There has been considerable debate about the future of the mining industry in Australia, and whether the boom will end.

I would like to point out some facts and start a sensible discussion on the coal mining topic.

Firstly, who has all the coal:
USA: 22%
Russia: 14.4%
China: 12.6%
Australia 8.9%
India 7%
Germany 4.7%
Ukraine 3.9%
Kazakhstan 3.9%
South Africa 3.5%
Serbia 1.6%
Colombia 0.8%
Canada 0.8%
Poland 0.7%
Indonesia 0.6%

Who is the biggest exporter of thermal coal in the world:
Indonesia

Who are Indonesia’s biggest customers:
India and China

Why is the 14th largest coal deposit nation the biggest exporter and why do they sell to 3rd and 5th largest deposit nation:
Price. Indonesia can sell coal loaded onto a ship for between $30-50/tonne. Australian costs are around $80/tonne. Chinese costs are around $98/tonne.

Why is Indonesian coal cheap:
It is easy to win, in reasonable yield deposits of reasonable calorific value, located on the banks of the endless wide slow rivers of Kalimantan.

Why is it east to win:
The Indonesians use open cut mines and coal washeries, as opposed to longwall mining which has to chase seams of quality coal. An average yield for an open cut mine would be about 1:1, or for every tone of coal extracted there is a tonne of waste. A longwall operation has a far better recovery yield of about 4:1, recovering four tonnes of coal for every tonne of waste, due to the targeted nature of following a coal seam.

However the coal needs to be separated from the waste (usually shale) in all but the highest yield deposits. This process, called washing, is carried out as close to the extraction site as possible, to avoid shipping waste material.

The need to wash even all but the best yielding underground material has given open cut mining a distinct advantage over the last 25 years.

Why is it reasonable calorific value:
A typical Australian thermal coal contains 6,080 kcal/kg of usable energy.
A typical Indonesian thermal coal contains 5,500 kcal/kg of usable energy.
A typical Chinese thermal coal contains 5000 kcal/kg of usable energy.
A typical Indian thermal coal contains 4000 kcal/kg of usable energy.

Why are the rivers an advantage:
In Australia where the coal is transported via rail the transport costs account for around 25% of the cost of a tonne of coal, compared to labour costs of 22% and operational costs of 21%. At $80/tonne this would mean around $20 per tonne just for transport to the port.

Rail is also expensive and difficult to establish, involving engineering feats such as bridges, cuttings and tunnels, and is subject to complexities of government and labour control.

The Indonesian rivers are free, and they already exist. It gives Indonesia a big competitive and cost advantage.

Why does China import coal:
China now imports around 180 million tonnes of coal a year, despite having its own huge resources. The problem is the coal is located in the western and northern inland provinces. The two provinces of Shanxi and Shaanxi and the autonomous region of Inner Mongolia alone account for nearly 70 percent of China’s proven coal reserves and more than half of national coal output. However the coal consuming centers are located along China’s heavily populated eastern and southern coastline, and coal must be transported long distances via railways, roads, inland rivers and via coastal shipping from the west to the east and from the north to the south. This adds considerably to the cost and the railways present a huge bottleneck. They cant move the coal fast enough.

In addition the Chinese mines are mines are small, and are owned by township and village enterprises. They are labour intensive and low productivity underground operations, without the ease of open cut or the high technology of longwall seam mining. Where the resources are suited to open cut, in Inner Mongolia, there is social resistance to the land seizure activities required for mine expansion.


Why does India import coal:
India has similar but less pronounced problems with transport from the mines to the consumers as China has. Although India has a well developed railway network, transporting the coal from the mines to the population centers adds greatly to the cost and puts tremendous strain on India’s struggling railway system.

India doesn’t currently have the mining capacity to supply domestic demand especially as the Indian coal is deep underground and requires complex mining technology to extract it.

Indonesia coal, because it is easy (and cheap) to win and is mined close to the port, is far cheaper. Therefore India is buying cheap coal to supplement local demand and subsidise the economy.


