BRIEFS

NEX® Index + thermal coal

Xstrata and Japanese utilities return to talksXstrata and Japanese power utilities are expected to return to the negotiating table this week to thrash out the long term thermal coal supply price for the Japanese fiscal year beginning on April 1, according to a Reuters report. The talks were suspended last week following Japan’s devastating earthquake and tsunami on March 11. Prior to the disaster, many analysts were predicting the price would be settled around US$135/t FOB with an ANZ Bank analyst forecasting an even higher price of $141/t. But with damage to some coal-fired power plants and coal discharging facilities expected to reduce Japanese coal demand in the short term, the JFY long term price is now expected to be finalized at around $130/t or lower. There have been media reports of cargoes of Australian and Indonesian coal being diverted to India, South Korea and China after Japanese utilities Tohoku Electric Power and Tokyo Electric Power Company (TEPCO) declared force majeure on near-term deliveries. Indonesian Coal Mining Association chairman Bob Kamandanu told Reuters a 60kt shipment of Indonesian coal to Japan has been diverted to China and more was expected to follow. Indonesia supplied 24Mt of Japan’s total thermal coal imports of 116.5Mt in 2010. A Singapore-based trader said events in Japan will cause some market movement with Chinese and Koreans taking up any available volume not required by the Japanese market. “It will all be very volatile for a while,” he said. “There will be a lot of opportunistic buying until Japan begins its recovery with other Asian buyers looking for bargain distressed cargoes. “As for pricing, China will become the floor, the minimum price the market will go down to.” In February, China’s coal imports fell to its lowest level since April 2009, down 47.6% year-on-year to 6.76Mt, due to higher thermal coal spot prices which have traded in the US$120-130/t range for the past two and half months.

Australian Coal Reportcoalportal.®com

ISSUE 0387 23 March 2011 www.coalportal.

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Watchdog’s eyes on Wiggins rail access The Queensland Competition Authority has put the recently-listed QR Network coal haulage company on notice by insisting it stick to the rules in seeking customers for railway access to the proposed Wiggins Island export terminal at Gladstone. This follows reports that QRN, required to seek prior QCA approval for rail access charges and conditions, has been talking to Bowen Basin producers about its terms for access. The planned terminal will be owned by 16 coal producers in the WICET group. Eight founding members have applied to ship a total of 27Mtpa in Wiggins stage one, due to be commissioned in 2014.

Carabella cashed up for coking coal push Shortly after its 2010 share-market listing, Carabella Resources Limited has put together a cashbox to push a four-year strategy to fast-track coking coal mining from its flagship Bowen Basin tenement. The Brisbane-based company raised A$29M in a 16M share placement this month to institutional investors in Asia, Europe and the US. Locally it has earmarked around $19M for more exploration as well as BFS and EIS studies on the Grosvenor West project in the Mabbin Creek EPC 1069. This is in the same area as Anglo American’s Moranbah North coking coal mine. To date, Carabella reports a combined Indicated and Inferred JORC resource for Grosvenor West of 92Mt.

Tinkler company buys Bowen Basin assetDebt-saddled local gold miner Norton Gold Fields Limited has quit coal after the sale of a Queensland Bowen Basin exploration tenement went unconditional at a reported price of A$30M. Norton sold its EPC 1033 to Boardwalk Sienna Pty Ltd, a company associated with resources investor Nathan Tinkler. Tinkler is the main shareholder in 2010-listed Aston Resources which is developing the 11Mtpa Maules Creek export thermal coal mine in New South Wales. Norton says it will use Boardwalk’s first payment to slice its debt to $85M. Two payments over the next year will complete the deal.

