Anglo profits hit by low coal prices

Mining company Anglo American has reported that a drop in coal prices has had a considerable impact on company profits.

Metallurgical coal

Metallurgical coal recorded an underlying operating profit of US$ 46 million, 89% lower than the 2012 figure of US$ 405 million.

Anglo explained that this was attributable to a 24% decrease in the average quarterly benchmark coal price. However, this was partially offset by the implementation of significant cost reductions initiated in 2012, a 9% increase in metallurgical coal sales volumes, and favourable exchange rate movements in the Australian dollar.

The company’s metallurgical coal business will continue to focus on cost reductions, with Australian and Canadian export FOB bash unit costs reducing by 8% and 15%, respectively.

Safety and environment

There were no fatal injuries at metallurgical coal operations in 2013. The lost-time injury frequency and total recordable frequency rates of 1.00 and 1.48 were the lowest on record and represent a respective improvement of 43% and 36% compared with 2012.

These results are attributable to visible and proactive leadership presence in the field, increased accountability and specific monitoring of supervisor safety performance. A reduction in the overall high level risk profile was achieved through formal contractor management improvements and increased focus on the management of high level risks, such as those associated with vehicles and machinery.

To assist in mitigating the emissions that may contribute to climate change and reduce exposure to the carbon pricing mechanism, metallurgical coal has expanded the German Creek Power Station by more than 12 MW per annum and, in doing so, reduced CO2 emissions by capturing methane and producing electricity. The metallurgical branch has also implemented a number of asset optimisation projects that improve heavy mining equipment efficiency in order to reduce fuel usage.

Operating performance

Export metallurgical coal production increased by 6% to a record 18.7 million t, while export thermal coal production increased 4% to 6.3 million t. Production improved by 30% at the underground operations. Production at the open cut operations decreased by 5%, mainly as a result of excessive rainfall causing flooding and rail disruptions in the first quarter, and planned capacity reductions.

Moranbah North’s underground operation delivered record production. Output rose by 39% following best practice longwall performance, driven in turn by a 45% year-on-year improvement in cutting hours, an increase in automated cutting, and a reduction in unplanned downtime.

Performance improved by 16% year-on-year at Capcoal’s underground operation, through increased reliability of the longwall with a 15% improvement in cutting hours and improved coal clearance system uptime.

Record coal production was achieved at Foxleigh open cut mine, with a 4% increase over the prior year, on the back of productivity improvements arising from increased equipment availability and optimal alignment of equipment to pit conditions.

In Canada, Peace River Coal increased coal production by 22%, reflecting improvements in mining design, greater productivity in mining operations as well as yield and throughput enhancements in the coal preparation plant.

Outlook

An oversupply of metallurgical coal has been generated by strong metallurgical production from Australia and high US exports, with metallurgical coal prices expected to remain subdued into 2014.

US exports are starting to reduce in response to lower prices. However, record Australian production has more than offset any reductions. Capacity increases from Australian greenfield supply in the second half of 2014 will continue to limit any significant price improvement.

Seaborne metallurgical coal demand is expected to increase to approximately 305 million t in 2014, approximately 8% higher than 2013.

Thermal coal

Thermal coal generated an underlying operating profit of US$ 541 million, a 32% decrease over 2012, primarily driven by lower average export thermal coal prices, partly offset by the impact of the weaker South African rand. Business performance was also affected by a 32-day strike at Cerrejón in the first quarter.

Safety and environment

Three miners lost their lives while working at thermal coal operations in South Africa. One contractor was also fatally injured at Cerrejón, in Colombia.

Over the past five years, thermal coal has continued to improve its performance in relation to injuries, which is reflected in the 42% reduction in lost-time injury frequency rate (LTIFR) from 0.31 in 2008 to the current 0.18. Cerrejón achieved an LTIFR of 0.16, the lowest in the operation’s history.

Thermal coal’s energy, greenhouse gas and water footprints are managed through the implementation of Anglo American’s WETT and ECO2MAN programmes, and energy and GHG levels are trending well below business as usual projections.

Operating performance

South Africa

Underlying operating profit from South African operations decreased by 26% to US$ 356 million, driven by 16% lower average export thermal coal prices, partially offset by the impact of the weaker South African rand.

Export production at 17.0 million t was in line with 2012 with a 13% improvement in performance at Greenside offset by lower production at Goedehoop, owing to challenging mining conditions, and Landau following the slower than anticipated plant ramp-up following maintenance.

Columbia

At Cerrejón, underlying operating profit of US$ 228 million was 36% down on 2012, owing to the impact of lower thermal coal prices, partly offset by significant cost efficiencies and marginally higher sales volumes of 11.2 million t as the operation recovered strongly from the 32-day strike in the first quarter.

Outlook

Demand for seaborne thermal coal is forecast to remain strong, driven mainly by strong growth in Asia with China and India remaining the key markets. Atlantic demand is likely to be steady in the short term as new coal-fired capacity is being offset by the closure of older power stations.

The significant tonnages of domestic coal produced by China and India will continue to act as a restraint on imported coal prices, a situation likely to be exacerbated as domestic producers adjust their prices to stay competitive against imported coal.

Edited from various sources by Katie Woodward

Read the article online at: https://www.worldcoal.com/coal/18022014/anglo_reports_lower_profits_due_to_falling_coal_prices_533/