Resource News

Wesfarmers’ chief Goyder pins hopes on coal export price rise

WESFARMERS chief executive Richard Goyder predicts export coal prices will rise steeply in April, driving a strong recovery for the group’s resources division after it reported a 99.7 per cent slump in first-half earnings to $2 million.

Mr Goyder said he expected the annual contract price, due to take effect on April 1 in line with the Japanese financial year, would be settled “in the next month or two”.

Most analysts, he noted, had forecast the contract price for metallurgical coal would settle in a range between $US150 and $US200 a tonne.

Global demand for coal is soaring as Chinese steel production rises and infrastructure bottlenecks within the country constrain domestic supply.

“Right now we do (expect a significant increase in coal prices), subject to any catastrophe in the world,” Mr Goyder said yesterday in Perth.

Wesfarmers’ resources division reported operating revenue of $624m, 56 per cent below the $1.4 billion in the same period last year. Earnings before interest and tax (EBIT) was only $2m, compared to $664m in the previous period.

Mr Goyder said the major fall in export coal prices last April was the key reason for the slump in the resources division’s first-half earnings.

But the result was also negatively affected by higher royalty payments of $106m made to Stanwell Power at Wesfarmers’ Curragh coalmine in Queensland’s Bowen Basin.

A lag effect on the payments meant this year’s royalties were based on the record prices Curragh received in 2008-09. The royalty expense is expected to fall to about $50m in the second half of 2009-10.

Mr Goyder said the division had also closed out foreign exchange hedging losses at a cost of $65m in the first half.

The combination of higher export coal prices, lower royalty obligations and lower forex hedging losses would lead to improved earnings in the second half, Mr Goyder said.

Metallurgical coal volumes at Curragh fell 6.8 per cent to 3.25 million tonnes, while steaming coal volumes were down 24.9 per cent.

The company said the drop-off in volumes reflected efforts last year to drive up exports to capitalise on record prices.

Sales volumes at the Premier coalmine in Western Australia were down 26.9 per cent due to lower offtake by state-owned Verve Energy.

Sales from the company’s Bengalla mine in NSW were up 5.6 per cent.

A cost reduction program at Curragh was “on track” with costs down 8 per cent in the first half compared to the previous period.

Mr Goyder declined to comment on whether Wesfarmers was considering bidding for the assets of collapsed WA miner Griffin Coal…read more at The Australian