Bede Boyle & George Edwards

1. Australian Coal Conference 25&26 July 2017
RESTRUCTURING OF AUSTRALIAN
EXPORT COAL INDUSTRY
IMPACT OF CHINA AND INDIA
Bede Boyle and George Edwards
Coal Ventures Limited

2. Contents
Restructuring of Australian Export Coal Industry
Impact of China and India Coal Trade Dynamics
1. Demand for Australian High Quality Coals
2. Coal Market Volatility is Driven by China
3. India is now Largest Importer of Australian Metallurgical Coal
4. Convergence of Three Trends is boosting Coal Industry Profits
5. Restructuring of Australian Coal Industry
6. Capital Expenditure in Mining will be Further Constrained in 2017
7. Timing of NSW Brownfield and New Projects is Uncertain
8. Timing of QLD New Projects is Uncertain
9. About Coal Ventures Limited
10.The New Industrialist – Free Industrial Leadership Resources

3. 1 Demand for Australian High Quality Coals
Over half the worlds population is in Asia
Asia demand pull for Australian high quality coals
for energy security and to drive economic development

4. 2. Coal Market Volatility is Driven by China
China coal imports are small margin on very large domestic base
China 2016-2020 plan will lift production from 3.7billion t in 2016 to
3.9billion t in 2020. [Australia exported 386Mt ~ 10% China Production]
In 2016 China imported 57Mt of metallurgical coal and 156Mt thermal
coal which totals only 5.7% of China production of 3.7billion t.
In 2017 the Chinese government has conflicting objectives:
Firstly to close unsafe coal mines which will decrease production and
Secondly to lower prices to domestic users by increasing production.
China Domestic Prices will determine the competitive Price
threshold for Imports.
The government’s targeted range for China coal mine sales is
RMB500 to 570/t (US$72.67 to 82.85/t) FOB, basis 5,500 kc NAR.

5. 3. India is now Australia’s Largest
Market for Metallurgical Coal
Metallurgical Coal
India is dependent on 50Mtpa imported coking coal to meet its needs.
• Domestic coking coal is poor quality
15%-18% Ash and has poor coking properties.
• Target imports will reach 90Mtpa to support increased steelmaking
capacity.
Thermal Coal
Indian production in 2015/16 was +600Mt - Target is 1btpa.
• Main producer is Coal India Limited (‘CIL’) – 540Mtpa.
• However, Steaming coal quality is poor,
4,000 kcal/kg (gad) average and 40% Ash.
• India imported 160Mt Thermal Coal in 2016, mainly from Indonesia.
• India’s imports will be underpinned by nearly 100 new coal fired
power plants currently under construction and scheduled to come
online by the end of 2018.

6. 4. The Convergence of Three Trends is
Boosting Coal Industry Profitability
1. 2016 saw the upswing for both Thermal and Metallurgical Coals
from the bottom of the price cycle which is continuing in 2017
Newcastle 6,300kcal Thermal Coal US$50 to US$99.50/t FOB
Semi Soft Coking Coal US$55 to US$104.85/t FOB
Premium Metallurgical Coal US$80 to US$175/t FOB
[source Platts 21 July 2017]
2. By 2016 the Australian coal industry had successfully reduced its
structural cost base by about 30% to A$60-A$70/t from 2012 levels.
3. Reduction in the AUD/USD exchange rate from 1.05 in 2012 to 0.75
0.79 @ 21 July 2017 is boosting A$ earnings for Producers
Newcastle 6,300kcal Thermal Coal US$99.50/t = A$126/t FOB
Semi Soft Coking Coal US$104.85/t = A$132/t FOB
Premium Metallurgical Coal US$175/t = A$221/t FOB

