Australia coal miners see short-term gloom, long-term boom: Clyde Russell

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

BRISBANE (Reuters) - Australia's commodity boom is far from being bust, but the distinct impression at the coal industry's annual conference is that it's definitely on hiatus.

There is always a gap between public pronouncements and private views and actions, and at the Coaltrans Australia conference this week it seemed that this dichotomy has widened in recent months.

Publicly the coal miners are putting on a brave face that despite the slump in global coal prices and questions over the bullish projections about future Chinese and Indian coal demand, they are still on track to invest billions of dollars.

The investments, if all delivered, will almost double Australia's current exports of coking and thermal coal to about 600 million tonnes a year.

However, speak to delegates away from the conference stage and a different picture emerges.

"Everybody is still talking a good game, but at the same time rowing back from actual investments," is how one executive at a coal mining company put it.

At the same conference last year, a parade of large and small coal miners presented ambitious plans to develop mega mines in new basins, complete with plans to develop rail and port infrastructure.

This year, the tune had completely changed, with more talk focused on where Australian producers sit on the cost curve, and how only the cheapest projects are likely to get sufficient funding to get up and running.

There was very little mention of the plans to open up the Galilee basin, Australia's largest undeveloped coal reserve.

Perhaps this is because the industry has realized that building huge mines that require greenfield railway lines of up to 500 kilometers and new port terminals is just not going to work in the current economic environment.

The major projects in the Galilee basin, including ones being promoted by billionaire Clive Palmer's Waratah Coal, and India's Adani and GVK, didn't present at the conference.

The one Galilee project that did brief is a smaller venture being run by junior miner Bandana Energy, and even then Chief Executive Michael Gray spent most of his time talking about the company's more advanced projects in the Bowen basin, where there is existing rail infrastructure and new port capacity under construction.

It also became clear that while miners are all about gloom in the short term, they still believe in the long-term boom.

But it is also clear that the unbridled optimism of the past is gone, and the focus is now clearly on trying to manage costs so that projects can proceed.

Here, the news for Australian producers isn't that encouraging, with Wood Mackenzie analyst Brent Spalding showing how local miners have moved from being predominantly in the first and second quartile of the global cost curve to being in the third and fourth quartiles.

This rise in costs has been driven by higher labor charges, increased capital expenditure to build mines further away from ports and increased regulatory imposts caused by environmental impact studies, higher state government royalties and the federal government's carbon tax.

For example, in the 1990s it took about a year to secure a mining lease, now it takes up to three years, and this is just one step in bringing a coal reserve to production.

The carbon tax can add as much as A$4 ($4.20) a tonne to costs, which would have been less of an issue if thermal prices had stayed close to $130 a tonne and coking above $300 a tonne, but they have dropped to closer to $90 and $200 respectively.

At these price levels, a gassy underground mine will likely find that paying A$4 a tonne in carbon tax is the difference between profits and losses.

Thermal coal prices at Newcastle port, the Asian benchmark, have recovered in recent weeks to $92.31 a tonne from the 2012 low of $85 a tonne, but they are still down about 20 percent so far this year and may find it hard to rally as long as Chinese economic growth remains soft.

This has led to a succession of warnings from coal companies, including major producers such as BHP Billiton, of job losses and output cutbacks.

While most remain committed to their expansion plans, there is also a slowing of work, with several contractors telling of having jobs cancelled or curtailed.

So far, it's mainly the major companies that have trimmed costs, ironically leaving the door open for some of the more junior miners to press ahead with their projects.

During the boom times, the small players tend to be crowded out of the market for skills and finance, but in a downturn they can get labor cheaper and make more of a case for raising cash as long as they can demonstrate they are in the lower half of the global cost curve.

"There are plenty of people giving me business cards," is how one executive at a junior miner put it at the Coaltrans conference.

Ultimately, if you do believe that China and India's appetite for coal will grow strongly on the back of their ongoing industrialization and urbanization, then investing in new mines when the majors are pulling back makes a lot of sense.

But it also means that forecasts that Australia will be able to double its coal exports within 10 years from now are likely optimistic.

Rather incremental increases are likely and the next five years may see an extra 50 million tonnes of capacity added to the existing 350 million, and this will mainly be put in place by junior miners. (Editing by Himani Sarkar)