No Wandoan decision but coal prices look good: Xstrata

XSTRATA Coal is well positioned to benefit from an expected turnaround in thermal coal prices in the next quarter but it is yet to make an investment decision on its planned Wandoan mine, Xstrata chief executive officer Mick Davis says.
No Wandoan decision but coal prices look good: Xstrata No Wandoan decision but coal prices look good: Xstrata No Wandoan decision but coal prices look good: Xstrata No Wandoan decision but coal prices look good: Xstrata No Wandoan decision but coal prices look good: Xstrata

Wandoan project, image courtesy of Xstrata Coal.

Lou Caruana

The proposed 60 million tonne per annum Wandoan thermal coal mine in the Surat Basin remained ''a very, very important component of Xstrata's growth potential going forward but it is not part of the current phase of expansion”, he said.

Davis said the world’s largest exporter of thermal coal continued to evaluate the costs of establishing the operation in an established agricultural belt, with claims of $100 million by local councils for infrastructure.

''From our point of view it is important for us to keep that project viable and the optionality of the project strong and at the appropriate moment to trigger the project,'' Davis said after the company’s half-yearly $US4 billion profit announcement last week.

Xstrata Coal CEO Peter Freyberg remained sanguine about the prospects for thermal coal prices despite the downturn over the last six months.

''I think the market probably bottomed about a month ago and there's been steady improvement over the last four or five weeks where we've seen thermal prices increasing by $5 or $6 in the spot market,'' he said.

''We were able, I think, by seeing where the market was trending, to position ourselves quite well.

''Certainly, there are some spot cargoes out there with traders that are seeing prices lower and are having difficulty in performing but, in general, our relationship with our customers is fairly good and we're working through this.''

Freyberg said only 10% of Xstrata's output was unsold this year, meaning it was shielded from the price drop to a large extent.

Xstrata's Australian coal operations have shouldered the burden of profitability for the giant mining group, representing 31% of its $1.9 billion total group operating profit for the six months to June 2012 compared to 19.5% for the same period last year.

Xstrata’s Australian thermal coal business achieved an operating profit of $544 million for the first six months of 2012, 21% higher than the same period last year.

It was mainly due to increased production following the commencement of the Ravensworth North and Ulan West box cut, recovery from water impacts at Ulan and flooding at Rolleston in early 2011, as well as a full six months of steady state production at Mangoola.

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