MELBOURNE (Reuters) - A private equity-backed firm expects to dig a new coal mine in Australia’s prized Bowen Basin in 2017, tapping into a recovery in prices for coal used to make steel at a time when the world’s biggest suppliers have stopped building mines.
Pembroke Resources, led by the ex-boss of Gloucester Coal Barry Tudor, expects the Olive Downs project to start up within 12 months with a 1-million-tonnes-a-year mine and add two more mines by 2019.
“We’d like to get it into production as soon as possible, but we’re not trying to pick peaks in the market,” Tudor told Reuters in an interview.
Backed by U.S.-based Denham Capital, Pembroke bought the Olive Downs project from struggling U.S. coal giant Peabody Energy and China’s CITIC Resources for A$120 million ($92 million) plus an agreed royalty earlier this year.
That’s a fraction of the $2.4 billion boom price that BHP and Mitsubishi Corp paid in 2008 to buy the nearby, still undeveloped New Saraji metallurgical coal project, which has a similar-sized resource.
At full tilt of about 14 million tonnes a year, Olive Downs will be among the largest metallurgical coal mines in Australia, just behind top global exporter BHP Billiton’s nearby Peak Downs mine.
Production costs are expected to be in the lowest quartile due to its large size, high quality coal and proximity to infrastructure. BHP, the world’s lowest cost producer, averaged costs of $55 a tonne at its Queensland coal operations in the year to June 2016.
“We assessed this opportunity based on prices at the bottom of the market,” said Tudor.
Hard coking coal spot prices have nearly doubled this year to $141.75 a tonne, as high-cost U.S. supply has dropped out of the market and Chinese production has fallen.
Tudor declined to put a price tag on construction, but said the first mine, Olive Downs North, would be cheap as the company would pay a toll for another miner to wash the coal rather than build a washing plant.
Olive Downs South and Wilunga would cost a lot more, but not as much as recent mines such as BHP Billiton Mitsubishi Alliance’s $3.4 billion Caval Ridge mine, as Pembroke plans to ramp up production in stages.
“It would compare very favorably,” Tudor said. “It’s something we’re very confident of being able to fund.”
Pembroke is not alone in snapping up metallurgical coal assets from mining giants that are flogging assets to cut debt.
A team led by Taurus Funds Management recently bought Anglo American’s 70 percent stake in the Foxleigh mine, and a consortium led by private equity firm Apollo Global Management is the frontrunner to buy Anglo’s Moranbah and Grosvenor mines.
Reporting by Sonali Paul; Editing by Richard Pullin