Why the Indonesian mining boom will end:
1. By 2016-17 the mines located near the main rivers will have exhausted the easy to win coal resources. They will have to move fresh deposits by truck or build railways lines, both adding greatly to the cost. Already Russia is negotiating to build a railway line in Kalimantan to move 20 million tonnes of coal a year, at a cost of $2.4 billion. This is bound to push up prices to global levels.

2. Until 2009 the miners were domestic owned, and sold coal at prices they set. This was usually far lower than the regional spot price which is set at Newcastle Port NSW. The Mineral and Coal Mining Law (No. 4/2009) changed that, forcing miners to sell at a price set by the Indonesian government. The price went up and the tonnage sold went down. Indonesia is no longer relying upon its competitive advantage of cheap production costs and are in open competition with the rest of the world.

3. The government introduced a new law in 2012 GR24/2012 stipulating that foreign owned mining operations had to divest 51% interest by the 10th year of commercial production. For many mines that will occur around 2008.

Based upon the above Indonesia will cease to b the biggest exporter of steaming coal within the next 4-5 years.

The most obvious replacement is Australia.

happy to support all of the above with references.

Interesting post. Will look forward to debate.

I think the key thing for people to understand is that it is a simple equation involving:

Calorific value, yield ratio (although modern coal prep plants tend to equalise this to some degree), extraction costs, transport costs and any local taxes.

Labour rates are very similar wherever you mine because so few people are actually employed in open cut mining, and most of them are expats on the same rates wherever they are - Mongolia, Africa, Australia or Kalimantan.

Once any of those factors change, other coal produces become the preferred supplier.

Really, my father in law has coal mines in Kalimantan, they don't use any expatriate labor
My brother in law has built a refinery in Java again without any expatriate workers.

There are a lot of small scale mining operations in Indonesia, using the old Contract of Work or Coal Contract of Work licences. There are also unlicensed mines and mines with highly suspect provincial licences or arrangements.

But on the scale of thing they are relatively unimportant. They wont impact any decision to move production elsewhere. Many stop and start according to the spot price, and many are currently mothballed.

After all an open cut mine is nothing more than a hole in the ground.

these are typical figures from an Australian open cut mine.

they show how 38 hourly staff and 15 salaried staff mine 5000 tonnes of coal per day using 1 front end loader, 1 hydraulic shovel, 5 dump trucks, 4 bulldozers and 1 grader. Plus a rotary drill.

I have highlighted the labour issues.

Mine Type: Surface Mine
Stripping Ratio: 1:1
Ore Production: 5,000 tonnes per day
Waste Production: 5,000 tonnes per day

Haul Distance - Ore meters 1,068
Haul Distance - Waste meters 535
Total Resource tonnes 18,715,000

Hours per shift 10
Shifts per day 2
Days per year 312

Bench height - Ore meters 5.49
Bench height - Waste meters 8.53

Powder factor - Ore kg/tonne 0.28
Powder factor - Waste kg/tonne 0.23
Development
Preproduction Stripping tonnes 150,000
Haul Road Construction meters 1,603
Equipment
Hydraulic Shovels 1-4.5 cu.mt
Front-end Loaders 1-5.4 cu.mt
Rear-dump Trucks 5-36.3 tonne
Rotary Drills 1-17.15 cm
Bulldozers 4-125 kW
Graders 1-150 kW
Water Tankers 1-9,500 liter
Service/Tire Trucks 3-6,800 kg gvw
Bulk Trucks 1-450 kg/min
Light Plants 4-13 kW
Pumps 2-4 kW
Pickup Trucks 4
Buildings
Shop sq.meters 486
Dry sq.meters 221
Office sq.meters 383
Warehouse sq.meters 297
Anfo Storage Bin cu.meters 20
Hourly Personnel Requirements
Drillers 2
Blasters 2
Excavator Operators 4
Truck Drivers 7
Equipment Operators 9
Utility Operators 2
Mechanics 4
Laborers/Maintenance 8
----
Total Hourly Personnel 38
Salaried Personnel Requirements
Manager 1
Superintendent 0
Foreman 2
Engineer 1
Geologist 1
Supervisor 2
Technician 4
Accountant 0
Clerk 1
Personnel 0
Secretary 2
Security 1
------
Total Salaried Personnel 15
Primary Supply Requirements
Diesel Fuel liter/day 5,262
Electricity kWh/day 639
Powder kg/day 2,550
Caps #/day 22
Primers #/day 20
Drill Bits #/day 0.07
Det. Cord m/day 287
Cost Summary
Operating Costs
Supplies & Materials $/tonne ore $2.07
Labor $/tonne ore 1.96
Administration $/tonne ore 0.82
Sundry Items $/tonne ore 0.48
------

