Mineral Development has less to do with mining than it does with Heavy Haul Rail Heavy Haul Rail Africa 2012, Nov-2012 Ken Devencorn, Technical Director - Rail, Aurecon

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•  The more accessible resources get developed first •  The world’s continued appetite for resources means that

new frontiers have to be conquered •  More “challenging” mining techniques (e.g. deeper and

more remote mines), and more “challenging” export logistics chains

Resource Development in the 21st Century “All the easy projects have been done”

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•  Logistics chains and getting longer

•  The terrain over which the transport corridor is to be built is becoming harsher

•  Rail becomes a more dominate mode due to increased distances and “haul economics”

Resource Development in the 21st Century “All the easy projects have been done”

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The total export logistics chain becomes exponentially more complex as more remote resources are developed •  Mine logistics network, •  Rail logistics network, •  Port logistics (and bulk materials handling), •  Shipping logistics network •  End User logistics network

Rail, as part of the “Whole of Logistics Chain” Remote resource developments = Longer and more complex

logistics chains

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The key to successful remote resource developments lays in the logistics chain -

Rail, as part of the “Whole of Logistics Chain” Logistic chain thinking

•  Smarter mining techniques might deliver the product to the stockpile cheaper – but nothing will make it closer to the User

•  The “whole of supply chain” is critical – evaluating and optimising each element of the chain to its optimal efficiency

•  Competitive remote resource projects will be those which identify the intrinsic inter-dependencies of the various elements – mine, rail, port, and bulk materials handling - and how each impact upon each other

•  A hard-won saving in smarter mining costs can be completely lost to a “less than optimal” rail solution – hence, resource developers are striving to better understand the logistics chain

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In Australia, we have seen: •  Battles for access to other’s rail networks, e.g. FMG’s request for access to BHP’s

WA rail network •  Major proponents in Queensland’s Galilee Basin proposing to develop their own

rail networks - QR National adding to the mix of mining proponents

Rail is critical to resource development Logistic chain thinking

In Africa, we have seen: •  Rio Tinto, BHP, Vale and others in West Africa struggling to get the rail component

sorted out: digging up the resources in one country and transporting across another is a major obstacle

•  Vast coal resources in land-locked Botswana are likely to remain ‘expensive dirt’ unless a solution can be found – the proposed 1500km Trans Kalahari Rail

In Mongolia and China, we see: •  Rail as an essential element to exporting coal from Mongolia to neighbouring

China •  Heavy haul rail expansions in China have led to significant economic growth with

more planned in the years ahead

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•  Mongolia has proven coal reserves of 12,200Mt •  In recent years export opportunities have increased with the

discovery of high quality coking coal •  Coal exports increased from 0.5Mt in 1990 to 6.8Mt in 2009

to more than 21Mt in 2011

•  Proximity to the lucrative Chinese market increases value

•  Efficient heavy haul rail is essential to extracting this value

The Mongolian Context Some Statistics

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•  The majority of Mongolian coal is presently transported by road

•  Road based transport of coal damages roads, causing accidents and deaths

•  Efficient heavy haul rail reduces transportation cost, and reduces accidents and deaths

•  Planned resource projects worth $20billion demand efficient transport

•  Consequently, more than 5,000km of new railroad planned for construction

The Mongolian Context Road is seen to be the limiting factor

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•  Until 2009, most of Mongolia’s rail network comprised broad gauge track (1520mm)

•  Chinese rail network is predominantly standard gauge (1435mm), adding to the challenge of transporting to service this market

•  New rail is planned to be 1435mm with some dual gauging being considered

•  A well planned heavy haul rail network should consider the market it is serving

The Mongolian Context The Gauge Debate

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25% of the world’s total rail freight is carried on the Chinese railway network China’s rail network spans 93,000km, yet a significant amount of bulk materials are still transported by road The growth in Chinese rail network development has been phenomenal over the past two decades, and is not likely to abate in the near future. On some corridors, rail expansion cannot keep pace with mine developments, causing massive road traffic jams

The Chinese Context Some Staggering Statistics

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China has constructed a significant number of dedicated coal rail networks over the past two decades The principal coal rail networks transported more than 1.2Billion tonnes in 2011 – this is expected to double by 2020 Heavy haul rail is contributing significantly to the economic growth in China

Railway  Name km 2011    Actual

2020  Forecast

Mtpa  

Xilinhot-­‐Chifeng 336 10 35 ShenShuohuang 799 177 350 Mengji     157 Jitong 945 35 35 Jingbao 824 120 120 Mengxi-­‐Huazhong 1,837   200

Daqin 653 440 480 Central  South  Corridor 1,260   200

Fengshada 457 80 85 Jintai/Jinyuan 437 20 20 Hanchang 220 20 62 Houyue 252 89 120 Shitai 251 110 130 Taijiao 434 50 85 Longhai 1,759 40 120 Xikang 260 16 90 Ningxi 953 25 70 TOTAL   1,232 2,359

The Chinese Context Coal Rail Growth

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•  The Galilee is one of the last remaining, undeveloped coal resources in Queensland

•  Expected to become the largest coal producing region in Qld, if not Australia

•  More than 20 companies are exploring in the area – 14Billion tonnes of (mainly) high quality thermal coal

•  5 proponents have announced significant projects - combined export capacity of more than 200Mtpa

The Australian Context Rail is critical to resource development (Queensland’s Galilee Basin)

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Until recently, each of the major proponents were pursuing their own rail development from the Galilee to the Port of Abbot Point •  This was despite the

significant economies of scale of a dedicated “Multi-User” heavy haul rail line

•  A high level economic assessment demonstrates the benefits of a joint development

