Metallurgical coal prices have fallen to their lowest point since 2009, and nowhere in Canada has the fallout been more severe than in British Columbia,
where nearly 90 per cent of all steelmaking coal in the country comes from.
Hard coking coal lost more than half of its value between the second quarter of 2011 and early 2014, falling from US$313 per tonne to roughly US$120 per
tonne in May, prompting B.C. miners to slash jobs and scale back plans for new expansions. The downturn could also derail B.C. Premier Christy Clark’s
target, set back in 2012, of realizing eight new mines and nine expansions by 2015.
The biggest blow so far came on April 15, when Alabama-based Walter Energy announced the suspension of operations at the Wolverine mine in the province’s
northeast, leaving 415 full-time workers in limbo. The company will cut another 280 jobs this July with the idling of the Brazion mine operations.
“Particularly at Wolverine, the complex geologic conditions and distances involved in moving coal to the port influences our costs of production and cost
of sales,” said Tom Hoffman, Walter Energy’s spokesman, of the decision to halt operations.
Meanwhile Teck Resources, Canada’s biggest coal producer with five metallurgical coal mines in B.C. and western Alberta, deferred its newly permitted
Quintette mine expansion near Tumbler Ridge last year. In a conversation with CIM Magazine in May, Teck spokesman Chris Stannell would not confirm the fate
of two other recently permitted metallurgical coal expansions in B.C., noting only that the economics of expansion remain bleak. “We estimate that as much
as 35 to 40 million tonnes of global seaborne-traded steelmaking coal is currently being produced at a negative margin at current prices, which is not
sustainable,” he said. For comparison’s sake, Teck produced 26.9 million tonnes of metallurgical coal in 2013.
A continued slowdown in coal production does not bode well for the province: the mineral represents over 50 per cent of its total mineral production
revenues and is B.C.’s single largest export commodity. Most of it is exported to South Korea, Japan, and China, where it is used to manufacture steel.
B.C.’s rich deposits of metallurgical coal are concentrated to the eastern extremities of the province, much of it controlled by Teck Resources, which
became the second biggest global exporter of seaborne metallurgical coal after it purchased Fording Canadian Coal Trust for about US$14 billion in 2008.
One bright spot is Anglo American’s ongoing expansion of its Trend mine near Tumbler Ridge. Last August, as prices were already dropping, Anglo American’s
CEO Mark Cutifani made a point of visiting Trend-Roman for an earth-turning ceremony, as a symbolic show of confidence not only for the project but in the
future of B.C. metallurgical coal. At the time, the company said the expansion was made economic by the low production costs at the new Roman site, located
next to the Trend mine with an existing rail link to tidewater.
In March, the company received final permitting allowing roads and a bridge to be built to access the Roman deposit. “Our project is moving ahead despite
the present market conditions,” said Federico Velásquez, Anglo American’s director of corporate and external affairs Canada, in May. “This is good news in
terms of metallurgical coal for British Columbia.”
The proposed Murray River underground coal project near Tumbler Ridge also appears to be moving forward. The project gained notoriety across Canada in 2012
when its owner, HD Mining, planned to hire temporary foreign workers from China to work on the site. The company is proceeding under a permit that will
allow for the bulk sampling of 100,000 tonnes of coal as the prelude to a potential mine, as the project continues to advance through the B.C. and federal
environmental assessment processes.
The current low prices partially reflect global oversupply brought on by a glut of coking coal from Australia, said Geordie Mark, a researcher at
Vancouver’s Haywood Securities. But his firm is forecasting a rebound in metallurgical coal prices leading to an anticipated 2016 price of $175 per tonne.
This optimism is based on two interrelated facts: a fixed amount of metallurgical coal exists in the world, and it is indispensible in making steel. And
while concerns persist about a slowdown in the rate of Chinese growth, Mark said the important thing is that continued strong growth is still occurring
For the interim, the situation remains dire for companies hoping to raise money and advance early-stage projects like Compliance Energy’s Raven coal
project on Vancouver Island.
“Mining companies across the world, particularly those in the exploration and development phase, are finding it tough right now to attract funding from the
equity markets,” said Mark. “But the sector will pull through; we’ve been through this cycle many times.”
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