Coal on a roll with high prices warming hearts of investors
RECORD coal prices are starting to flow through to the bottom line of coal producers.
RECORD coal prices are starting to flow through to the bottom line of coal producers.The Rio Tinto subsidiary Coal & Allied yesterday reported a $195.1 million profit in the first half - outpacing market expectations - compared with earnings of $70 million during the same period last year.And the independent NSW miner Centennial Coal reported record annual production, after working hard to maximise its export sales at a time of record coal prices. "The 2008 financial year has been underpinned by strong production and the recent settlement of a record export thermal price," said Centennial's managing director, Bob Cameron. "The strength of our operations and high prices bode well for a significant uplift in profitability for the 2009 financial year."Analysts expected Centennial would have earned $85 million in the year ended June 30 and $202 million this year.Centennial said its production had increased by 19 per cent to 16.9 million tonnes this year - including 4.3 million tonnes in the June quarter. This did not count output from the Tahmoor coking coal mine it sold to Xstrata and the 50 per cent stake in the Angus Place mine it sold to SK Corp and Korea Resources during the year.The thermal coal producer sold most of its coal into the lower-priced domestic market under long-term contracts with NSW electricity generators.Centennial expected to export about 30 per cent of its coal this year, rising to 50 per cent by 2013 as it added production and old domestic contracts rolled off.A UBS analyst, Glyn Lawcock, yesterday said he had a "buy" rating on Centennial because it was trading on relatively cheap earnings multiples compared with rival coal prices."Our view [is] that the market is not paying for the fact that [the] sales mix is changing more towards export," he said.The high dependence on domestic sales meant Centennial was less constrained than rivals by infrastructure bottlenecks. These bottlenecks continued to restrict Coal & Allied's production and financial performance, it said.Centennial said industrial customers in the domestic market were now paying spot price parity - or about $US170 ($177.60) a tonne - due to high global demand for thermal coal.It added that the even higher price of coking coal meant flexible producers were switching the production mix to deliver semi-soft coking coals and creating a further shortage in the thermal coal market. Coal & Allied confirmed that was part of its sales strategy yesterday. The Rio subsidiary said it would pay an interim dividend of $1.60 a share.
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