7. 5. Restructuring of Australian Coal Industry
Divestment of ownership from multinational resource corporations,
Anglo American, BHP Billiton, Peabody, Rio Tinto and Vale is
creating a new disaggregated industry dynamic with emerging new
players:
• Stanmore Coal - Isaac Plains QLD
• Tarus Funds Management – Foxleigh QLD
• Australian Pacific Coal – Dartbrook NSW
• MACH Energy [Indonesia Salim Group] – Mt Pleasant NSW
• South 32 – Illawarra Metallurgical Coal NSW

8. 5. Restructuring of Australian Coal Industry
However there are emerging Investment Risks with both mining
companies and mining service contractors entering
administration.
1. China state owned Caledon Coal is in administration following
closure of Cook Colliery with large inflow of water into longwall.
2. Failure of Caledon Coal has exacerbated the failure of Bandanna
Energy with around 11Mt of 27Mt WICET capacity entitlements
defaulted on to potentially require Restructuring of $4.3bn debt.
3. India owned Wollongong Coal has stopped production with its
mining services provider Delta SBD entering administration.

9. 5. Restructuring of Australian Coal Industry
The costly and torturous path with community and political
impediments to exploration and development of new coal
mines in NSW and QLD is creating uncertainty for investors.
BHP Caroona The NSW Government made the unprecedented
move in 2016 to buyback Caroona licence from BHP for $220
million, after strident community and political opposition to the
project.
The concession had been acquired by BHP from the state
government in 2006 for $100m, with the company having invested
over a decade in exploration and development approval processes.

10. 5. Restructuring of Australian Coal Industry
Shenhua Watermark Shenhua acquired the Watermark exploration
license for A$300m in 2008 through a NSW Government tender.
In July 2017 the Government reached agreement with Shenhua to
refund Shenhua A$262m from the original amount of A$300m in
return for 51.4% of the land area within the license which overlapped
prime agricultural land in the Liverpool Plains.
Chairman of Shenhua Australia Liu Xiang said “Shenhua will continue
to progress its Watermark Coal Mine on the remainder of EL7223 in
line with the planning approvals from both the State of NSW and
Commonwealth Government respectively in 2015.”
[ source Australian Coal Report 12 July 2017]
These impediments are stimulating interest in the comparative
economic advantages in acquisition of existing producing mines
with Development and Environmental Approvals in place.

11. 5. Restructuring of Australian Coal Industry
Yancoal Australia acquisition of Rio Tinto Coal & Allied, Hunter
Valley Thermal Coal Assets will make Yancoal Australia’s largest
pure coal producer, with expected ROM coal production of +70Mt
for CY 2017.
Yancoal's major shareholder is Yanzhou Coal Mining Company
Limited (78%) in the People’s Republic of China. Yanzhou is publicly
listed on the Shanghai, Hong Kong and New York stock exchanges.
Historical Ownership Progression from Australia to China
1. J&A Brown and Abermain Seaham Collieries [JABAS]
2. Coal & Allied Industries Limited
3. Coal & Allied acquired RW Miller
4. Rio Tinto acquired Coal & Allied
5. Yancoal binding bid for Rio Tinto Coal & Allied

12. 6. Capital Investment Spending in mining will
be further constrained in 2017/18
Firms in mining expect a further dive in investment spending in 2017-
18 (down nearly 30%) as projects are moving into the production
phase. AICD Chief Economist 23 February 2017

13. 7. Timing of NSW Brownfield and
New Projects is Uncertain
Latent Hunter Valley Coal Chain Capacity
The key factor is Unused Take or Pay Rail and Port Commitments
There is an economic imperative to use Take or Pay Commitments
Name Plate [installed]Port Capacity 211Mt [PWCS + NCIG]
2016 Contracted Export Coal Volume 190Mt [ARTC]
2016 Port of Newcastle Exports 161Mt Actual Exports
Latent HVCC Capacity ~30Mt Unused
This is within Brownfield capacity expansion projects with
Development Approval in place including Hunter Valley Operations,
Narrabri and Moolarben. [Bede Boyle client study 2015/16]

