Underneath BHP Billiton’s 2012 profit is another disturbing development for the Australian minerals industry – we are in danger of pricing ourselves out of growth in the metallurgical coal market.
And so while South Australians are understandably very sad at what has happened at Olympic Dam, Queenslanders will discover in a year or two that their great coal boom is going to be curtailed, perhaps severely.
You will remember yesterday I isolated the fact that BHP is going to have to develop new minerals technology if it wants to mine Olympic Dam by open pit (The terrible two that damned BHP, August 22). Earlier I highlighted that the young Queensland coal entrepreneur Nathan Tinkler had been caught by the slump in coal prices (Tinkler's paper palace tumbles down, August 22).
But in the BHP report there is a disturbing graph, which shows that BHP’s costs of mining metallurgical coal are rising sharply. BHP tried to restrict the cost rises via a long industrial dispute, which was settled by compromise, which will means that BHP gave ground.
Steaming coal for energy faces a tough time because of the abundance of supply and the fact that gas is taking away market. But metallurgical coal, which is used to make coke for steel making, has been an area where Australia has lead the world and generated big profits. These days BHP's metallurgical coal profit contribution is swamped by iron ore but prior to the industrial dispute metallurgical coal contributed about 8 per cent of BHP’s earnings.
Just as our costs are rising a new star is emerging in the metallurgical coal horizon – the Moatize region of Mozambique.
Rio Tinto, Brazil’s Vale and now Anglo American are all very big players in the Moatize Basin.
My mining friends tell me that the name Moatize Basin may become a bad word for Australian coal miners. Mozambique has an enlightened government when it comes to foreign mining company investment. BHP has its big alumina refinery in Mozambique, which has good Indian Ocean ports.
The work forces are excellent. South Africans who have migrated to Australia tell me that Mozambique workers are Shangaans and they were highly prized by the Apartheid era South African gold miners. They were good workers with a natural skill with machines.
So Mozambique has magnificent metallurgical coal reserves; it is encouraging the world’s leading miners to develop them and it has a labour force that is among the best in the world.
The days are over when Australian trade unions and some politicians could say: "It doesn't matter what our costs are, and the world has to buy from us because we have the best ores."
And there is one more threat to metallurgical coal. The looming global glut of gas may make direct reduction of iron ore, via gas, economic. Longer-term metallurgical coal could be affected by gas in the same way as steaming coal.