Pressure builds on Illawarra Coal

THE recent plunge in spot coking coal prices is putting more pressure on Illawarra Coal, one of the key assets to fall under BHP Billiton’s South32 spinoff next week.
Pressure builds on Illawarra Coal Pressure builds on Illawarra Coal Pressure builds on Illawarra Coal Pressure builds on Illawarra Coal Pressure builds on Illawarra Coal

Illawarra Coal

Blair Price

UBS has already revealed that Illawarra Coal faces about 65 job cuts and the associated closure of its office at University of Wollongong’s Innovation Campus as part of cost cutting plans discussed at an analyst tour last month.

As part of its analysis, UBS also estimated that Illawarra Coal sustainable unit costs were about $US80-85 a tonne.

While there is perhaps some breathing space under the existing quarterly benchmark prices of $109.5/t for Australian hard coking coal – with Illawarra Coal’s saleable output estimated to be 80% metallurgical coal – spot coking coal prices have reached as low as $82/t a tonne according to data released this week.

JP Morgan also took part in the South32 tour of Illawarra Coal last month. While it did not go into the same detail as UBS on the job cuts, it did confirm redundancies were on the cards.

“As with other operations, moving to a regional model under new S32 management is likely to see incremental cost reductions due to lower headcount,” JPM said.

The bank commented on the savings to date before revealing a cost forecast for the second half that matched UBS’ call.

“The operation has managed to reduce costs from a run rate of around $US100/t to $64/t in the last half,” JPM said.

“The key drivers have improved productivity, lower contractor rates, maintenance and spares savings, along with the fall in the Australian dollar.

“The last half also benefitted from a lack of long wall changeovers and as a result is not representative of where costs are likely to average looking forward. We walked away with the impression that going forward costs will be in the order of $80-85/t vs the $64/t reported in the prior half.”