Sept/Oct 2008

Burning desires

Canadian coal is hot

By D. Zlotnikov

Stockpile shovel and tank cars at Neptune Coal

When it comes to metallurgical coal, Canada is among the world’s top producers, and it’s not hard to see why. Aside from the country’s extensive coal resources, stable political climate and excellent infrastructure, Canadian miners have the training and experience needed to keep producing coal in a cost-effective fashion while meeting (and frequently surpassing) environmental guidelines. While this has all been true for a number of years, a few additional factors have recently come into play.

Foremost, of course, is the continuing demand for both thermal and metallurgical coal. Met coal has experienced a particularly significant boost in prices, largely due to increased demand for steel from the rapidly developing BRIC countries. Canada’s fortune is also in part due to Australia’s misfortune. Recent logistical problems, exacerbated by extreme weather in early 2008, have hampered the Australian coal supply. The result was a sharp leap in coal prices — from under $100 per tonne for coking coal last year to recent highs of over $300 per tonne. The thermal side of the business has also seen an increase — a doubling of prices from around the $50 mark to over $100 per tonne.

Shared challenges

Even as the demand for coal burgeons, familiar challenges remain: high costs, long permitting times and tightening environmental regulations. Allen Wright, CEO of the Canadian Coal Association, pointed out that no new coal mines are projected to come online until next year or the year after. Although a number are currently in the permitting process, no assumptions can be made about production until approval is granted. Risks and pitfalls can dog a project even after successful permitting. Pierre Gratton, CEO of the Mining Association of British Columbia, identified two recent examples from the BC metals mining world that underscore the issue.

“One major project last year — Northgate Minerals’ Kemess North proposal — did not proceed, in part due to objections raised by the First Nations communities in the area,” said Gratton. The second project Gratton referenced was the Galore Creek mine being developed by NovaGold Resources. Despite successful permitting, the project was put on hold due to rising costs.

Both circumstances are all too familiar to coal producers not only in Canada but the world over, as projects become more difficult, costly and time-consuming to permit and develop.

Permitting: According to Wright, things may be improving on the permitting side in Canada. “The federal government has formed a major projects management office,” he said. The goal, he emphasized, is not to sidestep or change the permitting process, but to make it more straightforward and avoid the duplication of efforts by provincial and federal regulators.

“Currently, the province might go through the process and then the federal government comes in and wants to go through that same process again,” Wright explained. His hope is that streamlining this procedure will allow more projects to receive their permits sooner and take advantage of the coal-hungry market — a boon not just for the coal industry but for the Canadian economy as a whole.

Costs: The effect of higher energy prices on most aspects of mining is felt by both producing projects and those under construction. “The price of diesel, natural gas and, to a lesser extent, electricity — those you just have to handle,” said Robert Stan, president and CEO of Grande Cache Coal Corporation. “It’s an added cost, but you just grin and bear it; there’s just not much you can do about it.”

Fortunately, the coal production process is not overly reliant on raw energy inputs, and the high price of the product has successfully offset any added expenses on that front; no coal mine in Canada is likely to be forced to shut down because of the price of diesel. But energy is just one variable affecting operating expense, and the pressure is continuing to build from another indispensible kind of energy — people power.

Staffing: Worldwide, mining operations’ need for more qualified workers is old news. Still, the scale of the problem is not always apparent, and the competition is not limited to mining — many of the skills required are common to various heavy industries. A human resources taskforce created by the MABC has put the province’s need at 15,000 skilled labourers by 2010. The situation is especially dire in Alberta, where the mass of oil sands projects is targeting the same dwindling labour pool and offering salaries that few can match.

Given these pressures, finding qualified staff means using innovative recruitment approaches. In response, a number of coal companies have moved beyond the traditional strategies, with promising results.

“We’ve been actively recruiting in Central and Eastern Canada,” said Stan of Grande Cache’s new hiring practices. The company has also not been limited by national borders. “We’ve had some success in bringing people in from South Africa, and also just brought in an engineer from New Zealand,” explained Stan, who said that they have also been recruiting in Australia and the United States. Of course the decision to hire professionals from farther afield is not unique to Grande Cache. Stan mentioned that while recruiting in South Africa, company representatives frequently encounter their Australian counterparts trying to do the same.

Western Canadian Coal Corporation used a different approach to address staffing requirements. When production began at its Wolverine operation, the company opted to bring in a contractor to readily supply the necessary staff. With the staffing pressures somewhat abated, Western was able to train workers who were new to the industry, including those transitioning from BC’s declining forestry sector. The plan, according to Wolverine general manager Bob Bays, is to eventually phase out the contractor’s involvement and staff all of the Wolverine project and the upcoming expansion with Western employees.

Most coal companies are also actively seeking to establish closer ties with educational institutions at all levels — from awareness programs for the K-12 group and offering work-study positions to university students in related fields to training programs for adults wishing to enter the industry.

Gratton said that an HR taskforce put together by the MABC has been working on attracting more under-represented segments of Canada’s population to mining. The groups targeted include women, new Canadians and First Nations communities. “We’ve identified a need for a $40 million investment over the next five years,” said Gratton. “Of that, $10 million is expected to come from the industry.” The taskforce has also been lobbying the BC government to make adjustments to the 2009 provincial budget to further this cause. It remains to be seen whether the government agrees with the taskforce’s strategy, but the feedback from the various ministries and the strong support of the BC Ministry of Energy and Mines has been encouraging. “We’ve really done our homework and can back up our data, which always gives you credibility.”

Equipment: Who could have predicted that one of the Achilles’ heels of operation expansion would be the availability of tires? However, shortages of these machinery basics have become a huge issue, and with good reason — lose one tire too many, and you’ve just lost the use of one of your trucks. And Murphy’s Law dictates it will likely be the largest, most expensive one in the fleet.

“We manage our tires like they’re made out of gold,” said Boyd Payne, president and CEO of Elk Valley Coal Corporation, the world’s second-largest exporter of metallurgical coal. According to Payne, the greatest constraint is in availability of the 63-inch tires, used on 320-tonne and larger trucks.

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