Australia waives environmental rules for flooded coal mines (Feature)

By Sid Astbury Jan 8, 2011, 7:56 GMT

Sydney - Australian officials Saturday bowed to pressure from Queensland coal-mining companies and waived environmental regulations to let them pump out waterlogged pits.

With water trapped in 40 open-cut mines, rail lines out of action and terminals at a standstill, exporters of the coking coal used in steelmaking have had to tell their customers that the floods mean they cannot meet their contractual obligations.

'Sometimes, the best time to discharge is when the water's moving quickly through the river so it can move out,' Queensland Premier Anna Bligh said when announcing the waiver. 'We're working with hydrologists, mining scientists and with the companies to do everything we can to get these mines operational.'

Three-quarters of Queensland's mines have halted production, locking up a third of Australian coal supply destined for export.

Queensland meets almost half the world's demand for coking coal and lost production is worth 100 million Australian dollars (98 million US dollars) a day.

One estimate is that shipments of 30 million tons of coal, worth 6 billion Australian dollars, could be lost.

'The worst-case scenario is that you could potentially see lost production of an entire quarter,' investment bank UBS said in a note to clients.

At Gladstone, second only to Mackay's Dalrymple Bay among Queensland's five coal terminals, stockpiles are down to 1 million tons - a volume sufficient for only three days of exports.

Dalrymple Bay is operating at 60-per-cent capacity, but coal carriers are being supplied from stockpiles that will soon run out.

Michael Roche - chief executive of Queensland Resources Council, a mining industry advocacy group - had demanded a waiver to allow the draining of the mine pits.

'The quicker we can get back into full production, the quicker we can be earning royalties for the people of Queensland,' he said, arguing that the floods were so vast that the effect of draining would be 'equivalent to a thimbleful being put into a swimming pool.'

The state earns around 3.2 billion Australian dollars in royalties annually from coal exports.

Bligh estimated the repair bill from the floods, which cover an area the size of France and Germany and affected 200,000 people, at 5 billion Australian dollars.

Also weighing on coal exporters was that the industry was running at full capacity in December, meaning it would not be possible to raise production in the first quarter to make up for supplies lost to the floods.

Last week, German steelmaker ThyssenKruppAG warned that the floods would lift steel prices in the second quarter of the year.

Commonwealth Bank analyst Lachlan Shaw predicted that spot prices at Queensland ports would rise to 350 US dollars a ton by the end of the quarter, up from about 250 US dollars now. Others speculated a rise to 400 US dollars.

There were also concerns of a knock-on effect with iron-ore prices falling because of a slowdown in steelmaking while coking coal prices are high.

Irone ore and coal are Australia's top two exports.

Fortescue Metals Group Ltd, Australia's third-largest iron-ore miner, saw its share price slide Friday.

Stuart Smith, an analyst with stockbrokers Bell Potter Securities, said the Queensland floods were a big weight on a stock market currently trading at a five-week low.

'I don't think any of it [the effect of the floods] has sunk in properly,' he said, flagging a further fall in share prices for resources companies.

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