New South Wales-based producer Centennial Coal Ltd is set to cut 200 jobs from its Mandalong mine after failing to secure a new supply agreement with Origin Energy Ltd (ASX:ORG) for the Eraring coal power station.
The company cited state-imposed coal price caps and rising costs as key factors behind its decision.
Centennial had been supplying coal from the Mandalong mine to the Eraring station, which could close as early as 2027. However, Origin Energy opted not to renew the agreement beyond the end of 2024, citing a variety of alternative supply options from other producers in the market.
The company, owned by Thailand’s Banpu, will now shift its focus to exporting thermal coal, leading to the job cuts.
Centennial partly attributed its difficulty in securing buyers for its coal to the state-imposed price cap of A$125 per tonne.
“There have been a range of factors that have impacted our operations at Mandalong including higher production costs, which have been compounded by the ongoing uncertainty and changes in the domestic market landscape brought about by the introduction of coal price cap legislation,” Centennial said in a statement.
“These factors have made it difficult to secure ongoing domestic coal supply contracts.”
Royalties and high costs were also blamed.
“These issues coupled with higher royalties, increased labour expenses and costs associated with the introduction of the federal government’s safeguard mechanism, that mandates emission caps, has forced Centennial to make this difficult decision to secure the future of the mine,” the company said.
Further pain ahead
Centennial’s Myuna mine may suffer the same fate as it also supplies Eraring.
“Let us be clear. If Centennial, Origin Energy and the NSW government do not come together to forge a deal to resolve this matter, the potential for further job losses at the Myuna coal mine is significant, and more workers will be affected,” the Collieries Staff and Officials Association said.
“Now, more than ever, it is crucial that Centennial, Origin Energy and the NSW government come together to resolve this situation, to ensure that further job losses are not incurred at the Myuna coal mine, in the best interests of workers, their families and the community.”
Negotiations continue
Origin Energy said it will continue to receive coal from Centennial mines while negotiations are ongoing for future supply from the Myuna mine, beyond December 2024.
A spokeswoman expressed hopes for an agreement that provides fair, competitively priced coal to the Eraring power station, which would help avoid higher coal costs that could impact energy prices.
Origin has spent years planning for the workforce transition at Eraring and has offered to share these transition plans with suppliers. The company says it hopes suppliers will take steps to support workers as the retirement of the Eraring plant approaches.
In June, Origin secured a six-month supply agreement with Centennial following the extension of operations at Eraring. The deal temporarily safeguards around 1,000 jobs.
Centennial was once the primary supplier of coal to Eraring, but Origin has diversified its supply sources in recent years. Eraring is now set to operate until 2027, with the possibility of an extension to 2029, following an agreement between Origin and the NSW government to ensure adequate electricity generation capacity.