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BHP Billiton coal earnings down almost 40%

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World Coal,

BHP Billiton has announced underlying earnings from its coal business of US$348 million in the twelve months to 30 June 2015 (FY2015), down from US$575 million in the twelve months to 30 June 2014 (FY2014). Earnings were hit by a significant drop in prices for both metallurgical and thermal coal with the company recording a US$1.03 billion net price impact.

Average realised prices for hard coking coal fell from US$131/t in FY2014 to US$105/t in FY2015, while thermal coal prices dropped from US$74/t in FY2014 to just US$58/t in FY2015.

The drop in prices more than offset a 13% increase in metallurgical coal production to a record 43 million t, as well as cost cutting initiatives that saw cash unit costs fall from US$84.06/t in FY204 to US$65.05/t in FY2015.

Thermal coal production dropped by 5% to 41 million t on the back of drought conditions in Colombia and lower demand for its Navajo Coal product and is expected to remain at a similar level over the next twelve months to June 2016. Metallurgical coal production is forecast to drop to 40 million t as the Crinum mine ceases operation in 1Q2016.

Overall, BHP Billiton recorded underlying earnings before interest and tax of US$11.87 billion – a 46.1% drop from the previous twelve months, as productivity gains were more than offset by lower commodity prices.

Looking ahead and the company expects both metallurgical and thermal coal prices to remain subdued in the short term as industry cost cutting and weaker producer currencies vs the US dollar support continued production from marginal suppliers.

However, it was more bullish on the long-term demand for its metallurgical coal, “as the supply of premium hard coking coals becomes scarce.”

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