BHP's Colombian coal takes on Australian miners in Asia market switch

afr.com Company,  International,  Thermal Coal 2019-10-31 15:35:09

The Colombian coal business owned by BHP, Glencore and Anglo American will switch focus from Europe to Asia, in a move that would put it head to head with Australian coal exporters.


Cerrejon president Guillermo Fonseca urged the Colombian government to consider cutting its tax take to make Cerrejon more competitive against Australian miners, who enjoy a shorter, and therefore, cheaper route to Asia.


''Europe (demand for coal) is declining and declining much faster than we expected, Asia is still growing and definitely that is where the market is going to be for the medium to long term,'' he told The Australian Financial Review at Melbourne's IMARC conference.


"We are in conversations with the Colombian government around what we can do in order to capture the opportunities in the Asian market.


''In the short term, it probably has to do with the government take. It would be in the interest of the government that production of coal in Colombia does not fall.


''Perhaps the country is willing to consider a different tax and royalty regime for production that is going to the Pacific, and that way we would be able to promote the companies seeking to establish themselves in the Pacific market.


''This is the concept that it is better to have a smaller share of a larger pie, rather than a large share of a pie that is shrinking".


Mr Fonseca said he believed Asian markets were likely to still be consuming coal in 2050.


''I believe the transition to renewables and cleaner fuels is going to take a while,'' he said. "We still have a long way to go.''


Tough times

Cerrejon has had a tough couple of years, with sliding demand from Europe coinciding with court rulings in Colombia that blocked the company from mining what would have been the natural extension of its coal resource.


Mr Fonseca said those rulings and "judicial activism" combined with the structural change in coal demand had forced Cerrejon to reduce its export guidance for the next five years.


Like BHP's Mt Arthur mine in New South Wales, Cerrejon is also seeking to increase the calorific value of its product by about 3%.


BHP is widely believed to be keen to exit Cerrejon and Mt Arthur, which are its only remaining exposures to thermal coal.


Asked whether he expected a change of Cerrejon's ownership structure, Mr Fonseca said ''we let shareholders worry about that and talk about that".


Mr Fonseca said demand would determine the life of mine at Cerrejon, not the availability of the resource.


''The issue is not one of resource, the issue is: will the country be able to capture the value of these resources in that limited window of opportunity that we have as the world adjusts to a different energy matrix and as fossil fuels start to reduce their participation," he said.


Mr Fonseca said the poor standard of infrastructure on Colombia's Pacific coast ensured it would target Asian markets via the nation's Atlantic coast, which would require transport through the Panama Canal.


(Writing by Alex Guo  Editing by Tammy Yang)
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