14. 7. Timing of NSW Brownfield and
New Projects is Uncertain
Brownfield expansion projects will precede any financial
commitment to new projects which will require the coal price to
strengthen in 2017.
In the Hunter – Gloucester Coal Basins some producers can
beneficiate coal to capture the ~ A$12 price margin for Semi Soft
Coking Coal and may commit to CHPP upgrading projects in 2017.
Also the A$30/tonne price differential between Newcastle Thermal
6,300kcal GAR and High Ash 5,500kcal NAR may be the trigger for
upgrading coal washing circuits in 2017 to capture higher prices for
6,300kcal GAR Specifications.
A$10/t washspread benefir calculated as $3.50/t washing cost, 20%
yield loss and $20/t port and rail costs. [IHS washspread calculation]

15. 8. Timing of QLD New Projects is Uncertain
Queensland Metallurgical Coal
Queensland is the largest global exporter of metallurgical coal,
shipping more than 162 million tonnes in 2015-16.
The strong long term demand fundamentals for metallurgical coal
means a number of projects are in the planning / construction /
ramping up production pipeline.
Construction Byerwen and Eagle Downs are in construction / early
stages of production adding 14Mt of output together.
Planning Several other large projects including Anglo’s Moranbah
South mine and BMA’s Red Hill are planned to produce
approximately 14Mtpa.
Feasibility studies are progressing on a further 10 metallurgical coal
projects, but few are likely to proceed to production. A lack of access
to capital is the major hurdle faced by would-be developers.

16. 8. Timing of QLD New Projects is Uncertain
Queensland Thermal Coal
The most advanced project is Adani Enterprise Limited Carmichael
project in Queensland’s Galilee Basin. Adani is pushing ahead with
government approvals for the A$22billion project which will be
Australia’s largest coal mine with six open-cut pits and five
underground mines.
Adani is hoping to start work on the mine sometime in 2017. If the
project were to go ahead it is expected to begin production in late
2022.
Jeyakumar Janakaraj, CEO & Country Head – Australia, Adani
stated to Austmine Brisbane Event on 8 June 2017 that the Adani
Board had agreed to develop the project.

17. 9. About Coal Ventures Limited
Expert Advice and Support for
Coal Acquisitions and Divestments in Australia and Internationally
George Edwards has been involved with coal for some 50 years and
has part owned and operated three export coal mines since starting up
his own companies 30 years ago. He has over 100 clients worldwide
and is involved in JORC evaluations, valuations (VALMIN), feasibility
studies, project / mine sales and purchases as well as coal sales and
purchases.
George was Director Marketing with Coal & Allied, Chief Executive in
Australia for Consolidation Coal Company of USA and Chairman and
General Manager of Gollin Wallsend Coal Company Limited.

18. 9. About Coal Ventures Limited
George Edwards was
Member of First Australian
Coal Mission to China in
October 1976
George Edwards Appointment
as first senior foreign advisor to
China Mining Association in
November 2012

19. 9. About Coal Ventures Limited
Bede Boyle is a corporate and strategic advisor with 20 years’
experience in coal divestments, acquisitions, and mine, rail and port
developments and operational strategies in NSW and Queensland.
Powercoal
FreightCorp

20. 10.
Free Industrial Leadership Resources www.thenewindustrialist.com.au
Boosting Coal Productivity and Maintenance Performance
PART A - THE STRATEGIC CONTEXT [Our CVL Presentation Today]
PART B - BOOSTING PRODUCTIVITY AND MAINTENANCE PERFORMANCE
PART C - METS COLLABORATION AND INNOVATION SOLVES INDUSTRY
PROBLEMS
Leveraging METS Capability to Boost Performance
For free Executive Briefing Paper contact
Bede Boyle Chairman Manufacturship Group bede@manufacturship.com

21. Thank You
George Edwards
gee1941@gmail.com
Bede Boyle
boyle.bede@bigpond.com