...triple whammy: coal price has come down -23% the past month, mining costs have shot up and political costs (via potential windfall taxes) becomes a closer reality. Add to an overcrowded long trade for so long.
Coal mining costs now double 2016 levels Peter KerResources reporter
Nov 9, 2022 – 10.42am
Inflationary pressures in the Australian mining sector have been put in stark contrast by Whitehaven Coal after the company revealed the unit cost of delivering a tonne of its coal to Newcastle Port this year would be approximately double the cost seen as recently as 2016.
Whitehaven said on Wednesday its unit costs would be about 7 per cent higher than previously expected this year because flooding in the Gunnedah Basin would reduce mine production and sales volumes by between 5 per cent and 7 per cent.
Whitehaven now predicts it will cost between $95 and $102 for each tonne of coal that it digs and sends down the railway line to the Port of Newcastle in the year to June 2023.
In the year to June 2016, Whitehaven spent $56 digging and railing coal to Newcastle, meaning the company’s production costs may be double the levels seen just seven years earlier.
Lower sales volumes partly explain the increased costs; Whitehaven sold 15.4 million tonnes of its own “equity” coal in 2016 and will only manage between 13.1 million and 14.4 million tonnes of coal this year as weather and flooding hamper production.
But the potential doubling of costs in just seven years also highlights the inflationary pressures that Whitehaven managing director Paul Flynn has warned of for several years now, including a severe shortage of skilled labour and higher diesel and electricity costs.
Whitehaven has also adopted high-cost tactics like flying workers to site in helicopters in recent months as it seeks to maintain production rates amid regular flooding near its Maules Creek mine.
Whitehaven has also had to ramp up employee salaries at a time when it says the social stigma around coal warrants higher pay for those working in the sector.
“We are offering certain retention initiatives for our people to slow down the turnover, I think that has hit the mark,” said Mr Flynn on October 19.
“You are having to be a little bit more inventive about how you attract these people in. There is the attendant matters that go with that; bringing people in on different roster structures and different pay rates versus other people who are there already, which we are having to deal with, which need to be ironed out just to make sure you have got a harmonious workplace”.
The company’s average costs were $74 a tonne in the 2021 financial year and $84 a tonne in fiscal 2022.
Whitehaven is not the only NSW coal miner that may endure unit costs above $100 a tonne and double the levels reported in 2016.
BHP has told investors to expect unit costs from its Mt Arthur mine to be between $US76 ($116.94) and $US86 ($132.32) a tonne this year.
That range puts BHP on track to double the $US40.52 ($62.34) a tonne unit cost reported for the Mt Arthur mine in the year to June 2016.
BHP’s costs at Mt Arthur have also been affected by volume; Mt Arthur sold 17.7 million tonnes in 2016 but will only sell between 13 million and 15 million tonnes this year.
Yancoal’s unit costs have risen but not as severely as its two neighbours; from $63 a tonne in 2018 - the first relevant year as the miner made big acquisitions to its NSW coal division in 2017 - Yancoal’s costs will rise to as much as $89 a tonne this year.
The unit costs published by Whitehaven – and indeed most mining companies – do not include additional costs like royalties paid to state governments and the cost of shipping the product to customers overseas.
The costs would be even higher if Whitehaven were selling normal amounts of semi-soft coking coal; a product that tends to cost a few dollars extra to make because it requires coal that could be sold as thermal coal to go through an extra process of washing before it can be sold as coking coal.
Whitehaven has been minimising production of semi-soft this year in response to abnormal coal market dynamics where thermal coal for power generation has fetched higher prices than coking coal.
But with coal prices at extremely high levels, Whitehaven can afford to cover the soaring costs of production.
Top quality NSW thermal coal was fetching $US362.14 a tonne ($556.91 a tonne) on November 4, according to price provider GlobalCoal.
The price has averaged more than $US386 a tonne in each of the past six months, putting Whitehaven and rivals like Yancoal and New Hope on track for record profits.
The prices paid for NSW thermal coal this year have smashed all previous highs; between 2008 and September 2021, the price was never higher than the $US194.79 a tonne price that was set in 2008.
