Queensland invader

Eastern by name and eastern by focus: HUGH DE LACY looks at a recent coal industry arrival on the New Zealand scene.

It was set up to look for coal-seam gas in Australia’s eastern state of Queensland, but then the Eastern Coal Corporation looked eastwards across the Tasman Sea and decided to make its mark in New Zealand.

And the signal that it was going to be a permanent fixture this side of “The Ditch” came in March last year when it beat our biggest coal company, state-owned Solid Energy (SE), to one of the plum thermal coal supply contracts in the South Island.

In September of this year the New Zealand subsidiaries of the Australian-listed Eastern Coal Corporation will begin supplying 130,000 tonne of sub-bituminous coal a year for at least the next two years to the Clandeboye, South Canterbury, factory of the giant dairying co-operative, Fonterra. The coal will come from the former Nightcaps mine in western Southland, renamed Takitimu by Eastern, and will be processed through the former Somerville’s Fuel Centre at Washdyke, Timaru.

When one of the corporation’s Kiwi subsidiaries, Eastern Coal Holdings, begins delivering coal to Clandeboye this year, it will signal the first significant return for the Queensland company’s $12 million investment in New Zealand.

Brisbane-based Eastern has a $24 million (A$21 million) market capitalisation on the Australian Stock Exchange where its shares trade for around 4 cents (A$0.03c). Its main shareholders are Becameral Pty (19 percent) and AMP Life (10 percent), and its principal Australian asset is 67 percent of Galilee Energy Ltd, a coal-seam gas explorer working in Queensland’s Galilee Basin. Eastern also owns part of the 30 million tonne Broughton coal resource in Queensland’s Bowen Basin, in a joint venture with Mitsui of Japan. Neither of its Australian assets is yet in production, but managing director Campbell Smith told Q&M the company is making a concerted effort to bring its coal-seam gas on-stream in between 24 and 36 months.

In the meantime it’s cranking up its New Zealand operation in the hope of “giving SE a run for their money”, says Smith, with the Clandeboye supply contract signalling just the start of the rivalry. Other opportunities exist to supply coal to South Island businesses, and Eastern is cranking up its Takitimu opencast mine production to meet them.

However it was the potential to emulate SE in exporting high-grade coking coal from the West Coast of the South Island that first lured Eastern across the Tasman. In June 2005 Eastern acquired an exploration permit for the old Cascade coking-coal mine on the Whareatea Plateau near Westport, which bears strong similarities to SE’s one million tonne per year Stockton Opencast Mine a little further north.

“That permit was what brought us here, but from there the business grew out of the need to understand the local regulatory regime and the relationship with the Department of Conservation (DoC), and just how mining was regarded in New Zealand,” Smith says.

“The Cascade property itself proved quite profitable and we saw an opportunity to expand the business simply because in New Zealand coal is relied on for steam much more heavily than in other countries.”

Australia produces about 80 percent of its electricity requirements from thermal coals, but otherwise they’re put to virtually no other domestic industrial use. “In the South Island the likes of Fonterra and [co-operative meat company] PPCS rely on coal to make steam, whereas you don’t see that in Oz,” says Smith.

Eastern is exploring Whareatea through a subsidiary company, Rochfort Coal Mining Pty, and by June of 2006 had completed an eight-hole drilling programme. The 40 percent of the tenement explored so far has identified a resource of 28 million tonne, and Smith hopes the completion of the programme will hike that total to 50 million tonne.

About a third of the Whareatea resource is coking coal which the company hopes to be exporting within five years, while the remainder is thermal product that it will market in New Zealand. Total annual production is expected to be in the region of one Million tonne per year, and the mine will probably be underground to avoid the huge environmental costs SE faced over the relocation of a population of giant native snails at Stockton. Protesters forced SE to abandon five export shipments last year at an estimated cost of $25 million.

Eastern began its expansion into the domestic coal market with the purchase of both the Takitimu and Washdyke businesses in September of 2006. With 35 staff it quickly raised annual production at Takitimu from 50,000 tonnes to 200,000 tonnes, and spent $2.4 million buying and upgrading the old Somerville Fuels site as a processing and packaging facility to serve both Clandeboye and the household coal markets of the southern South Island. The Washdyke facility will be completed by May this year, in plenty of time for the start of the Clandeboye contract, but is already operating as another subsidiary, Eastern Coal Supplies.

Within a couple of months of acquiring Takitimu and Washdyke, Eastern announced it had been awarded two sub-bituminous coal prospecting permits in western Southland. To be explored by the Rochfort subsidiary with a view to supplementing the Takitimu resource, one permit covers 208km2 and includes the old SE mine at Ohai, as well as a tenement formerly explored by dual-listed New Zealand company Lime and Marble (L&M).

The other permit is for 24 square kilometres of lignite and shale oil at Orepuki on the coast at the southern end of the Longwood Range. Orepuki is a small sub-bituminous field with a recoverable resource of 8mt, from which 85,000 tonne was extracted between 1883 and 1962. It was also the site of the Orepuki oil shale works which operated between 1899 and 1903, processing 6350 tonne of shale at an oil extraction rate of 179 litres/tonne.

“Peak production at our Takitimu project will be somewhere around 300,000 tonnes per year. That doesn’t give us an exceptionally long mine-life, so with the development of Orepuki we’ll have a natural progression from Takitimu for production for Fonterra and whoever else we have at that stage.”

Smith says Eastern’s West Coast, South Canterbury and Southland investments will not be the company’s last. “We’re looking at a number of other properties to purchase. I can’t tell you about them just yet but we’re certainly looking at further investment in New Zealand.”

However the company does not intend to follow SE and L&M into large-scale lignite gasification projects.

Eastern’s New Zealand and Australian businesses operate separately, and not only because of the stretch of water in between. The Queensland coal-seam gas project may be used to generate electricity, though there’s also an option to produce LNG (liquefied natural gas) to supply some of the 3.5 million Australians on the south-eastern seaboard whose homes run on gas – the main Brisbane supply line is within 80 kilometres of the Galilee Basin. The Bowen Basin tenement is solely in exploration mode at the moment, so neither of Eastern’s Australian businesses offers much in the way of compatibility with the New Zealand ones.

As its expansion plans suggest, Eastern has found the regulatory regime in New Zealand pretty much to its liking.

“Certainly [government regulator] Crown Minerals and the local governments have been very proactive, with [Invercargill Mayor] Tim Shadbolt and the Southland District Council being the most helpful that I’ve seen,” Smith says.

“DoC’s a bit different. Certainly down in Southland the DoC process is quite easy to follow, but on the West Coast they manage so much property that to get a project off the ground you have to jump through a lot of hoops. That’s because they’re so under-staffed that the timeliness of their work lets everyone get very frustrated. But certainly I wouldn’t say that the regulatory side of DoC is any worse than the EPA (Environmental Protection Agency) in Queensland, or in Australia in general.”

Eastern Coal is more than happy with its jump across the Tasman, and the local and export markets alike, so long dominated by SE, will no doubt benefit from the newcomer’s expansive vigour.