Coal bullishness is arguably at its most intense within Xstrata Coal South Africa, with the $407-million (R3,151-million) Atcom East project getting the thumbs-up as study around two new far larger projects intensifies.

One of those two larger projects is the Tweefontein Optimisation project and the other the Zonnebloem project, both in the production range of 12-million tons to 14-million tons of coal a year, which puts them up there with Xstrata Coal’s modern 
Goedgevonden project that has 
just come out of its starting blocks.

Atcom East, with 5,7-million tons of run-of-mine coal production, is expected to be on stream by the end of 2010; the pencilled-in date for the Tweefontein Optimisation project is 2013, and that for Zonnebloem 2016.

An investment of some $1,6-billion could be required for the Tweefontein Optimisation and Zonnebloem projects, both still at prefeasibility stage.

All the projects, including Atcom East, are in South Africa’s Mpumalanga province, with Xstrata’s South African operations headed by Jeff Gerard.

Xstrata’s coal bullishness is based on the global trend towards coal producing countries exporting less and importing more, which is strengthening the outlook for Xstrata Coal, which is 
already the world’s largest producer of seaborne-traded thermal coal.

Some 650-million tons of thermal coal is said to be exported a year globally, with only 50-million tons being land-traded, and 600-million tons being seaborne traded.

“Coal is going to boom,” Xstrata Coal CE Peter Freyberg told Mining Weekly during a media visit to the company’s coal operations during the heat of Xstrata’s merger-of-equals proposal to an unwilling Anglo, 
in August.

Xstrata Coal has now 
announced that the new Atcom East project will be integrated into the existing Xstrata Coal South Africa and Atcom infrastructure and produce 5,7-million tons of run-of-mine coal and 3,1-million tons of 
saleable thermal product for 
domestic and export markets a year.

“The project will play a significant role in the continued growth and development of Xstrata Coal’s South African operations,” says Freyberg, one of a host of South Africans who run the many divisions within the Xstrata group, headed by South African Mick Davis.

Implementation of the Atcom East project includes the purchasing of mining equipment, the upgrading of the existing coal handling and processing plant and the construction of new 
infrastructure.

The operation will create 900 new jobs during construction, with 263 permanent jobs at full production and is expected to ramp up to full integrated production in 2011.

Atcom East was formerly part of the Douglas Tavistock joint venture (JV) between Xstrata (16%) and BHP Billiton Energy Coal South Africa (84%). 
Xstrata approved the separation of the JV in February 2008 and will take full ownership of its 16% share of reserves and mobile equipment on December 1.

Freyberg has informed Mining Weekly that Xstrata Coal is transitioning to a low-cost opencast coal business in South Africa, modelled on the best 
operations the company has elsewhere in the world.

With its mix of thermal and coking coal, the company produced 109-million tons of coal last year.

Xstrata Coal produces 66-million tons of coal in Australia from 18 mines; 24-million tons in South Africa from 11 mines; and 19-million tons from three mines in South America.

The mines are combined into complexes that unlock regional synergies.

Xstrata’s coal bullishness is based on the expectation of 
greater energy demand from emerging economies. 
Xstrata Coal South Africa executive GM Murray Houston makes the point that 44% of the world’s population still have comparatively little energy demand and that there are still many countries with a long way to go to reach the 
energy consumption levels of First World countries.

Because coal use is correlated with economic activity, Houston postulates that growth in energy demand in emerging countries will drive a “huge increase” in the consumption of energy, with coal playing a significant role.

Of the five-billion tons of thermal coal consumed in the world a year, 4,3-billion tons is produced and consumed as domestic consumption within the producing countries themselves.

Of the 4,3-billion tons, the US consumes just under a billion tons of coal a year and, for many years, the US has been a net 
importer of coal, although at a reduced rate last year during the period of heady prices. 
But it is now poised to go back to being a net 
importer of 25-million tons, putting more demand on the 600-million tons of coal currently seaborne-traded.

Likewise, Xstrata Coal 
expects that China will be a net importer of about 35-million tons in 2009.

While the 25-million-ton swing in the US and the 35-million-ton swing in China appear to be relatively small in those markets, the swing can have “an enormous impact”, either within the 200-million-ton Atlantic Basin, where it could be 10%, or in the 400-million-ton Pacific Basin, where a 10% swing can have a significant impact.

“The trend towards exporting less and importing more is a very strong one and we have been calling that for a number of years now.

“Last year, the market was 
essentially in balance. This year, in the first half, it was a net 
import position of 26-million tons, with pricing playing a big role,” says Freyberg.

China consumes 2,2-billion tons of thermal coal a year; India is approaching a consumption of 450-million tons of thermal coal a year; and Indonesia is poised to experience growing domestic needs that may curtail its currently strong export position in the Pacific Basin.

Of the 600-million tons of seaborne trade, the Atlantic market absorbs 200-million tons and the Pacific market about 400-million tons.

There has been strong and sustained growth for seaborne-traded thermal coal for the last 30 years, virtually uninterrupted by the 
recessions over that period.

“This commodity has been 
extremely resilient during difficult times,” Houston says, adding that the compound annual 
growth rate was 10% from 1978 to 2008.

Even with the crisis of last year and the marginal erosion of 
demand in Europe and the US, the seaborne-traded thermal coal market is very resilient.