METALLURGICAL COAL
The Ups and Downs of Stripping Ratios
October 2017
Already, in the current price surge, average metallurgical coal mine strip ratios have increased 9%, with a further rise likely, leading to 10% increase in cash costs globally. Mine profitability is hard to regain: global average strip ratio of metallurgical coal mines rose 20% in response to the 2010-2011 price peak but took twice as long to fall back when prices plummeted.

With direct mining costs averaging 52% of typical open cut mine FOB cash costs and, in turn, overburden removal accounting over 70% of mining costs, there was a push from 2013–2016 to make savings by reducing strip ratios, although this may have meant the risk of sterilising part of the resource. As metallurgical coal prices rose over 65% from 2015–2017, strip ratios increased 9% and are likely to rise a further 6% in the short term under current price forecasts.

 

A Decade of Change 


 

Examining the top four open cut metallurgical-coal exporting countries over the period 2009–2019 provides a useful insight into where miners have had the scope to alter their strip ratios over time in response to market pressures. From 2009–2011, as coal prices rose in response to strong demand and supply issues, strip ratios rose over 15%. The 10% drop in strip ratios from 2011–2015 reflected the closure of, or decline in production from, open cut mines with uneconomic strip ratios, and the change in mine plan to mine seams at shallower depths in a time of over supply. While mining the shallower areas of a deposit is largely a short-term solution, not mining the deepest seams of a multi-seam deposit is a genuine response to prolonged low prices, with seams at uneconomic depths technically no longer Reserves. 

The rise in metallurgical coal prices in 2016 saw an increase in production from higher cost open cut operations, resulting in a 9% rise in average global metallurgical coal mine strip ratios. On AME’s current price forecast, this trend is projected to continue at a lower rate of 6% over the next two years. 

Mongolia bucked this trend due to the country being a comparatively new coal-producing region; its strip ratios more than doubled in the six years from 2009–2015, despite coal prices falling for the latter half of the period. The sharp rise is an indication of the complex geological structure and moderate to steeply dipping seams prevalent in Mongolian coal deposits. 

 

Stripping Costs 

Globally, average FOB costs for open cut metallurgical mines rose over 50% from 2009–2011, while average strip ratios rose 20%. This was due to a “produce at any cost” response to metallurgical coal prices more than doubling in that time. From 2011–2015, FOB costs fell 35% and strip ratios fell 20%. Effectively, mine costs rose 50% in two years, but took four years to fall 35%, despite coal prices falling ~65%.

Metallurgical coal prices rose over 65% from 2015–2017, spurring a 9% increase in strip ratio. Higher cost production is expected to continue to ramp up in the short term, with global average strip ratios forecast to rise a further 6%, resulting in average global FOB costs rising ~10%.

 

 

Equipment Effects 

At dragline mines, strip ratios declined over 15% from 6.3 in 2011 to 5.3 in 2015, while truck and shovel mine strip ratios declined 20% to 3.9 in 2015 from their peak of 4.9 in 2011–2013.

Strip ratios for truck and shovel mines increased rapidly from 2009–2011 as new, deeper mines started or multi-seam mines extracted deeper seams. Export metallurgical coal from truck and shovel mines increased over 15% over this period. When coal prices fell, truck and shovel mines maintained their strip ratios and continued to over-produce, increasing their export coal production a further 20% from 2011–2013. Strip ratios and FOB costs of truck and shovel metallurgical coal mines finally fell 20% and 30%, respectively, in 2013–2015.

Dragline metallurgical coal mines maintained strip ratios and export metallurgical coal volumes from 2009–2011, then reduced their strip ratios—particularly in multi-seam mines—and FOB costs over 15% and 60%, respectively, from 2011–2015.

Going forward, the global average strip ratio for dragline metallurgical coal mines is expected to be largely steady, while the global average strip ratio for truck and shovel mines is forecast to rise 15% in the short term.