Rouble collapse bonus for TIG!

Aust faces Russian coal challenge

• BARRY FITZGERALD - THE AUSTRALIAN
• 16 HOURS AGO

• INDUSTRIES
• RESOURCES AND ENERGY

Australia's struggling coal exporters are facing a new challenge in the form of stiffer competition from Russian exporters in Asian markets, due to the collapse in the rouble underwriting a dramatic improvement in their competitive position.
The new challenge comes as the competitive position of the Australian industry itself has improved thanks to the fall in the exchange rate, lower shipping charges and a concerted cost-cutting effort.
But a fall of more than 35 per cent in Russian costs of production in US dollar terms due to the rout in the rouble overwhelms the gains made here and comes as the Russian industry, traditionally focused on the European market, makes inroads in to Australia’s “backyard” Asian market.

Russia is the world’s fifth-biggest thermal coal exporter producer (117 million tonnes in 2013 according to the federal government’s chief commodities forecaster) and the fourth-biggest metallurgical coal exporter (22 million tonnes). Australia is No 1 in both at 188 million tonnes and 170 million tonnes respectively.
But while as much as 25 per cent of Australia’s exports are estimated to be loss-making at current prices, the Russian industry’s fortunes have turned around sharply thanks to the collapse in the rouble. Industry consultant Wood Mackenzie said Russian coal exports were soaring as costs declined because of the rouble collapse and the 2013 measure to freeze rail tariffs to support the then ailing industry.

It said the impact of the rouble was the most pronounced. “Most of Russian coal producers’ costs are rouble-denominated, while coal sales in the export market are typically denominated in US dollars. This means that Russian coal exporters have benefited significantly from rouble depreciation against the US dollar,’’ Wood Mackenzie said.
It said the overall result to Russian coal exporters had been a fall in average 2014 total cash costs in US dollar terms falling by 14 per cent to 35 per cent compared with 2013, with the range reflecting either the current year average exchange rate of 38.2 roubles per dollar, or the 50-plus rouble rate established in December (out to 70 roubles in afternoon trade yesterday).
Melbourne-based Tigers Realm Coal stands as one of the few ASX-listed companies to potentially benefit from the collapse in the rouble.

It plans to start production late next year at its Amaam coking coal project in far east Russia’s Chukotka province, a region Russia is keen to develop as a gateway to Asia-Pacific markets.
It has estimated cash costs of $US68.50 a tonne, placing it at the bottom of the world’s cost curve.
Tigers managing director Craig Parry said yesterday the rouble woes would probably cut the $120m capex for the project by about 10 per cent.
“Our operating costs — all else being equal and if the rouble deflation persists until when we are producing late next year — will also fall to around $US60 a tonne ($US68.50 a tonne estimate in the project’s feasibility study),” he said.
The rouble collapse also pushes up the net present value of the project substantially. But there could be downside to the rouble’s collapse.

“The only downside we see is that it becomes more difficult to raise US dollars from Russian banks, but roubles remain available, and we are making good progress in our discussions there,” Mr Parry said.
“We also expect any US-dollar-based debt to come out of Asia, and in recent months have made good progress towards securing debt to support the development of Project F.

“So despite market headwinds we approach 2015 confident that we will be building Project F and mining coal by year end and at a good margin,’’ Mr Parry added.
This article first appeared in The Australian Business Review.

http://www.businessspectator.com.au...-and-energy/aust-faces-russian-coal-challenge