BRIEFS CONTINUED

Australian Coal Report

Australian Coal Report Issue 0387 23 March 2011 2

The expected fall off in thermal coal demand from Japan in the short term has been reflected in the slight easing of Energy Publishing’s NEX index for Newcastle coal which fell by US$0.40 to $128.35/t as at March 17. But thermal coal prices may have to fall significantly before Chinese buyers are tempted to re-enter the thermal coal market to rebuild power plant stockpiles ahead of the summer peak electricity demand period. “The Chinese are circling like vultures,” an Asian-based trader said. “They are certainly expressing an interest in any distressed cargoes. “But the Koreans are offering $10/t more for distressed cargoes than what the Chinese are prepared to pay, which seems to be about $20 below the market value for thermal.” A Brisbane-based trader said although “a couple of cargoes” had become available due to the force majeure declared by the Japanese utilities, the catastrophe in Japan had yet to have any significant impact of the thermal coal market. “But I expect the spot market will soften over the next couple of weeks,” he said. “Koreans have come out of the market because they expect prices will fall considerably. “When something happens like this, the Koreans always think the world is about to implode.” The Abbot Point Coal Terminal (APCT), Dalrymple Bay Coal Terminal (DBCT) and RG Tanna Coal Terminal, which export mainly coking coal, are not expecting the Japanese earthquake to impact coal shipments to that country. “One shipment has been dropped back but we picked up a couple of extra shipments,” an APCT spokesperson said. “One of the ports that we ship to has been damaged but some of the other ports will be taking in more coal around May and June. “I expect the ports and the Japanese power plants and steel mills will get back to normal operations very quickly.” Last week, the Gladstone Port Authority, operator of the RG Tanna Coal Terminal had expected to downgrade its coal throughput forecast for this week of 1.1Mt but had in fact exceeded its targeted weekly throughput. The spokesperson said the Japanese earthquake was now not expected to have any impact on throughput. DBCT general manager of operations Greg Smith said there had not been “any adverse impacts on shipments” as a result of the Japanese disaster. “It’s still too early to tell but I’m not expecting any impact,” he said. “Steel mills have been less affected than power plants and any coal not able to be taken by one mill could be diverted to other steel mills. “These are long-term contracts so they are not likely to be cancelled, but spot thermal coal out of Newcastle could be affected,” he said. A spokesperson for coal terminal operator Port Waratah Coal Services (PWCS) at the Port of Newcastle would not comment on whether there had been any cancelation of coal shipments for the Japanese market. “Unfortunately we’re not in a position to comment given that it’s essentially a matter between producers and their customers,” the PWCS spokesperson said. Australia’s thermal coal exports to Japan in FY2009-10 totaled 66.4Mt according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

Backing out of Colombian coalWestern Australia-based Transit Holdings Limited has backed away from its planned first venture into coal mining. The company has pulled out of an agreement announced in late December to spend A$2M to take control of 32,00ha of coal exploration assets in Colombia. Transit, which develops iron ore and potash locally, leaves a non-refundable $25,000 on the table after deciding, based on due diligence, that the tenements in Cordoba province do not meeting the company’s “criteria for investment”.

Rocklands inks cooperative development MOUQueensland-based coal explorer Rocklands Richfield has inked a cooperative memorandum of understanding (MOU) for the development of three Rocklands projects with Chinese underground mining company, Kailuan Group. Under the terms of the MOU, Kailuan will be responsible for technical support and raising development funds. Kailuan has not ruled out acquiring all or part of Rocklands coal assets.

Hay Point port master-plan underwayThe Queensland government has approved work to develop a master-plan for the Port of Hay Point. The port’s goal will be to cover export coal shipments up to 300Mtpa. The state’s North Queensland Bulk Ports Corporation has awarded the contract to the consulting firm Aurecon Hatch. The coal industry has expressed a clear interest in exporting at least twice the port’s current nameplate capacity of around 130Mtpa. The port is already home to the BMA-owned Hay Point terminal and the Dalrymple Bay facilities. Last year the state named India’s Adani Enterprises and DBCT management as preferred developers for new coal terminals at Dudgeon Point in the port area.

Baralaba back to normal by May

Queensland coal miner Cockatoo Coal expects to lift production at its Baralaba mine to normal volumes of about 50kt/month in May. Mining of coal restarted in February following flooding of the main pit in late December 2010. While water still sits in the bottom of the pit, more than 55kt of stockpiled coal is now able to be sold, the company said.

Australian Coal Report

Australian Coal Report Issue 0387 23 March 2011 3

PCI prices done for 1QProducers of PCI have mostly finalised prices for contract tonnes to be delivered in the quarter starting April 1, though some suppliers of premium product look likely to hold out for better. Anglo Coal agreed to supply Korea’s POSCO its Foxleigh PCI coal at $275, according to The Tex Report. Queensland producer Jellinbah is believed to be close to finalising its PCI deliveries at around the same number while Canadian supplier Western Coal is thought to have settled at similar levels. Leading Queensland low-vol producer, Macarthur Coal, is meanwhile holding out for $280, according to sources.Producers with coals containing higher ash and higher volatile matter are expected to settle at something of a discount to the $275 benchmark, though exactly what that benchmark might be has been confused by the carryover question.

