Riversdale Boss Steve Mallyon Back in the Picture
Issue 171, November 2016
Mining buffs have been wondering: what will the team that built coal group Riversdale Mining turn to next?
Riversdale was sold for $3.9bn at the top of the market in 2011. Chairman Michael O'Keeffe has popped up in Quebec, buying iron ore concessions, whilst finance director Niall Lenahan has reportedly moved to Italy with his pay cheque. Now the company's managing director, Steve Mallyon, has turned up in Vancouver, where he is building a golf course in Alberta.
Mallyon has an ulterior motive, obviously. He is building the golf course to replace another, where he plans to build a mine.
It is no small operation. Grassy Mountain, which Mallyon bought from a US oil group, is budgeted to produce 4.5 million tonnes for 25 years, making it one of the world's largest coking coal mines and the first new asset, at the top end of the coal market, to enter production since 2012.
Mallyon's new vehicle, Riversdale Resources, has drilled 450 holes into the deposit and is planning to build a 6km long open-pit. It has also bought a 12-year slot at Westshore Terminals, Canada's largest coal port. “We're gearing up on the basis that we can probably put some coal out in late 2019. Full ramp-up by the end of 2020.”
Riversdale is privately owned, with two ultra-heavyweight investors, Australia's Macquarie Bank and RCF, the private equity specialist. Mallyon worked for mining bigwig Brian Gilbertson at Billiton in London, before setting-up the Australia desk for investment bank RBC. He was also a director at Rothschild's Australia.
It is easy to imagine that all coal bosses know the industry equally well. Speaking to Mallyon, the error becomes apparent. He can talk freely about steel impurities and the requirements of each blast furnace, used to make steel. He also knows every coal mine in Australia by seam. “Phosphorous is a killer for flat products,” he says. “It creates impurities in the surface and you can see it really clearly in-sheet.”
Mallyon's understanding of the coking coal market is that few new mines are being built, but plenty are nearing depletion.
“We'd love to do something in Australia,” he says. “We looked at the potential to pick up assets from majors, but Australia is very mature.” Carborough Downs, Burton, Millennium, Metropolitan and Tahmoor (owned by Vale, Peabody and Glencore) are all nearing the end of their mine-lives, he says, or face capital heavy upgrades. “There's about, in total, we think, eleven million tonnes still to disappear in Australia, regardless of the price.”
That compares to global coking coal shipments of around 300m tonnes each year. “In terms of brand new projects, there's very few coming online. That's what excites us.” Privately owned QCoal is building the Byerwen mine in Queensland, whilst BHP Billiton and Vancouver-based Teck are eyeing expansions at their Caval Ridge and Elk Valley operations respectively. “There's not much else.”
Some mines have reopened as prices have rocketed this year, rising from $80 to over $300 per tonne since May, but they are mostly “tier-three assets”. Glencore recently pulled the sale of its Integra coking coal mine, which it is reopening instead, whilst Brisbane-based Stanmore Coal has restarted its Isaac Plains operation. Both were previously owned and shuttered by Vale, with two to three years of production left in the ground.
“Cycles come and go and projects come and go, they switch on and off with the coal price, but it's extremely hard to wind down a project quickly,” Mallyon says. “That's not our business.”
Rather than run a stop-start operation, Mallyon wants Riversdale to compete with BHP and Teck, coking coal's two biggest producers. “It's a very simple business because you look over your shoulder at just two players. They're the only ones that matter. BHP produces the world's best coal, we're in the next category down along with Teck and everything else is well down the track.”
“For the amount of effort you have to put in, you're far better off selling the Rolls-Royce than the Fiat.”
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Meet Tim Oliver, an engineer from Arizona, who maintains a death list of new mining projects facing unreported difficulties
BHP Billiton's founder gives widest ranging interview of his career, tips "Ivan" for industry leadership
"It just shows," says Michael O'Keeffe, flying into Labrador, "in today's market, in such a great area, what you can acquire."