Queensland, Australia Flooding Impacts Global Coal Mining

Exports

Australian state officials estimate that Queensland could be under water for more than a week. As a
result, Australia's coking coal exports are at a halt as coal mining production responds to
transportation system delays brought about by the torrential flooding.
Freight cargo is stock-piling at the Port of Gladstone. Major global coal mining suppliers have raised

force majeure clauses contained in delivery contracts. Global steel production costs are expected to
rise due to higher coking coal costs anticipated to result from the Australian flooding.

Australia's Heavy Rains Halts Coking Coal Transport Shipments

Australias largest export industry comes from its coal mines, which accounts for nearly two-thirds of
the global coking coal trade. At 2010 year's end, Australia's rainy season has brought historical
flooding in the fourth quarter, halting its coal mining production as a result of transportation halts.
Brisbane, Queensland's state capital, has recorded 2010 as the most rainy December in more than
150 years.
All mines in the region are closed due to the latest rains, said Craig Walker, Chief Executive Officer
of Gladstone Ports Corp. Shipping has also been affected with stockpiles extremely wet and
consequently very difficult to load.
Further, Australias Bureau of Meteorology predicts that both eastern New South Wales and
southeastern Queensland have a 60 percent to 70 percent chance of receiving higher-than-average
rainfalls between January and March 2011.
Coal Mining Contracts and Force Majeure Clauses
The Australian floods have generally made coking coal mining supply contracts to steelmakers
impossible to fill. A force majeure clause is a legal contract clause that allows a firm to miss
contractual delivery requirements due to circumstances beyond the partys control. It is also referred
to as an Act of God clause, as it is primarily raised in the event of natural disasters like torrential
weather conditions or earthquakes.
To date, at least six coal mine operators have declared force majeure clauses due to shipment
disruptions caused by the torrential flooding in Australia. This includes Anglo America Plc, Aquila
Resources Inc, BHP Billiton Ltd., Macarthur Coal Ltd., Rio Tinto Group, Vale SA and Xstrata Plc.

Colin Hamilton, Commodities Analyst at Macquarie, estimated that mines with an annual coking coal
capacity of more than 100 million tons about 40 percent of all supply to global markets were either
under force majeure or would be imminently.
Global Steel Production Costs Likely to Rise
Coking coal is a major part of steel production. Australias transportation delays for its mines coking
coal is anticipated to impact the cost of many of the everyday goods that use steel.
Coking coal prices are set in quarterly contracts between steelmakers and coal mining firms.
Contracts for first quarter 2011 have mostly been settled. At $225 a ton, Australian coking coal
benchmark prices for the first quarter 2011 were already at its second highest levels ever.
I expect the premium grade hard coking coal price to rise to $250 in the second quarter of calendar
2011, said Patricia Mohr, Economics and Commodity Market Specialist for Scotia Capital. [This is]
partly due to the La Nina-related heavy rain in Queensland which has affected shipments.

Steel producers are anticipated to transfer the higher price of coking coal into overall steel
production costs. According to reporter Matthew Hill of Creamer Media's Mining Weekly, the stock
of Vancouver-based Teck Resources, the worlds second largest coking coal exporter, rose to $61.09
on 12/30/10's NYSE, a five-year high (Canadian coal miners may see benefit from Aus floods,
12/30/10). A drive to lock in favorable second quarter 2011 contract terms for coking coal exports is
the anticipated business market reaction to Australia's supply delays.
Export Production Disruptions into the 2011 New Year
Australias flooding transportation delays is anticipated to continue into January 2011. Brisbanebased QR National Ltd., Australias largest freight hauler, 12/29/10 statement was that coal transport
would be disrupted for at least the months of December and January. It also stated that an accident
on one of its freight train lines in Queensland would adversely affect delivery times.
"It's clearly tens of millions of dollars of lost production," said Michael Roche, Chief Executive of the
Queensland Resources Council in a statement to the Australian Broadcasting Corp. "(It's) very hard
to play catch up at the moment because there has been so much wet weather constantly, and it has
not been possible for many mines to build up stockpiles to deal with this sort of weather."
General Disclaimer: This article is for information only and should not be substituted for legal or tax
advice.
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