Britain ends mining boom, is Australia next?

Driven by poor demand, uncompetitive pricing and the increase of alternative fuels such as renewable energy and gas, the British coal mining industry was forced to halt production at its last deep mine in December, marking the end of the coal era.

Meanwhile in Australia, plummeting commodity prices and increasing concern about global warming have cast doubt on the future of the Australian coal mining industry, yet production continues.

So why hasn’t Australia followed Britain’s lead and begun closing its mines?

Well, according to economic experts, Australia’s mining industry tells a very different story.

Unlike Australia, the UK coal industry has had economic difficulties since the 1980s.

Also read: End of mining boom still leaving its mark

The coal industries in the two countries are also quite different in terms of government involvement, extraction techniques (such as deep mining versus open cut) and profitability.

Griffith Business School professor of economics, Anthony Makin, explained that Australia’s coal mines are operated by private companies, many of which are foreign-owned.

Despite the pressure on prices over the last few years, demand for Australian coal from countries such as South Korea, Japan and Taiwan has remained strong and many expect this to continue.

“[Mines] will remain in business as long as it remains profitable to supply high quality coal to emerging Asian economies, most notably China and India, for electricity generation,” Makin said.
“Fast growing Asian economies still regard Australian coal as relatively safe and cheap compared to its alternatives.”

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For this reason, experts believe that Australia’s coal mining industry should not consider following in the footsteps of Britain by opting for alternatives.

“Australia is on of the most innovative exporters in terms of clean coal technology and environmentally sustainable energy, so we can expect Australia resources industry in the future to consist of a mixture of coal, natural gas and renewables,” said Tim Harcourt, a fellow in economics at UNSW Business School.

Makin also pointed out that coal is Australia's second largest export worth around $40 billion per annum, employing some 185 thousand people directly and indirectly in regional areas.
“Limiting Australian coal exports could lead to Asian buyers switching to inferior suppliers elsewhere in the world which could raise global emissions,” he said.

“The mining boom is well and truly over - the skyrocketing prices received for coal up until the end of 2011 have fallen back dramatically, but the industry will remain a major export earner into the foreseeable future.”

Also read: Debt-hit Glencore to slash jobs at Australia coal mine

For one, former mining tycoon Nathan Tinkler is betting on a strong future for coal in Australia, despite the price drops.

The former billionaire, whose debt-fuelled mining empire collapsed in 2012 following the slide in coal prices, is now trying to find his way back in to the sector.

Last month, mining junior Australian Pacific Coal, which he now heads, agreed to buy an 83.33 per cent stake in the closed Dartbrook mine in the Hunter Valley from struggling mining giant Anglo American.

The ASX-listed junior needs to pay $25 million in cash by the end of January, and a similar amount in the form of future royalty payments.

Also read: Tinkler stays believer on coal's future

It plans to develop a five million tonnes per annum, open pit mine at the project.

The company will tap existing shareholders and sophisticated investors to raise $30 million, but most of the funds required to close the deal are expected to come from Tinkler himself and current financial backers that include the Paspaley pearling family and Darwin developer John Robinson.