There are 4500 expatriates working in the Indonesian mining industry in 2012.

The other main data point is that coal extraction and use is very polluting and destructive. If the world is not to do a Willy E Coyote impression off the climate cliff, it will have to curtail coal use to cut CO2 emissions. Australia would have been much better off cutting back on coal exports than implementing a carbon tax - from a CO2 perspective.

As people finally realise that climate change is happening, and killing people, there will be a move to scale back on CO2 emissions. Too little, too late, but it will happen. There will be a move towards 'polluter pays', and Australia will be considered a polluter (as it is).

Oh, and when China hits its growth rate wall (as might be happening now), bang goes that market as well.

As such, we should not rely on coal mining, and should be aggressively looking to setup a situation where it declines away without bringing down the Australian economy.

TL;DR

You make some very good points especially about the ludicrous decision to bring in a carbon tax when you export massive amounts of coal. The massive pollution over Beijing last week is an increasing occurrence for the Chinese and they will not be able to tolerate this in the long term.

I cant see coal being very popular in years to come, even the Chinese will realise they cant carry on polluting their country to the extent they are.

Will the Chinese demand for coal continue:

China is the largest coal consumer in the world. In 2010 it used 3319 million tonnes of coal, compared to second place USA with only 959 million tonnes.

There are over 2,000 coal fired power plants located in China. At one stage (2007) China was commissioning a new power plant every 4 to 7 days. Most of the plants are relatively new and have not recouped the investment. Many of the new plants high efficiency “clean” design, and there will be a reluctance to close them.

China is still building new power stations. In a report released late last year by the World Resources Institute it was estimated that there are 1199 new coal fired power stations under construction or in the planning stage. Over 76% of those new power stations are in China or India.

Late last year the International Energy Agency issued its second “Medium Term Coal Market Report”. which showed that China, already the world's biggest emitter of CO2, is now heading for a 50 per cent increase over the next 20 years. China will increase its annual CO2 emissions by something over 2.5 million tonnes.

The report also offered a Chinese Slowdown Case, a hypothetical scenario which showed that even if Chinese GDP growth slowed to 4.6% average over the period, the country’s coal consumption would continue to grow.

The report also showed that the world will burn around 1.2 billion more tonnes of coal per year by 2017 compared to today – equivalent to the current coal consumption of Russia and the United States combined. It also stated that says China will surpass the rest of the world in coal demand during the outlook period, while India will become the largest seaborne coal importer and second-largest consumer, surpassing the United States.

The IEA predictions are backed up by private research consultants. Macilvane Consulting estimate that there will be no slow down in coal demand before at least 2020, and by that time world coal-fired power plant capacity will grow from 1,759,000 MW to 2,384,000 MW.

There is no evidence whatsoever to suggest that Chinese coal consumption will slow, and a great deal to suggest it will continue to rise until at least 2020.

Again, all references available on request.

So we have a situation where the worlds largest coal importer will continue to import in even greater quantities, and the worlds largest exporter i going to run into difficulties in the next few years.

I dont see the Australian coal boom ended for some time.