OREANDA-NEWS. Profit margins have taken over from cost cutting as the main focus for Australia's coal industry, as rising prices drive a shift from productivity improvements to longer term mine planning and asset renewal.

Lower coal prices in recent years forced mining firms to relentlessly focus on cutting unit costs. This is changing, as a firmer Australian dollar, higher oil prices and rising consumables all put upwards pressure on costs. But a switch in company priorities means costs are no longer the only measure of success in the Australian coal industry. This easing of the cost focus could curb supply additions at some mines, given higher volumes were one way in which mining firms sought to bring down unit costs.

There is less urgency to cut costs at prices of around $90/t fob Newcastle for 6,000 kcal/kg NAR coal compared with when prices were below $50/t in early 2016. Thermal coal prices have been around $90-100/t for the past four months and above $80/t for most of the past year, giving mining firms breathing space to look beyond costs and focus on the longer term value that their mining operations can offer.

New Hope has taken the opportunity to extend the mine life of its 600,000 t/yr Jeebropilly and 4.8mn t/yr New Acland thermal coal mines to at least 2019 and 2020 respectively, rather than mining only the cheapest coal and closing the operations in 2018. This will increase costs per tonne, but also boost the net return on the assets over the remainder of their lives, assuming coal prices remain reasonably firm.

Fellow Australian producer Whitehaven has also chosen to allow its costs to rise so it can mine higher margin semi-soft coking coal, rather than just thermal coal, at its 10mn t/yr Maules Creek mine in New South Wales (NSW). Whitehaven aggressively cut its cash costs including royalties from around A$75/t ($57/t) in 2013 to an average of A$56/t in the 2015-16 fiscal year ending 30 June, but costs then rose to $58/t in 2016-17 and are expected to increase by a further $2/t this year. But the rise in costs is small compared with gains in the firm's average sales price, which surged by 50pc from around A$70/t in 2015-16 to around $105/t in 2016-17.

UK-Australian resources firm BHP has increased cash cost guidance for its Australian thermal coal business, not including royalties, to $46/t fob Newcastle for 2017-18 from $41/t in 2016-17 and a target of $38/t previously. Switzerland-based mining and trading company Glencore expects its thermal coal cash costs to rise to $44/t this year from $39/t in 2016.

Chinese-owned Yancoal hopes to cut its costs by around $5/t through synergies created by its acquisition of UK-Australian mining firm Rio Tinto's Hunter Valley coal operations. But this will take some time to realise, with cash costs excluding royalties likely to rise during July-December 2017 from levels of A$58.70/t fob Newcastle for January-June.

Small mining firms are also drawing confidence from the higher coal prices to develop assets they bought at the bottom of the price cycle, with producers such as Terracom increasing reserves and resources to extend the life of mines.