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South32 provides update on Illawarra metallurgical coal

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World Coal,

South32 has provided an update on its Illawarra metallurgical coal. The company advises that saleable coal production of 7.9 million t is anticipated at its Illawarra metallurgical coal operation in FY2017, including 3.6 million t in H1 FY2017.

While ground conditions at the Appin area 9 longwall have stabilised, additional work is being undertaken to recondition the maingate roadway to ensure the safe extraction of the 901 panel. At Appin aarea 7, production continues to be progressively ramped-up to ensure safe levels of gas are maintained.

As a result, Illawarra metallurgical coal sales of 8.1 million t are now anticipated in FY2017, while the company’s average realised hard coking coal sales price will continue to reflect the premium low volatile index on a Month -1 (prior month) basis.

On the basis of unchanged assumptions for foreign exchange rates and coal prices, an average operating unit cost (including sustaining capital expenditure) 1 of approximately US$86/t is now anticipated for Illawarra metallurgical coal in H1 FY2017 (previously US$75/t). This cost is forecast to decline towards US$80/t in H2 FY2017 (previously US$71/t) for an average operating unit cost (including sustaining capital expenditure) of US$83/t in FY2017.

With the completion of the 901 panel and the associated release of ground stresses, a strong improvement in longwall availability and cutting rates is anticipated in FY18 with total saleable production forecast to exceed 9 million t. Consequently, operating unit costs (including sustaining capital expenditure) 1 are forecast to decline towards approximately US$77/t given the operation’s high fixed cost base.

The company reported that restated FY2017 production guidance incorporates a longwall move for each of the March and June 2017 quarters. To allow comparison to prior guidance, the various unit cost estimates do not take account of currently elevated coal prices, which increase royalty rates, and changes in the Australian dollar to US dollar rate, which has remained persistently above 0.72.

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