BHP Billiton and New South Wales Government Reach Agreement About Newcastle Port Access

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Researched by Industrial Info Resources (Sugar Land, Texas)--Global mining major BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) has announced that the Newcastle Coal Industry Group (NCIG), a consortium of Australian coal mining firms, has arrived at a long-term agreement with the government of New South Wales about capacity allocation at the Newcastle Port. Other members of the NCIG are Centennial Coal Limited (ASX:CEY) (Sydney, Australia); Donaldson Coal Pty Limited (Sydney, Australia); Felix Resources Limited (ASX:FLX) (Brisbane, Australia); Peabody Energy Australia (Brisbane, Australia), a subsidiary of Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri); and WhiteHaven Coal Limited (ASX:WHC) (Fortitude Valley, Australia).

The new Hunter Coal Export Agreement will allow new coal mining companies to access the Newcastle port for the export of coal. Earlier, mining companies were required to sign and renew contracts on a yearly basis. The new arrangement paves the way for 10-year rolling agreements, which will replace the annual renewals. The new agreement is expected to provide more clarity on long-term port capacity allocation and boost trade and economic growth. Experts indicate that the new agreement will also assist mining companies in firming up future expansion plans.

As part of the agreement, the NCIG will build a new coal terminal in two phases. The first phase is expected to increase the total capacity of the port to 30 million tons, while the second phase will take the overall cargo-handling capability to about 66 million tons. NCIG is expected to complete the first phase by early 2010. The date for completion of the second phase has not been finalized. BHP Billiton is investing about $390 million in the feasibility study for this project. There are plans to increase coal exports from the Newcastle port to 180 million tons by 2015. By 2015-16, the Hunter Coal Export Agreement is expected to create 25,000 new jobs and annual state government revenues of $431 million in coal royalties.

Companies undertaking expansion of mines and production facilities can place a request to the port authorities for extra port capacity. The port will build or make the facility available for exporters. The mining company will be required to pay for the additional capacity, even if it is not utilized. This will ensure that coal producers book excess capacities only after careful consideration and planning. The agreement, which is expected to be signed shortly, will be implemented from January 1, 2010.

Port Waratah Coal Services (PWCS), the operator of the Newcastle port, has now submitted an application to the Australian Competition Regulator for approval to implement the interim quota system at the port until the end of the year. Energy traders have stated that if the approvals are received, PWCS may issue cutbacks on producer quotas to some mining companies in order to bring down congestion at the port. The producer quota system would be effective only if it receives full cooperation from the mining companies. Earlier, a BHP Billiton-led consortium missed the August 31 deadline to agree and implement the quota system. For related item, see September 9, 2009, article - BHP Billiton Consortium to Resume Negotiations on Newcastle Port Congestion Crisis.

Newcastle is one of the busiest ports in the world. In recent times, the port has been facing severe congestion and logjams with vessels waiting for an average of 14 to 16 days for loading. The port authorities decided to put in place an interim quota system to allocate port capacity to coal exporters. This step was taken after consultation with the state government and other regulatory bodies. The allocation of specific port capacity was intended to make the shipping process quicker and ease the queues. The proposed interim system aimed to allot a prorated quota at the port, based on the coal producer's production capacity.

The agreement with Newcastle port authorities was critical, as the absence of a system at the port could have led to chaos among producers regarding the quantity of exports. Mining companies and trade analysts were concerned that this could severely impact sales targets and expansion projects from 2010.

BHP Billiton is one of the leading producers of thermal coal. The company operates the Gregory, Norwich Park, South Walker Creek, Mount Arthur, and Black Water coalmines in Australia. BHP Billiton is planning a $260 million first phase augmentation of the 20 million-ton-per-year Mount Arthur mine in New South Wales. The Mount Arthur mine, which produces 11.5 million tons per year of coal, will be expanded to a capacity of 15 million tons per year. The augmented mining facility is expected to begin operation during the first half of 2011.

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