At time of publication, BHP had not yet settled with Japanese mills after the latter put up massive resistance to the plan to move to monthly pricing. In the absence of a BHP number, the market is using Anglo Coal’s $330 deal as the touchstone to price other coals, but most market participants

are of the view the traditional benchmark system is well and truly dead. Also, because current settlements are typically including a rollover component, the real price of the coal is obscure.“There’s no point focusing on the value of the carryover,” said one marketing manager. “The issue is how much you can sell the coal for right now.”Meanwhile, major Indian steelmaker, SAIL, has told Australian coking coal producers, including BHP, it cannot agree to any prices for next quarter until BHP finalises 1Q pricing with the Japanese. “It’s never happened before that BHP has not settled first in Japan which has then been used as the benchmark for the Indians,” a source within India said.This has had a direct impact on the other producers who have also been told by SAIL it will only settle once BHP has finalised in Japan.

Signs aligning for Surat to take offThere are gathering signs, including the fact post-earthquake Japan will be in the market for substantially increased imports of coal, that development of Queensland’s Surat Basin will take off within a year. A critical factor remains Xstrata’s proposed Wandoan mega-mine that’s effectively been on hold for nine months, but the company says it is holding to plans to make a final investment decision on the A$6B project before year-end. That’s the project that will anchor the $1B-plus Surat Basin rail connection in which Xstrata is a project partner, to open an export coal chain through Gladstone port for several companies busy proving up reserves on Surat tenements. It will enable the three current Surat producers – Peabody Energy, New Hope and Syntech Resources – to increase production and skirt the 10Mtpa capacity cap on the one southern Queensland coal terminal, at the port of Brisbane.

EXTENDED BRIEFNew taxes first, then we’ll talk The federal government is hell-bent on locking-in two new taxes that will impact heavily on Australia’s coal industry. This comes before a national summit on … tax. The promised taxation summit has been pushed back until early October which means it is likely to be several months after legislation to implement both a carbon tax and the contentious mining “super profits” tax, the Mineral Resources Rent Tax (MRRT), from July 1, 2012. It is widely expected the government will unveil MRRT details in the May federal budget. Critically this will resolve the key question of whether the legislation will cover miners for future increases in state and territory mining royalties. Analysts are forecasting that miners will be shielded from royalty increases because this is the recommendation of a task force co-headed by federal Resources and Energy Minister, Martin Ferguson.

In addition, the Big Three of Australian mining, BHP Billiton, Rio Tinto and Xstrata, all of whom gave in-principle backing for the MRRT when the effective tax level was cut to 22.5%, have flagged a fight if the government back-flips on an agreement to protect miners from increasing state and territory royalties. As currently conceived, the MRRT covers only coal and iron ore and kicks in at the point company profits top A$50M a year. The government expects the super profits tax to return to Treasury some $7.4B a year on top of current company taxes which include Australia’s 10% Goods and Services Tax. But for the coal industry, trying to factor-in the true impact of the MRRT without final details is just one dilemma. There’s also the federal government’s carbon tax plan which, three weeks after its announcement, Canberra has yet to provide details on and has still not indicated specifically, what the cost per-tonne of carbon will be. – Peter MacDonald.

Australian Coal Report

Australian Coal Report Issue 387 23 March 2011 4

Endocoal was listed 11 months ago to work on development of 10 tenements in Queensland’s Bowen Basin coalfields, eyeing entry to export markets for coking and thermal coals and low-volatile PCI products.

The company lists two projects, Orion Downs (EPC 1517) and Rockwood (EPC 1514) as its priorities – Orion Downs lying roughly midway between Xstrata’s Rolleston operation and the Yancoal-Sojitz Minerva mine, both claiming premium thermal coal, while Rockwood ground is south of Ma-carthur Coal’s Coppabella thermal and PCI mine.

Endocoal’s tenements cover around 5,000sqkm and the company has registered with state regulators its interest in potential under-ground coal gasification projects for more than 50% of its ground.

Orion Downs coal will be rail-hauled some 420km to the port of Gladstone, while Rockwood is half that distance by rail from the Dalrymple Bay coal terminal. Endocoal’s pre-listing IPO in April 2010 attracted applications for four times the 28.3M shares on of-fer (priced at A$0.60) and the company’s market cap at listing was $71.2M. Latest trading has been at peak of $0.39.

