Supply security to buffer Centennial

BUYERS continuing to look for “supply security” will allow Centennial Coal to ride out the rocky road ahead, the New South Wales producer said yesterday pointing out a “real disparity between perception and reality” over the state of the thermal coal market.
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Courtesy Centennial Coal.

Angie Tomlinson

Centennial said while the coal industry was not immune to the current financial turmoil, the fundamentals of energy coal were different to metallurgical coal and oil.

“Despite oil prices continuing to fall, it is evident that coal buyers in their assessment of coal market fundamentals consider the issue of ‘supply security’ to be paramount,” Centennial pointed out in its September quarter report.

“The concern over security of supply was amply demonstrated recently when Japanese and Korean power companies agreed to pay a 10 per cent export tax imposed by the Chinese government to discourage exports from China.

“Clearly, if the Japanese and Korean power companies thought that they could buy alternative cheaper priced coal elsewhere, they would not have agreed to pay this additional tax.”

Centennial also pointed out supply in India was hitting dire levels with more than 60% of coal-based power plants running at less than seven days coal supply.

At a Sydney conference held just two weeks ago, Centennial said Japanese buyers and Australian sellers had agreed to a “back to basics approach” to price negotiations where annual pricing would be agreed through face-to-face negotiation, discounting the wide spot price fluctuations.

“Centennial believes that there is a real disparity between perception and reality regarding the state of the thermal coal market, particularly over the past few weeks, with Centennial’s experience demonstrating that customers remain concerned about security of supply,” the company said.

It also said even if there was a lessening in the $US contract price, the weakness in the Australian dollar would provide the company with an effective buffer to maintain profitability levels.

With this in mind, Centennial said it would continue to target increased exports next year, reaching levels up to 30%. During the September quarter it increased export sales 22% compared with the prior corresponding period.

Recently, Centennial secured a six-year Taipower contract to deliver 500,000 tonnes per annum.

“Strong thermal coal export market fundamentals continue to prevail, with recent contract settlements comfortably above the 2008 Japanese benchmark price of $US125 per tonne and well above recent ‘spot’ levels,” Centennial managing director Bob Cameron said.

“Centennial continues to expect a significant uplift in profitability for the 2009 financial year, supported by increased exports and much improved exchange rates."

Despite the positive outlook, production did slip at Centennial’s New South Wales mines during the September quarter by 23%. The drop, however, was attributed to three longwall changeovers, including the commissioning of the new Angus Place longwall equipment.

Operations

During the quarter, Angus Place underwent an extended longwall changeover as it installed and commissioned new longwall equipment.

Following the changeover, the mine met poorer than anticipated conditions leading to lower output at 245,442t.

Centennial said production in early October had improved, with Angus Place management confident that its revised production schedule for the 2009 financial year will minimise any loss of budgeted production for the year.

The Springvale mine also performed below expectations with output of 882,586t. The longwall encountered an area of poor geology in the roadways ahead of the longwall, slowing longwall production.

The company said a program of secondary ground support, well in advance of the longwall face, was nearing completion – allowing the longwall to return to normal operating levels.

Springvale management has revised the mine’s production schedule to increase production for the next nine months to meet budget by reducing some previously planned shutdown periods.

The Mandalong mine continued to perform strongly, producing 1.1Mt during the September quarter, with the extraction of LW6 being completed ahead of plan.

“The changeover to LW7 commenced earlier than originally planned, with an efficient changeover enabling the mine to recommence longwall extraction in mid-October and quickly ramp up to full production,” Centennial said.

“With increasing longwall extraction, a temporary fourth development unit has been established to increase development rates to keep pace with improved longwall performance.

“Mandalong remains on track to meet its 4.7 to 4.8 million tonnes per annum production target for the 2009 financial year.”

Newstan produced 486,498t, with LW24B maintaining strong production levels and finishing on August 21. A longwall “steparound” was undertaken and completed on budget, with LW25C commencing on September 22.

Centennial said it was continuing with its plan to marginally extend Newstan’s limited life to increase exports.

The Charbon mine produced 345,609t during the quarter as it began to feel the positive impact of restructured shifts which have improved equipment utilisation.

Centennial is now looking to extend Charbon’s life and expects to submit a development consent application to mine the remainder of the existing lease area’s reserves early in the March 2009 quarter.

Clarence continued its upward trajectory producing 520,879t for the quarter, 28% higher than the prior corresponding period.

As previously reported by ILN, Clarence will introduce the first Joy 4FCT (Flexible Conveyor Train) continuous haulage system into Australia.

The Joy 4FCT is scheduled for the 2010 financial year, replacing part of the mine’s shuttle car fleet.

Mannering produced 167,316t, down 17% on the previous quarter, as the development crew hit difficult conditions.

“The original ‘Place Change’ unit operated for the majority of the period in variable geological conditions, but, with the receipt of approval to mine a new resource area obtained, the unit relocated in early October where improved geological conditions and resultant increased productivity is anticipated,” Centennial said.

“Meanwhile, a second Place Change unit was established (replacing a ‘Super’ unit) and moved to a higher working section with significantly improved roof and floor conditions.

“A third unit is currently negotiating a reverse fault zone, with a view to accessing a large new resource area that will open up the mine for the longer term.”

Centennial’s three other continuous miner operations produced the following:

Awaba – 213,307t;

Myuna – 486,498t; and

Berrima – 25,018t.

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