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Missing $10 per ton

Per Andersson, MD of Store Norske and Christin Kristoffersen, major of Longyearbyen being photographed during the official opening of the new mine in Lunckefjell. Average coal prices are now 40 percent below what was calculated when the planning of the new mine started. FOTO: Eirik Palm

Missing $10 per ton

Coal prices are averaging 40 percent below what was initially projected for the Lunckefjell mine. And there is little evidence that will change.

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19.10.2014 kl 15:43

The next leader of Store Norske faces a tough job. Although the quality of the coal in Lunckefjell is good, prices are currently averaging $75 per ton. That is far below what Store Norske needs to make money.

Ten dollars under
Calculations for the future indicate coal prices will not only fail to rise, but $75 is at least $10 less than Store Norske needs. $1 per ton represents about 12 million kroner on the bottom line. The coal company is now working on its budget for 2015 and and various options to meet the price level that seems to be applicable in the coming years.

"We are looking at the near horizon," said Administrative Director Per Andersson, who is leaving the coal company at the end of the year to begin a new job on the mainland.

"On what we can do to meet a coal price as it is now."

He gave a presentation about coal mining during a business seminar this week in Longyearbyen.

Long under the assumption
The coal company has trimmed its staff to meet the low prices and resulting deficits. But to salvage production when a blocking stone was discovered during the entry into Lunckefjell, it started working in the fringe areas at Svea. Store Norske now has about 30 employees engaged in a one-year commitment to do this and that in turn is resulting in higher personnel costs.

In addition, there are the low coal prices. The reality in the coal industry is prices during the past year have been as low as $71.47 a ton and the industry is struggling worldwide.

The average price is about 40 percent below what was in the calculations when Store Norske was planning the Lunckefjell mine.

"The average price is around $75 a ton and that is dramatic for us," Andersson said.

"But it seems that this is the price we have to deal with in the future."

In addition, coal from Australia is creating concern after China started imposed additional fees.

The mission of the company's owner is to operate profitably. At the same time, Store Norske's strategic goal to be an engine for economic activity and development that Store Norske now has less time for, Andersson said.

Host for researchers
The bright spots are still there. Recently, a letter of intent for the Svea Arctic Research Institute was signed. Participating in the project is SINTEF, and a goal is the development and testing of equipment to be used in the offshore industry. The advantage is that it is possible to do this testing on land at Svea. In addition, the infrastructure is already there and Store Norske needs tenants.

Per Andersson said he envisions Store Norske operating a research station in the future.
"If successful, it is possible to envisage a year-round program with scientists from around the world," he said.

During the seminar, Directorate of Mining Randi Skirstad Allegrini discussed the need for predictable conditions, accountability and professionalism in the mining industry, and the launching of Svalbard as a resource center.

"One of my dreams is that we will arrange courses for technical mining support here in Svalbard," he said.

Urgent
It is urgent to further develop Store Norske, according to Longyearbyen Mayor Christin Kristoffersen (Labor). She was among the guests when the new Lunckefjell mine opened last winter. Afterwards she supported Store Norske when the blocking stone was discovered and needed to work in the fringe areas of Svea to meet its production goal for 2015.

"The time window to use the development potential that Store Norske has is becoming even shorter," she said.

Store Noske is defined as an industrial engine in the Longyearbyen community, but Kristoffersen envisions that, as do others that follow the coal market, prices are well below what the cornerstone business needs. The projections are also not on the side of growth.

Kristoffersen stated the era of subsidies is long past, but believes Store Norske now needs a clear regulatory framework in addition to freeing up funds for development.
During his speech at the industry conference this week, the departing Store Norske leader called for, among other things, a clear message about whether the company will in fact get approval for its next project at Ispallen, or whether it is a waste of money and resources that could be spent elsewhere in the business.

Sensitive community
The leader of Longyearbyen's government explained in her presentation the sensitivity the city and Svalbard have to national and global trends.

"With global trends in energy supply and demand, there are a lot of things that do not indicate that coal prices are on the rise," Kristoffersen said.

Meanwhile, Store Norske is working on several projects beside its core business and, among other things, is suggesting Svea in the future can become a for research, development and testing with the company as a host.

The challenges for the coal company have also been the subject of meetings with Parliament's Standing Committee on Business and Industry, a recurring topic in speeches, and part of the long-term strategic plan the local council and business association are working on.

"This shows that one must take seriously the development potential that Store Norske has," Kristoffersen said. "I have long been clear that it is time to decide for ourselves what we want for Longyearbyen. The possibilities owners are now giving Store Norske to deal with the challenges they face will be an important part of the decision. I've also been clear in my desire for a new director that believes in a future of investment and development of expertise, along with the professional expertise that must reside in the choice to be taken, where I am still."

Is she worrying about the warning signs as the chief representative of the community?

"It shows me that it has been important to focus on business development, which we have done," she said. "The reason we intensified this work was that we saw the challenges with getting Lunckefjellet started. I feel that we cannot stand and say 'oh, this is crisis, some must come to help us,' but that we solve it in our way."


(Translated by Mark Sabbatini)

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