In November, Endocoal announced that an Orion Downs explora-tion program had lifted the total JORC resources tally for the Inderi and Meteor Downs South target areas to 41.2Mt .

The companyu has identified coal seams on the targets with average thickness of 7.2m, lying at 11m to 70m below the surface, hosting coal “typical of Rangal Measures” – low ash export quality thermal coal with low to moderate sulphur content.

Rod AustinIt has approved prefeasibility studies for both targets, expected to be completed in May, after scoping studies indicated average forecast saleable coal Free On Rail (excluding infrastructure costs) of A$42.20/t.

Endocoal is aiming to lodge a Minerals Lease Application for Meteor Downs South at the end of April. It has applied for access for 4Mtpa through the planned Wiggins Island (Gladstone) coal terminal facilities.

Endocoal MD Rod Austin, a coal veteran and former banker, says he expects Asia Pacific region thermal coal trade to be “strong” into the future. “We’re getting enquiries almost every day, specifi-cally from China and India and basically, they’re saying to us when can we get your coal”. ASX: EOC www.endocoal.com.au

SNAPSHOT ENDOCOAL LTD

They’re asking when can they have our coal.”

...continued from page 3Signs aligning for Surat...

Earlier this month, Xstrata disclosed that Wandoan – which could become a 100Mtpa monster operation – has been conditionally approved by the federal government on environmental grounds. And last month, Queensland authorities released draft terms of reference for environmental studies for Xstrata’s planned, 35Mtpa Balaclava Island coal terminal near Port Alma, at the northern end of Gladstone harbour. The Balaclava facility is expected to handle Xstrata’s initial Surat Basin shipments until capacity starts to come onstream, around 2015, at the planned producer-owned Wiggins Island coal terminals at Gladstone. Recently, a seasoned private investor group from the US agreed to buy into the Surat Basin railway joint venture with $300M – a third of the forecast construction cost for the 210km link from Wandoan to the Moura Line to Gladstone. This week, junior MetroCoal Limited announced it is in the market for a JV partner for its Wandoan West tenement after winning the OK from its Columboola partner, the SinoCoal subsidiary of major China Coal Import Export Company. Analysts say that MetroCoal “could be flooded with interest because of an explosion in power generation across all of Asia in the next few years”. Rod Austin, MD of Bowen Basin junior, Endocoal Limited, agrees. “The Asia Pacific (thermal coal) market will be strong.” He says that although Endocoal is still in the phase of proving up deposits on its tenements in the Bowen Basin – “we’re getting enquiries almost daily from Asia and specifically India, asking when they can have our coal because in the next two or three years, new power plants are due to come online”.

NEWCASTLE

Throughput at Port Waratah Coal Services-operated terminal at the Port of Newcastle for the week ended March 22 was 1.05Mt, 840kt down on the previous week. Coal stocks fell to a low of 425kt due to a three day closure of coal rail tracks in the Hunter Valley between March 15 and 18 for upgrade work. They have since been built close to normal operating levels of 940kt as at March 22. PWCS’s two coal terminals with a combined nominal throughput capacity of 113Mtpa have a month-to-date annualized shiploading rate of 74.49Mtpa and a year-to-date annualized rate of 90.22Mtpa. PWCS’s vessel queue currently has 31 vessels, a decrease of two vessels from the previous week. Two vessels in the queue have coal availability with a further vessel en route also having coal availability.PWCS has been notified of the arrival of 14 vessels for the week ended March 22 to load 1.44Mt of coal. Vessels waiting in the queue will load 3.06Mt of coal. The forecast average vessel queue waiting time is 13.15 days, an increase of almost one and half days from the week prior with an average time at berth of 1.08 days.

