"After a difficult first half, Coal & Allied is only now beginning to enjoy the benefit of prevailing higher prices. The company is operating much more profitably, with realised US dollar prices expected to be approximately 25% higher for the second half," said Coal & Allied's managing director Dr Grant Thorne.

The net profit of $7.2 million was positively affected by the recognition of inpit inventory for the first time and by depreciating mining properties over their estimated life. These two accounting adjustments had a positive effect of $14 million on net profit.

"Half year production was similar to the same period in 2003, with production interruptions in the first quarter due to wet weather offset by operational improvements in the second quarter. This improvement was through higher equipment availability and utilisation at all mines, along with Mount Thorley/Warkworth coaling operations moving to a seven-day roster," Dr Thorne said.

"Following the successful introduction of the port allocation system, the number of ships queuing off the port of Newcastle has reduced from a peak of more than 50 in the first quarter to just 12 at 30 June, resulting in reductions in demurrage.

Dr Thorne said the transition to Rio Tinto Coal Australia management has been successfully implemented with efficiencies and cost benefits starting to be realised. The outlook for the second half of 2004 is positive with positive benefits expected to flow through from price increases and lower demurrage costs.

"However, earnings will continue to be hit by higher fuel prices and the increased New South Wales coal royalty which takes effect from 1 July 2004."