"You will see the industry adjust itself, shake itself out. You are going to see more exits from the market.": BHP global coal president Dean Dalla Valle says the coal industry will continue to struggle.
Mining giants BHP Billiton and Rio Tinto have warned the combination of high costs, high taxes and the strong Australian dollar has put a "vice-like grip" on the $60 billion coal industry that will force further mine closures and job losses this year.
About 12,000 jobs have been cut from the sector over the past two years amid a string of mine closures and delays to projects by companies including BHP, Rio, Glencore, Vale and Peabody Energy.
BHP global coal president Dean Dalla Valle said there would be "difficult times ahead in a period of such oversupply", particularly given many operators are not making money at current depressed prices.
"You will see the industry adjust itself, shake itself out. You are going to see more exits from the market."
While both miners remain confident in the long-term outlook, they predict a brutal period ahead for the industry as prices remain under intense pressure.
The contract price of premium hard-coking coal has fallen to $US120 a tonne in the June quarter from $US330 a tonne in 2011, while thermal coal prices have dropped to $US74 a tonne on the spot market from $US125 in mid-2011.
Miners have been struggling to keep their Australian coal operations profitable amid deteriorating prices, surging costs and a high Australian dollar.
BHP and Rio are among the lowest-cost producers in the country and operate their businesses at a profit.
Rio energy chief executive Harry Keynon-Slaney said there had been a recent shift in attitude to cost cutting in the industry and Rio's leadership teams had been "prepared to kill sacred cows" – like freezing salary increases.
"The big established and high-quality resource bases where there are efficient and effective operations will have to continue this relentless cost drive – they will probably survive," he said.
"But there are going to be some operations that are challenged."
The industry was facing "a brutal period in the short-term" and the current malaise had a "few more years" to play out, he said.
Vale this month announced it was mothballing its underground and open-cut coal operations in NSW's Hunter Valley, citing "unsustainable financial losses of the operation due to the current market conditions".
In Queensland, 10 per cent of mines in the state are in a "very precarious position", particularly in lower-grade coking coal and thermal coal, Queensland Resources Council president Michael Roche said.
Fresh figures from the council show a quarter of the state's coal output is produced at a loss, including half of all thermal coal production.
One in 10 tonnes produced at Queensland coal mines made a loss of more than $14 a tonne, Mr Roche said.
Industry sources say the situation is similar in New South Wales.
"There is a danger of more Integras," Mr Roche said.
Decisions on mine closures are ultimately a question of management's long-term view on the coal price.
The squeeze on revenues and costs has intensified over the past six months, Mr Keynon-Slaney said.
"Quite a lot of projects that had considerable noise around them over [the] last three or four years have gone quiet.
"The economic reality is that it is going to be quite hard to find financing for big coal projects." While the coal price has slumped, miners have increased production in an attempt to lower unit costs.
They have also been reluctant to close mines because onerous "take or pay" contracts for port and rail means it can make more financial sense to operate at a small cash loss.
Rio is set to deliver record production from its thermal operations in Australia this year.
BHP also runs its operations to capacity.
Some industry observers have suggested the mining giants should withhold some production so as not to drive prices down further.
Mr Dalla Valle's response is simple – "We are not playing that game".
"We are not going to try to influence the market by reducing tonnes."
Mr Keynon-Slaney stresses the long-term outlook is "bright" – saying coal will be the "backbone of energy for a generation, particularly in Asia".
"Underlying demand has not changed; it's continuing to be pretty robust," he said.
"But supply has been growing at a greater rate."
Like his counterpart at Rio, Mr Dalla Valle was positive about the long-term outlook for both types of coal, and stressed thermal coal's role in powering development in Asia, despite mounting pressure from environmental activists to stymie expansions and future growth projects for the commodity.
His focus this year would be "safely driving productivity".
Rio's coal operations are cash and earnings positive and Mr Keynon-Slaney said "they will remain that way".
As for BHP, its coal business averaged returns of about 7 per cent.