Wesfarmers sells coal mine for $90m profit

The sale has renewed questions about Wesfarmers conglomerate structure, since the group generates three quarters of its earnings from retailing (Coles, Kmart, Target and Bunnings), with the balance coming from a bewildering spread of activities spanning from coal mining, insurance broking and chemicals, to investments in the finance sector, and beyond.

Even so, Wesfarmers denied it was looking to further asset sales. "This is a transaction unrelated to any other part of the business," Wesfarmers managing director, Richard Goyder, said yesterday.

Wesfarmers put the for-sale sign on the Premier coal mine in March, after India's Lanco Infratech paid $750 million for the other large mine in Western Australia's Collie Basin, Griffin.

It was sold by the company's receivers last December.

"The trigger was the sale of Griffin, since there was surprise about the price paid for that asset," a spokesman for Wesfarmers said yesterday. Following the Griffin sale, a strategic review was launched into retaining the Premier mine.

Premier produces around 3.5 million tonnes of coal annually, most of which is supplied under a long-term contract to the local electricity generator for around $30 a tonne.

This is significantly less than the international spot price for steaming coal of around $US120 for coal shipped from Newcastle.

This contract price was set five years ago, before steaming coal prices surged, and reflects the fact there is only one sizeable local buyer - the electricity company - and the limited export potential from the mine. The electricity supply contract has a further 15 years to run, which is reflected in the price paid by Yanzhou for the mine.

Griffin exported small quantities of coal to India through Kwinana, some distance from the mine and neighbouring the Premier operation.

The nearest port to the mines is Bunbury, but there is no coal export facility. Additionally, export demand for coal from the Collie Basin is handicapped by its high moisture content.

Coal accounts for 11 per cent of Wesfarmer's operating profit before interest and tax, with earnings of the division dominated by larger mines such as the wholly owned Curragh mine, and its 40 per cent stake in the Bengalla mine in NSW.

Yanzhou has been planning to raise funds by selling to local investors around one third of the equity in its Australian operations, an undertaking given to the Australian government when it acquired Felix Resources for $3.1 billion in 2009.

Yanzhou Coal Mining operates five mines in NSW and Queensland, producing approximately 11 million tonnes of steaming and coking coal annually.