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Coal Chain

Australian Coal Report Issue 0387 23 March 2011 5

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PORT WRAP

Dalrymple BayThe 85Mtpa capacity Dalrymple Bay Coal Terminal (DBCT) loaded 1.15Mt of coal for the week ended March 22 at a month-to-date annualized rate of 45.1Mt versus a targeted month-to-date annualized rate of 61.16Mtpa, according to the Integrated Logistics Company’s website.A total of 19 vessels are in the queue waiting to load coal as at March 22 with three vessels with coal availability. The vessel queue has increased by three vessels since last week.Coal stocks at DBCT are at 600kt, a decrease of 170kt since last week, and about 400kt below normal operating levels. DBCT general manager of operations Greg Smith said all available coal stockpiled at the Bowen Basin mines was being railed to the port, whether it’s required for cargo assembly for a waiting vessel or not, to utilitise trains and built port stockpiles. But railing volumes are likely to ease over the next couple of weeks, he said.“It will be another week or two before many of the mines begin to ramp up to full capacity as many are still pumping water out of pits.”

Abbot PointAbbot Point Coal Terminal has been operating at normal capacity over the past week, a spokesperson said. The coal stockpile has been reduced to a little over 500kt and there are “ships back to back” for the next week, which will require the mines to rail more coal to the port.“There has been a bit of rain over the mines in the last couple of days which could slow them down,” he said.

GladstoneThe RG Tanna Coal Terminal’s throughput for last week was 1.38Mt, higher than the 1.1Mt forecast a week ago, and on par with normal operating capacity. This week’s throughput forecast is 1.1Mt, a Gladstone Port Authority spokesperson said. The stockpile has decreased from 2.45Mt to 1.9Mt over the past week. The vessel queue stands at eight vessels with two vessels having coal availability.

Coal Chain Australia

Australian Coal Report Issue 0384 February 2011 5

Coal Chain - shipping

Australian Coal Report Issue 0386 16 March 2011 6

Australian Coal Report is copyrighted © 2011 by Energy Publishing Pty Ltd. Information published is considered accurate and reliable, but no responsibility or liability will be accepted for any error or omission.

www.coalportal.com www.energypublishing.com.au Distribution to nonsubscribers is a breach of copyright.

Tel 61-7-3020-4000 Fax: +61-7-3102-9151 | Editor: Marian Hookham Email: marian.hookham@energypublishing.biz

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SHIPPING QUEUES FREIGHT

While the devastating earthquake and consequent tsunami occurred over a week ago, the status of Japan’s infrastructure and industry remains far from certain. Before the earthquake struck, the Baltic Dry Index had recovered slowly to 1,562 points thanks to the return of Australian coal cargo supply. Since then, the index has weakened to 1,531 points led by renewed Capesize falls (Panamax average earnings are currently $16,747/day, down 2% week-on-week). The Newcastle-Qingdao Capesize spot rate was $11.75/t on March 11 but by March 18 this had dropped to $10.95/t. As a result, the Capesize market remains the worst performing. Average earnings had fallen to 14% week-on-week to $9,298/day. During the Japanese recovery process, we can expect to see an increase in coal imports for both thermal power generation and steel-making. Steam coal imports, however, were already close to record highs and the amount of coal burned for power generation also peaked at 5.2 Mt in January.

Courtesy Simpson, Spence & Young

LOAD PORT VESSEL DWT DISCHARGE PORT LOAD DATE Ld/Dis.Terms US$/t SHIPPER

Gladstone Fortune Apricot 50,000 Paradip 18/27 Mar 20000X/10000C 28.50 MMTC

Gladstone NYK TBN 80,000 Taiwan 22 Mar/4 Apr Scale/22000C 14.09 Taipower

Newport News Torm Pacific 70,000 Rotterdam 20/30 Mar 25000C/25000C 16.10 Baumarine

Newport News Fortune Rainbow 75,000 EC. India 28 Mar/6 Apr 35000X/20000X 43.50 Sail

WEEKLY SHIPPING

Ship Type Route US$/tonne Indices US$/day

Panamax Gladstone/Qingdao 17.70 Baltic Panamax

70k Newcastle FOB PWCS 22.75 16,943

Gladstone/Krishnapatnam (India) 21.90

Capesize Gladstone/Qingdao 8.20 Baltic Capesize

150-160k Newcastle FOB PWCS 9.75 6,407

Gladstone/Krishnapatnam (India) 11.00

Comparative Rates Roberts Bank (Canada)/Qingdao 20.00

Panamax vessels Balikpapan/Qingdao 10.90

CLARKSONS WEEKLY FREIGHT REPORT 23 MARCH

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BALTIC DRY INDEX (BDI)

SOURCE: SSY

SOURCE: CLARKSON AUSTRALIA, DRYCARGO.AUSTRALIA@CLARKSONS.COM