ltd



30 April 2012 Resource Management InternationalPty Ltd

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Chinese Coal Industry 2007

• Very large industry producing over 2.4 billion tonnes of coal per annum;

• Main producing areas are Shanxi, Shaanxi, Inner

Mongolia, Beijing, Shandong Provinces;• Almost 95% of coal production is by underground

mining methods, government requires 70% recovery;

• All types of coal mined including lignite, bituminouscoal, anthracite, coking coal;

• Exports at 58 million tonnes in 2007;• Imports were 57 million tonnes;

• Coal can be trucked, railed and shipped very largedistances from Central China to Southern China.



Significant Production Growth in China

over the last 10 yearsYear Total Production

(Mt)

Imports (Mt) Exports (Mt)

2000 950 3 40

2003 1,600 13 96

2007 2,600 57 58

2010 3,000 65 30


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Chinese Industry Demand 2006

• Total - 2,200 Mt

• Power – 1,165 Mt

• Construction – 368 Mt

• Steel – 350 Mt

•

Chemical –

134 Mt• Others 192 Mt


4



Australian Production Growth

Year Total Production

(Mt)

Imports (Mt) Exports (Mt)

2000 320 0 187

2003 350 0 215

2007 395 0 250

2010 440 0 290


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Export Coal Structural Issues

• Proximity to the coast:

– China has rail haulage up to 1,000 km and

increasing;

–

Australia has rail haulage up to 280 km.• Major types of mines:

– China has up to 95% underground mines;

– Australia has approx 50% underground

• Resource Depletion:

– Chinese u/g mines on the coast up to 800 m deep

– Australian mines max depth of 450 m


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Operating Cost Issues

• Chinese mining wages increasing by at least

15% per annum, Australia at around 5%;

• Chinese inflation running at over 7%,Australia at 4%;

• Deeper mines in China with high gas and

spontaneous combustion;

• Chinese export tax reimbursement decreasing

from 13% to 0% over the last 4 years;


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Coal Quality Issues

• Thermal coal quality changing to lignites in

Inner Mongolia for many new mines (with

mine mouth power stations);• Coking coal quality very poor and limited to

two areas including Shanxi and Heilongjiang

Provinces (long rail distances);

• Significant investment in mine mouth coal to

liquids (oil and methanol) with strong demand

increasing to over 200 mtpa.


8



Geographic Issues

• Increasing demand in Southern China with limitations

on supply from Central China where major coalfields

are located;

• Reduced competitiveness with Australians and

Indonesians to Southern China;

• Increased concern over sovereign risk with

Government banning all exports for the next two

months.

• Currently importing over 20 mtpa from Vietnam who

will soon move to be a net importer.


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Chinese Industry Rationalisation

• State Owned Enterprises consolidating and also listing subsidiaries

on the Chinese and international stock markets, Shenhua (2nd

largest coal company in the world behind Peabody), Datong,

China Coal, Yanzhou;• Govt closing 40,000 -50,000 small and illegal mines;

• Power utility split into 5 large groups all wishing to acquire coal

mines in China;

• Large conglomerates wishing to invest overseas like Yanzhou

(Austra mine in Australia), Huadian (Millmerran)• Entrepeneures developing small projects in Inner Mongolia;

• Still have very high mortality rate although 20% reduction in 2006

to just over 4,000 workers


10



Chinese Industry Rationalisation

• Chinese companies now considering larger acquisitions

inAustralia;

• Rapid energy demand and closure of small mines

leading to severe shortfalls, recently compounded by

snowfalls – govt has banned coal exports until mid

March

• Government starting to limit foreign investment in key

commodities, some minor limitations on coal at present

• Shortage of senior management leading to spiralling

wages for executives now comparable to Australia;


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Rmi Sydney Feb08

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