Gloucester switches to thermal focus

DESPITE a group fall in production, Gloucester Coal has boosted sales in the December quarter and bedded down more thermal coal contracts to make up for the decline in the coking coal market.
Gloucester switches to thermal focus Gloucester switches to thermal focus Gloucester switches to thermal focus Gloucester switches to thermal focus Gloucester switches to thermal focus

Courtesy Gloucester Coal

Blair Price

Total run-of-mine coal production was 679,000 tonnes in the last three months of 2008, down 10% from the same period in 2007, while total end product was down 7% to 434,000t.

In contrast, total sales volumes for the December quarter were 487,000t, up 21% from the same timeframe in 2007, while sales revenue soared 122% in comparison to $137.3 million.

Gloucester said there was an emphasis on thermal coal production and sales during the three months, due to its relatively buoyant demand and more subdued customer demand for coking coal.

In the breakdown, Gloucester’s thermal coal sales hit 401,000t, some 94% higher than the December quarter of 2007, and coking coal sales slumped 56% in comparison to 86,000t.

The strategy to capitalise on thermal sales paid off in negotiations.

“Additional thermal coal sales contracts were agreed during the quarter and now cover the sale of thermal coal in excess of 1 million tonnes past the end of the current financial year,” Gloucester said.

“These contracts have been agreed at varying prices, with an average price of more than $US70 per tonne.

“The contracts are in line with the company’s strategy of locking in sales volumes in what is expected to be a volatile market over the next 12 months.”

Gloucester said it also secured a small supply contract starting in the first half of this year with a domestic power generator, a sales outlet that does not require shipping through “the constrained Port of Newcastle”

While the company expects coking coal offtake to slow down during the current six months, Gloucester said coking coal shipments of around 75,000t were either loaded or expected to be this month.

In an update on the Duralie mine in the Gloucester Basin of New South Wales, the coal producer said the new mining operation’s contract negotiations with Leighton Contractors had reached the final stages and indicated it would have a smooth rollover from the existing contract.

The environmental assessment for government approval to extend the mine’s operation past 2011 is currently being prepared by Gloucester.

At the Stratford mine, Gloucester said the product pile expansion of the coal handling and preparation plant should be complete by mid-2009 and within budget.

The company said a coal testing laboratory was also being installed at the plant to provide rapid results for ash and sulfur to assist quality control and coal blending.

Exploration undertaken during the quarter centred on the Clareval seam in the Duralie North West area and the Roseville West area at Stratford, with the latter to bolster JORC resources necessary for detailed mining plans.

Gloucester said its exploration program would have three drill rigs in use this month and a deep drilling program would start up at Duralie North West in February.

Previous exploration, especially on the Clareval seam, has Gloucester working on concept studies to extend mining beyond 2030 for production of 3 million tonnes per annum of end product coal.

Record profit

Gloucester is anticipating a record profit for the six months to December 2008.

“Preliminary unaudited estimates are for net profit after tax at the top end of the guidance range of $41-44 million,” the company stated.

“The balance sheet of the company continues to strengthen on the back of excellent cash flows.”

Back in October, Gloucester paid a 16c final dividend per share and repaid all of its bank borrowings.

The company’s reported cash position was $25 million at year-end.

Shares in the coal producer were up 8% to $3.65 in trading today.