Rail strike to dim Pacific National Coal's profit outlook

NEW South Wales industrial action and the unresolved enterprise agreement with the Rail Tram and Bus Union will have a major impact on the second-half profitability of Pacific National Coal, which reported a 39% increase in EBITDA to $208.9 million for the six months to December 2012.
Rail strike to dim Pacific National Coal's profit outlook Rail strike to dim Pacific National Coal's profit outlook Rail strike to dim Pacific National Coal's profit outlook Rail strike to dim Pacific National Coal's profit outlook Rail strike to dim Pacific National Coal's profit outlook

Pacific National coal train.

Lou Caruana

The company has also flagged that its profitability will be affected by operational preparation for a 10-year performance-based contract with Rio Tinto Coal Australia for the movement of 8 million tonnes per annum from its Hail Creek mine and 0.5Mtpa from its Kestrel mine starting in November.

Operational preparation for the start of a train services contract with BHP Billiton Mitsubishi Alliance Coal Operations (BMA), for the provision of support functions of maintenance and daily servicing for the four BMA train sets planned for use in the Goonyella coal system, will also impact profitability, the company warned.

Pacific National parent company Asciano said members of the Rail Tram and Bus Union escalated the dispute with 48 hours of stoppages on February 8-9, but it was still no closer to coming to an agreement over wages.

As a result of the protected industrial action, Pacific National Coal was unable to load, haul and unload its coal trains in NSW – preventing at least 600,000t of coal from reaching port and impacting its customer service.

These exports are worth approximately $3.91 million per day in royalties to the NSW government, Pacific National Coal director David Irwin said.

Chief executive and managing director of Asciano John Mullen said the company was benefiting from its move into the Queensland coal fields and was growing its Hunter Valley based operations organically.

“PN Coal reported a 28.3% increase in total revenue (net of access) on previous corresponding period to $422.8 million, driven by an 18.8% increase in NTKs [net tonne kilometres] reflecting the full period impact of a number of contracts that have commenced over the last 12 months in Queensland and the $21.5 million in proceeds from the disposal of land at Kooragang Island in Newcastle,” he said.

“The facility was surplus to PN Coal’s requirements following the completion of the new maintenance and provisioning centre at Greta in the Hunter Valley and we elected to sell the site to ARTC [Australian Rail Track Corporation, the owner of the below rail network] to assist in improving the congestion issues at the Port of Newcastle for the benefit of the entire coal chain.

“The sale completes our transition to Greta and offsets to an extent the significant capital cost associated with the development of the Greta facility over the last two years. Both the Greta facility and our facility at Nebo in Queensland were completed during the six month period and are now fully operational.”

Reported EBIT grew 49.8% to $150.4 million with underlying growth of 28.4% (excluding the $21.5m profit on the Kooragang Island land sale).

As new contracts commenced over the period, work in progress reduced by $226.1 million to $441.7 million at the end of the six month period and return on capital employed increased from 9.2% to 11.8% over the same period.

Following a relatively weak first quarter (versus contracted tonnage) in Queensland volumes picked up in the second quarter reflecting an improvement in export demand.

“While the six month performance was strong relative to the prior period it was below contractual expectations,” the company said.

The overall result was driven by a number of factors including the impact of two new contracts that commenced on 1 January 2012, a 10.9Mtpa contract

with Anglo American and a 3.5Mtpa contract with Middlemount mine, a joint venture between Peabody (Macarthur Coal) and Yancoal.

It was also impacted by a new 3.5Mtpa contract that commenced on 1 July 2012 with Anglo American from its Foxleigh mine in Queensland.

Lower tonnages hauled versus contracted due to the impact of slowing demand for metallurgical coal exports in particular in the first quarter also weighed on the result.

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