BHP considers taking MAC20 underground

AN ILLAWARRA Coal expansion and taking the MAC20 thermal coal mine underground in New South Wales are two options being considered by BHP Billiton to maintain the growth momentum that led to its record annual profit of $US23.64 billion – an 85.9% increase on last year’s result.
BHP considers taking MAC20 underground BHP considers taking MAC20 underground BHP considers taking MAC20 underground BHP considers taking MAC20 underground BHP considers taking MAC20 underground

Courtesy BHP Billiton.

Lou Caruana

It would also consider expanding its Goonyella, Saraji, Saraji East and Peak Downs mines in Queensland as well as further investment in Queensland rail and port infrastructure, it revealed in its results presentation.

Annual production and sales records for BHP Billiton’s NSW energy coal division followed the successful commissioning and ramp up of the MAC20 Project, while strong performance at South Africa Coal delivered a 13% increase in BHP Billiton annual thermal coal production.

“The MAC20 Project was successfully completed during the 2011 financial year, ahead of schedule,” BHP Billiton said.

“The company’s confidence in the outlook for demand in the Asia Pacific Basin was subsequently illustrated by the approval of the $US400 million RX1 Project [Australia] that is designed to get product to market rapidly, ahead of further coal preparation plant expansions.

“Further expansion of our world class Cerrejon Coal operation [Colombia] to 40 million tonnes per annum [100 per cent basis] was approved by the partners in August 2011 and highlights the strong growth outlook for BHP Billiton’s energy coal business.”

While overall revenue for the mining giant was up 35.9% to $US71.74 billion for the 12 months to June 2011, its metallurgical and energy coal divisions underperformed, reporting just 25% and 29.1% revenue increases respectively.

Earnings before interest and tax were 30.1% higher for metallurgical coal at $2.7 billion and 54.7% higher for energy coal at $1.1 billion.

Although Queensland Coal production did recover strongly in the June 2011 quarter, total metallurgical coal production declined by 13% in the 2011 financial year.

“The remnant effects of wet weather that persisted for much of the 2011 financial year continued to restrict our Queensland Coal business, despite an unrelenting focus on recovery efforts,” BHP Billiton said.

“We continue to expect production, sales and unit costs to be impacted, to some extent, for the remainder of the 2011 calendar year.”

“Uncontrollable factors” were the major contributor to a significant increase in operating costs.

Inflation and the weaker US dollar reduced underlying EBIT by $US664 million, while the weather related disruption to production at Queensland Coal placed additional pressure on unit costs.

The 31% rise in average realised prices for thermal coal, which increased underlying EBIT by $US917 million for the period, reflected a higher proportion of export sales as BHP Billiton continued to optimise its product mix in response to evolving market demand.

Broad cost pressures were accentuated by an increase in cash and non-cash costs associated with the ramp up of growth projects in Australia and South Africa.

The weaker US dollar and inflation reduced underlying EBIT for the energy division by $US298 million, while a non-recurring charge related to the recognition of the Colombian net worth tax reduced underlying EBIT by a further $US32 million.

In March 2011 BHP approved three major metallurgical coal projects in the Bowen Basin.

The projects are expected to add 4.9Mt of annual capacity through development of the Daunia operation and a new mining area at Broadmeadow.

In addition, 11Mt of port capacity will be developed at the Hay Point Coal Terminal.

“The cumulative $US2.5 billion investment establishes the platform for strong and sustainable metallurgical coal production growth that will be required to meet the growing needs of our customers,” BHP said.

The $US900 million Broadmeadow extension project is on track to be complete by 2013 and is one of five Australian coal projects approved by BHP Billiton in the 2010-11 financial year as part of a $12.9 billion strategy.

The extension will increase Broadmeadow’s productive capacity by 400,000tpa of metallurgical coal to 4.8Mtpa and prolong its mine life by 21 years.

The Queensland project is on schedule and on budget and is 32% complete, the company revealed.

BHP, which is locked in an enterprise agreement dispute with unions in Queensland, signalled that unit and labour costs were likely to rise.

“BHP Billiton has regularly highlighted its belief that costs tend to lag the commodity price cycle as consumable, labour and contractor costs are broadly correlated with the mining industry’s level of activity,” it said.

“In the current environment, tight labour and raw material markets are presenting a challenge for all operators and BHP Billiton is not immune from that trend.”