Cline Mining Corporation T.CMK

Wet season starts!

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SYDNEY—Forecasts of a heavy wet season in Australia's Queensland state—the world's biggest mining hub for coking coal—are spooking markets and keeping the price of the key steelmaking ingredient above historical levels as rainwater equivalent to Sydney Harbor's entire volume remains trapped in pits.
Steelmakers fear a repeat of last year's La Niña monsoon, which cut 37 million metric tons (40.8 million short tons) of production from the $80 billion global steelmaking coal trade, driving prices up more than 50% and eating deep into the margins of the global steel industry.
Forecasters now expect a second year of La Niña conditions. The climate cycle brings heavy rain to the western Pacific, usually in a four-year cycle.
"If you have a gangbuster barreling along La Niña like last year, that greatly increases the odds of flooding," said Andrew Watkins, manager of climate prediction with the Australian government's Bureau of Meteorology in Melbourne.
The bureau expects a milder La Niña, with conditions that will be wet but markedly weaker than last year's once-in-a-generation event. But the most recent forecasts suggest worsening conditions, with the Southern Oscillation Index, a measure of La Niña strength, at its fourth-highest recorded level since 1980.
There is also less room for maneuver this year, since 500 gigaliters (132 billion gallons) of water are still stuck in the Bowen's open-cast mines.
According to Queensland Premier Anna Bligh, the 56 coal mines in the state have yet to fully recover from last year's deluge. The state government has lowered its forecast for coal exports for the year ending June 30 to about 184 million tons, from a previous projection of close to 200 million tons, she said.
Rainfall presents a serious problem for Australia's coal miners. Open-cut mines excavated deep into the ground catch significant volumes of rainfall and can be transformed into toxic reservoirs within hours if heavy flooding breaches their defenses. That stops miners from getting to coal seams until the water is removed.
The industry has worked hard to guard against such problems since last summer's floods.
Still, prices for the coking coal used in steelmaking have yet to return to levels seen before last summer's floods, despite fears of a slowdown in the global economy that have driven the prices of many commodities sharply lower.
In late November, South Korean steelmaker Posco agreed to buy Australian premium hard coking coal from Anglo American PLC for delivery through 2012 at $235 a ton, up 4% from the corresponding settlement a year earlier.
The deal was struck as Moranbah, a key mining town in Queensland's Bowen Basin, suffered its wettest week since February when coking coal prices were surging toward $350 a ton. More than 10 centimeters (four inches) of rain have fallen on the town since a three-month drought broke on Nov. 26.
Although recent months have been dry, that has paradoxically made the water problem more difficult. Under government regulations, mine water can only be released if concentrations of salt and other harmful mine chemicals can be kept low in the Bowen's rivers, which discharge into the lagoon of the Great Barrier Reef.
Far larger volumes of mine water can be discharged when they are in full flood than when they are ebbing, as they have been since early in the year.