The Galilee Basin The case for cooperation

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The Galilee Basin Proponents Alpha Coal Project (Hancock Coal / GVK)

•  30Mtpa open-cut coal mine, with potential for future development - adjacent sister mine, Kevin’s Corner with similar output potential

•  Combined export potential in the order of 50 to 60Mtpa

•  Proposed 495km railway •  Dedicated heavy haul,

standard gauge, with passing loops

•  25,000 tonne payload trains

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•  40Mtpa “mega” coal mine •  Proposed 471km railway •  Dedicated heavy haul,

standard gauge, with passing loops

•  24,000 tonne payload trains

The Galilee Basin Proponents China First Coal Project (Waratah Coal)

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•  60Mtpa “mega” coal mine •  Two export channels – o  Narrow gauge (1067mm)

connection to QR National network (to service Dudgeon Point Coal Terminal)

o  Standard Gauge (1435mm) connection to Abbot Point

The Galilee Basin Proponents Carmichael Coal Project (Adani Coal)

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•  Combination/compromise of other Galilee Basin proponents’ rail corridors

•  Narrow gauge (1067mm) connection to QR National network - to Abbot Point Coal Terminal

•  Facilitates greater use of recently constructed GAP (Goonyella - Abbot Point rail link) – the “Northern Missing Link”

The Galilee Basin Proponents Central Queensland Integrated Rail Project (QR National)

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•  High volume of product from the Galilee Basin supports a dedicated rail network to the Port of Abbot Point

•  Standard gauge (1435mm) provides significant ‘whole-of-life’ benefits

•  Collaboration – within an “Open Access, Multi-User Regime” by the proposed miners in the Galilee Basin would yield significant savings

•  Combined (shared) benefit in the order of $600m per annum capital charge

•  Each individual miner can be expected to save between $92m and $244m p/a

The Galilee Basin The case for cooperation

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The Galilee Basin Rail Collaboration

Collaboration facilitated by a Special Purpose Vehicle - all parties have a seat at the table This structure has been effective in a number of similar developments – it does require a clear understanding of roles, contributions, and ownership shares Ongoing access charges for the use of the Galilee Basin Rail will need to be developed The benefits of joint development of the rail is worth the effort!

The Galilee Basin Rail is an excellent example of where the logistics chain is an intrinsic element of resource economics - of getting the product to the market. Without efficient Heavy Haul Rail, the product remains “expensive dirt” .

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1.  Master Planning + Rail Economics 2.  Business Case + Concept

Development + Project Feasibility + Estimating

3.  Operational Simulation + Capacity Modelling

4.  DORC Valuation + Tariff Development

5.  Competition/Regulatory Advice 6.  Rail Civil + Alignment Studies +

Yard Design + Structures 7.  Rail Signalling + Comms + OHT

Power + “Intelligent Rail Systems” 8.  Accreditation (Railway

Management) + Rail Safety + Rail Risk

9.  Asset Management (Rolling stock + “Below Rail”)

Heavy Haul Rail Development Requires a Complex mix of Skills

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Integration across the entire logistics chain provides some real benefits for a very small investment –

The Benefits of Integration

•  Co-Ordination of Long-Term Planning across mine, rail, bulk materials-handling, and port

•  “Opportunistic maintenance” by all chain members

•  Drives competition - JIT and XOT management means that a “cargo ready” mine can benefit

•  The overall efficiency of the logistics chain takes precedence over the set timetable

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Expertise in heavy haul rail has been a major contributor to the economic growth in Australian export resources

Australian Innovation in Heavy-Haul Rail

•  Technology has improved - longer, heavier trains made up of more powerful locomotives and higher-capacity wagons – so too has operations planning expertise

•  We’re now seeing the benefit of integrated, and co-ordinated operations – and this means information sharing, co-ordinated problem solving, and opportunistic operations to drive supply chain throughput.

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Operational Modelling across the entire logistics chain can reveal a concise understanding of the issues to be considered and managed – and yield higher throughput from less infrastructure investment

Operational Modelling and Simulation

Complex processes should be modelled and assessed and the operational solution “stress tested” under a variety of scenarios As Albert Einstein once remarked, "Two things are infinite: the universe and human stupidity; and I'm not sure about the universe" Whole of supply chain Operational Modelling demonstrates the “knock-on effect” that a decision in one part of the chain can have upon the entire supply chain

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Heavy Haul Road is often the first step on a staged approach – •  Haul Trucks •  Road Trains •  Coal Road Trains •  Coal/Minerals Trains This as an intrinsic part of “Master Planning” – a staged development approach to maximise client benefit at each stage of the development life-cycle of the project

Heavy-Haul Rail and Road

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Master Planning provides a focussed commercial and operational solution to rail development. Hence, a process of - •  Assessing the base traffic requirements •  Determining future requirements for rail traffic •  Evaluating the capacity of the existing rail system or the proposed

infrastructure •  Constraints to capacity growth - often the existing infrastructure is not

operated the way it was originally designed •  Economic analysis and financial modelling of the base traffic to assess

viability •  Alternative capital investment options, or staging options •  Static and Dynamic Modelling to provide a “whole of life” costing on such

elements as fuel burn, train crew costs, capital reinvestment, against proofed cycle times

Heavy Haul Masterplanning Ensuring that the solution meets present demand without limiting future growth

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In Summary, Without Heavy Haul Rail Resources remain just “expensive dirt”

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Thank you, Questions and Discussion