The right time for Drayton

On the cusp of ceasing its Australian coal mining program, Drayton coal mine operator Anglo American has reinvested in the Australian market, with recent optimism and surging commodity prices convincing the mining giant to re-open a number of its previously closed mines. After its proposed adjacent mine, Drayton South, was denied by the NSW Planning Assessment Commission, Anglo American awarded Australia’s leading resources auctioneers, Hassalls, with the contract to conduct a total site dispersal of all equipment from the mine site. Hassalls believes the some AU$7.5 million worth of assets to be distributed will generate significant demand, fueling projects and mining activity both locally and interstate.

The right market

The renewed sense of optimism following commodity price hikes has jumpstarted the Australian mining industry after its battery ran flat in 2013. In Q2 of the 2016/17 fiscal year coal prices have soared to more than US$230 per tonne, marking a rebirth of the commodity’s influence in Australia. Demand for coal is expected to remain stable, with mining giants scoping projects and drawing contracts for many of their sites that were mothballed when prices plummeted. The proposed Drayton South coal mine was one such project, however, as it’s not moving forward the equipment and infrastructure behind its predecessor will serve as fuel for the drove of miners flooding back into the Hunter Valley region. An abundance of contracts targeting small to mid-sized contractors have opened over the past quarter, which has drawn a diverse range of buyers back into the market.

The right buyers

Drayton’s dispersal is especially unique due to the sheer volume and variety of equipment on offer, ranging from light commercial vehicles and workshop equipment to ancillary gear and heavy earthmoving machinery. Hassalls is expecting the variety of buyers to mirror that of the gear, with maintenance contractors picking up the considerable range of components, agriculture sector chasing the large number of light vehicles, and mid-sized miners looking to pick up heavier machinery to beef up their fleets before they pitch for many of the contracts that have entered the market. The sale is so large it will take two full auction days (15th & 16th March) to realize the quantity of equipment and plant with estimates of 800 to 1,000 lots to be sold.

The right outlook

Although the past twelve months have been volatile, the resources sector has seen steady growth in parts with many of the big players seeking to capitalise on rising commodity prices. This can be seen with increasing budgets for mining exploration, with small to mid-sized Australian companies spending AU$451,000 on exploration alone in Q3 of 2016. The consensus view is that demand for Australia’s commodities will continue to strengthen for the remainder of this year, in turn raising demand for equipment as more small and mid-sized contractors come back into the market. As the resources industry has grown accustomed to operating lean, Drayton’s array of second hand gear is ideal for these contractors who cannot typically afford late model, low houred equipment. The Drayton sale is likely to bolster the NSW resources sector substantially if a conservative, lean mindset can be maintained.

As the world’s largest net exporter of coal, coupled with the temporary Chinese government’s restrictions, Australia has a big opportunity to make the most of its current circumstance. Hassalls is looking forward to working with Anglo American and the Australian resources sector to manage the Drayton dispersal, extending the global profit margin further and solidifying Australia’s reputation as a premium coal exporter.

This blog was first published in the February edition of Australian Mining Magazine.