Riding the curve of the hockey stick
Eminent international mining engineer says Grassy Mountain’s low-grade product is already too late to survive the declining demand for metallurgical coal
Cornelis Kolijn, Metallurgical Coal Mining Engineer
The metallurgical coal industry is challenged by low coal pricing, resulting in production cut-backs and mine closures. Examples are the closure of Saraji-South, Queensland, Australia, resulting in 750 job-losses. Also, Elk Valley Resources (Glencore) recently laid off 140 positions. Mongolian deliveries to China are also hit.
A market correction for met-coal is underway. Coal pricing for Premium Hard Coking coal at times declines below $180 per tonne FOB (Free-on-Board ocean freight). Based on market developments and technology transitions, I don’t expect a significant sustained met-coal price increase.
Note that from the met-coal quality perspective, the Crowsnest area’s lower-quality coal value will continue to lag: Australia’s Saraji produces CSR (Hot Coke Strength after Reaction) 74 coal. Canada’s Elk Valley Resources coals are CSR 71. Compare this to Grassy Mountain’s projected CSR 67 during the first production year, which then rapidly declines to CSR 62 until the end-of-mine life, at a value of at most 80 percent of the Prime Hard Coking Coals of Australia and Canada’s Elk Valley.
Grassy’s value would probably be lower, possibly down to 60-70 percent. At this price level, it is highly unlikely Grassy will be economically viable and would fail to generate adequate cash flow for remediation or permanent selenium treatment.
Benga Mining (aka Riversdale Resources, Northback Resources) misrepresented Grassy Mountain coal product quality and market value during the Alberta Energy Regulator hearings in 2020. The results of the current deep drilling exploration are not yet available.
In the meantime, technology transition is progressing at pace, notwithstanding the disinformation and regressive energy policies from the USA. Morocco is committed to spending $32.5 billion on green H2 projects. India, projected to be the last major market for met-coal, is also investing in H2-based direct reduction. Such initiatives are already underway by India’s largest independent integrated steel producers, JSW and TATA steel, while the large state-owned SAIL is also considering the direct reduced iron option.
In Europe, Thyssen and SSAB are making good progress in building 2.5-million-tonnes-per-year H2 DRI plants. In the USA Hertha (supported by Bill Gates’ Breakthrough Energy and MIT) has started a 1000-tonne-per-day H2-DRI pilot plant.
Present scenarios based on the implementation of new ironmaking technology and increased iron recycling not requiring coal and coke, project the global metallurgical coal demand to decline to approximately half the tonnage of 2023, possibly less by the year 2050.
Assuming Grassy Mountain commences production in 2027, the projected 23-year mine-life would extend production to 2050. This would be in a declining market that already demands high-quality coal and coke for increased process efficiency, lower coke consumption, lower carbon-footprint and reduced iron production cost.
Grassy’s lower-grade product is already too late to survive the declining market. Based on current trends, we are probably already climbing the blade end of a hockey-stick technology curve that will exceed present day projections.
Mining Engineer Cornelis Kolijn retired from Teck Resources in 2019 as Manager of Technical Marketing and is now a consulting engineer for steel companies around the world.