Coal division feeling pinch
WESFARMERS'S once powerhouse resources division is barely profitable at current coal prices, the managing director, Richard Goyder, admitted on Wednesday while defending the longer-term value of its Curragh and Bengalla mines.
Mr Goyder said the Curragh metallurgical and thermal coal mine in Queensland's Bowen Basin was highly competitive on the cost curve, adding "if we're hurting, there are a lot of others hurting as well".
Last October Wesfarmers announced cost-cutting measures that included a shift from seven-day to five-day rosters and enforced staff leave during a planned shutdown. He blamed low coal prices and a high Australian dollar.
The finance director, Terry Bowen, said Wesfarmers was not making money on lower-grade metallurgical coal after state and private royalties were factored in, and in the current environment for many operators "profitability would be very questionable".
At the former state-owned Curragh, in addition to state government royalties, Wesfarmers is obliged to pay a substantial trailing royalty to government-owned generator Stanwell Corporation. It is linked to export coal prices and akin to a profit-sharing arrangement. The royalty was still being paid on the basis of higher coal prices a year ago, due to the lagged effect.
In a swipe at the Queensland government, which increased coal mining royalties last year, Mr Goyder said: "A lot of costs have been added, state government royalties have increased, there are a lot of fingers in the pie at the moment."
Mr Goyder denied coal was a problem division for the company, saying Curragh was a "very, very good asset". But producers could not continue to supply coal below-cost, he said. "Ultimately I think there will either be a demand or supply-side response."
Analysts yesterday said coal producers were doing it tough, but one said while Curragh was an efficient mine, after the Stanwell royalty was factored in "we wouldn't consider Curragh a low-cost operator".
Wesfarmers lowered its production guidance for 2012-13 to 7.5 to 8 million tonnes, down from 8 to 8.5 million tonnes, partly due to the Curragh shutdown and partly due to recent high rainfall and flooding in the aftermath of ex-tropical cyclone Oswald.
"This revised forecast is subject to no further significant wet weather and the satisfactory recommencement of rail and port operations," said Wesfarmers Resources managing director Stewart Butel.
Wesfarmers said it had concluded price negotiations with most export customers for the March quarter for metallurgical coal, and the weighted average price across all grades (hard coking, semi-hard coking and PCI) would increase by about 2 per cent, after falling 26 per cent in the previous December quarter. But the price Wesfarmers obtains for its best hard coking coal fell in the quarter, from $US165 to $US160 a tonne.