Coal news and updates

BHP Mount Arthur coal mine on the brink as profits dive

Australia’s biggest coal export mine, BHP Billiton’s Mount Arthur thermal coal mine in the Hunter Valley, is struggling to turn a profit after recent price slides and could be a candidate for closure if prices or costs do not improve.

Despite two rounds of job cuts that have seen 300 positions go in recent years, falls in the price of thermal coal used for power generation this year have moved Mt Arthur on to a list of BHP assets that chief executive Andrew Mackenzie last week described as “touch and go”

The mine produces about 20 million tonnes of thermal coal a year, which is about 10 per cent of the nation’s annual exports.

“With recent (coal price) movements, our Mount Arthur coal mine is also probably in that situation right now,” Mr Mackenzie said when asked what assets could be at risk of temporary closure. “They’re touch and go, but they seem to be surviving,” he said, adding that the situation was being monitored closely.

The BHP chief said the Cerro Colarado copper mine in northern Chile was on the list and pointed to ongoing work at Queensland coking coalmines, where mines had been high-graded or contractors had been brought in to bring down costs.

He said take-or-pay contracts on coal mines, which mean BHP still has to pay for port and rail capacity if it closes mines, was keeping some mines open longer than otherwise might be the case.

Newcastle coal futures averaged about $US56 a tonne in the first half of 2015-16. This provided BHP with earnings before interest, tax, depreciation and amortisation of $US7 per tonne from the 9.69 million tonnes of Mt Arthur coal sold in the half, according to BHP’s earnings report released last week.

But futures prices finished the first half much lower than they started it, and they are now about $US50 a tonne, meaning very thin margins at the mine if costs have not come down substantially.

Thermal coal prices have been on a steady fall for the past four years, since peaking in early 2011 at nearly $US150 a tonne.

Lower Chinese demand, combined with growing supplies, largely from Australia, have kept pressure on prices, while take-or-pay contracts in Australia have also meant some loss-making mines stay open.

More recently, increased Indian domestic production has become a greater concern for the seaborne market.

The decision to keep Mount Arthur out of last year’s South32 spin-off of non-core assets, including Illawarra coking coal and South African thermal coal, surprised some analysts.

But the company maintained at the time it wanted exposure to what it saw as continued thermal coal demand growth.

Last week, Goldman Sachs cut its forecast average 2016 thermal coal price from $US54 a tonne to $US48 a tonne.

Source: The Australian