Newcomers bank on machines to turn a profit from Polish coal

Primetech SA

17/12/2014 13:38

* Poland's loss-making coal mines struggle for survival 
    * Two newcomers plan to open operations 
    * They say they can make profit through lower costs 
 
    By Anna Koper and Jakub Iglewski 
    WARSAW, Dec 17 (Reuters) - Two newcomers to Poland's coal 
mining industry are betting machines can help them turn a 
profit, even at a time when prices are languishing at historic 
lows and some of the country's largest producers are struggling 
to keep operations running. 
    Poland has vast coal reserves and is the second-largest 
producer in Europe, mostly feeding its own power stations. But 
its mines are inefficient and bloated, held back by politically 
influential mining unions which have resisted efforts to 
streamline operations.  
    "Mining in Poland can be profitable," said Pawe Puchalski, 
head of the research department at a Warsaw-based brokerage 
house DM BZ WBK. "But new mines need to lower fixed costs." 
    Fasing  FSG.WA , a small firm that produces steel chains, 
plans to reopen an old mine in Chorzów, Silesia, starting in 
2016. Kopex  KPX.WA , Poland's largest mining machinery maker, 
intends to open a brand new mine after 2018. 
    Both are betting on their experience with industrial 
equipment, combined with better technology and fewer miners. 
This at time when both thermal and steelmaking coal prices are 
at rock bottom, and when domestic producers like JSW  JSW.WA  
have warned they could run out of cash unless costs are cut. 
    Thermal coal prices have in recent weeks touched 5-1/2 year 
lows. 
    While mechanisation in coal is nothing new in major coal 
producing destinations like Australia, Polish miners have been 
slower to adopt cutting edge technology. It can take some Polish 
mine workers over an hour to go from surface to coal face. 
    The sector, which has seen production decline consistently 
for more than a decade, is also burdened with wage and staffing 
structures that date back to the Communist era. 
    As a result, labour accounts for around half of production 
costs, a total now often above the cost of the coal itself. 
     
    PURE ECONOMICS 
    "You are carrying out work in which machinery and equipment, 
even the latest generation, cannot replace human labour," Polish 
Prime Minister Ewa Kopacz told miners at an event this month to 
mark the industry's annual holiday. 
    Fasing and Kopex are betting that Kopacz is, mostly, wrong. 
    Kopex is increasing the amount of time for which its 
machines can operate, and is cutting down the time spent 
travelling to the coalface, 300 metres below the surface. 
    Zdzisaw Bik, CEO of Fasing, meanwhile, said its mine in 
Silesia, the heart of Eastern European mining, would employ only 
700 people, less than a third of the typical labour force in 
comparable mines of the region. 
    "And here lie the economics of this project", Bik said. 
    Bik said the cost of producing one tonne of coal in the new 
mine will amount to 195 zlotys ($58) against 311 zlotys in a 
typical mine in the region and less than the ARA benchmark coal 
price  CMAP2Z4  at 71.50 dollars. 
    "We can be certain of a significant profitability of our new 
mine, even if the coal price falls further," said Józef Wolski, 
chief executive officer of equipment maker Kopex, who previously 
worked in the mining industry. 
    Fasing's new mine is expected to produce 1.5 million tonnes 
of coal a year, a fraction of expected Polish coal production of 
70 million tonnes in 2014. Kopex said its mine will could 
produce around 3 million tonnes a year, at an average cost of 
less than 200 zlotys. 
    Though small, both are likely to attract attention from 
larger rivals, even if adopting more technology across the 
industry is bound to meet resistance. 
    "Maybe they want to hire people for 'a bowl of rice'?", said 
Jarosaw Grzesik, head of the Solidarno Górnicza trade union 
with around 40,000 members. 
    The government has made clear it will react if the big 
mining firms are threatened with imminent closure or a big 
drop-off in production, but it has not said how it would 
intervene to help an industry that has long been shrinking. 
($1 = 3.3511 zlotys) 
 
 (Additional reporting by Wojciech urawski in KATOWICE and 
Wiktor Szary in WARSAW; Editing by Clara Ferreira Marques) 
 ((jakub.iglewski@thomsonreuters.com; +48 22 653 9721; Reuters 
Messaging:  jakub.iglewski.reuters.com@reuters.net)) 
 
Keywords: POLAND COAL/MINING