“The expected returns from the initial capital expenditure estimate of $700 million are not sufficient to support an investment relative to the alternatives.”
South32 has not set a formal closure date for the mine, but the decision not to further seek approval to push the mine into a so-called “section five” area limits the potential lifespan of the operation.
Dendrobium was theoretically due to close by 2024 if the original extension was not granted, but South32 has become more confident in the past year that it can manage gas levels in a section of the mine that it already has approval to extract, and therefore Therefore, it expects to continue mining beyond 2024.
South32 CEO Graham Kerr said The Australian Financial Review additional confidence in the handling of gas levels at the mine meant that it was a “no brainer” that the mine would continue until “at least” 2028.
Kerr said he was confident his team could find ways to push Dendrobium beyond 2028.
“I would be very surprised if the team can’t get to at least 2032 with some of the work I’m currently seeing. So your job will be to continue to extend it beyond that,” he said.
There will be no immediate job losses from the decision; the workers were informed by text message Tuesday morning of the decision to withdraw the extension request.
Construction Forestry Mining and Energy Union (CFMEU) Vice President for Illawarra District Bob Timbs said Dendrobium had 500 direct employees and the mine affected many more livelihoods through its supply chains.
“It is very disappointing that South 32 has decided not to invest in the Dendrobium Mine Extension Project,” he said.
“Our members at Dendrobium just heard the news today. It will be a heavy blow to workers and their families, causing them much concern and apprehension about the future.”
BlueScope warned last year that it could have to spend up to $150 million on new berths at Port Kembla if it eventually had to rely on imported coal instead of coal that has come from nearby hills for nearly 80 years.
BlueScope said last year that a switch to imports would also result in annual logistics costs of $50 million to $100 million above current levels.
The Illawarra mines and steelworks were originally part of a single vertically integrated steel business within BHP until 2002, when the mining giant spun off its steel assets to form two separate companies; BlueScope and OneSteel.
Illawarra Mines stayed with BHP and was spun off into South32 in 2015.
That historical connection created a close connection between the Illawarra mines and the steel mills; The BlueScope plant is at the end of an integrated infrastructure supply chain that brings coal to the plant every day on a “just-in-time” basis.
That deep connection and the cost for BlueScope to switch to more imported coal led Mr. Toole to grant State Significant Infrastructure status to the Dendrobium project.
The withdrawal of the Dendrobium extension application comes just two months after BHP applied for permission from the New South Wales government to close Australia’s largest thermal coal mine at Mt Arthur in New South Wales, some 15 years earlier than BHP suggested in 2021.
While an early closure at Dendrobium now seems likely, South32 is expected to spend $260 million to extend the life of the neighboring Appin coking coal mine through 2039, and the company will maintain a presence in the Illawarra region if that spending continues. .
While that spending has yet to be approved by the South32 board, Kerr said it was “quite a different economic decision” than the one South32 had faced at Dendrobium.
“It will still need board approval, but we have included it in our future guidance for a reason,” he said Tuesday.
In recent years, Kerr has sought to move South32 away from coal and give the company more exposure to low-carbon metals such as copper, zinc and aluminum.
He said The Australian Financial Review last year that the long-term outlook for coking coal was very strong, but investors demanded higher financial returns from coal projects than metals projects because of the reputational risk of pursuing coal projects.
On Thursday, Kerr made it clear that his decision to walk away from the Dendrobium extension was based on a belief that the money could be better spent in commodities “going forward.”
“Over the past 18 months, we have made significant progress actively reshaping our portfolio and this decision increases our ability to direct capital toward other opportunities,” he said.
“This includes our world-class development options in North America that have the potential to support a significant growth profile to produce critical metals.
towards a low-carbon future, serving strategically important supply chains.”
South32 has in recent times hinted that BlueScope was the natural owner of the Illawarra mines, rather than a Perth-based company that was increasingly focusing on metals needed for decarbonisation.
Kerr said on Tuesday that South32’s Illawarra mines “were not on the market for sale.”
“We still believe that metallurgical coal has a role to play in the next two decades and we continue to invest in the business with that belief,” he said.
“Each of the assets in the portfolio is for sale for the right amount of money.”
BlueScope Chief Executive Mark Vassella said last week that the steel group did not want to become a coal miner, but on the other hand it was very important for the future of the Port Kembla steelworks to have a secure long-term supply contract. .
“We are not coal miners,” Vassella said last week.
“It’s not our preferred position.”
But he reiterated how central supply was to Port Kembla, particularly as it moves forward with its feasibility study for the lining of one of the suspended blast furnaces, with that project serving as a “bridge” to a time when ‘steel’ technology green’ has advanced. to a point around the world where it is commercially viable.
“That’s important coal for us.”
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