Illawarra Coal ripe for cutbacks

SOUTH32 could save $US10 million ($A12.5 million) by closing down Illawarra Coal’s head office at the University of Wollongong’s Innovation Campus according to Macquarie Wealth Management.
Illawarra Coal ripe for cutbacks Illawarra Coal ripe for cutbacks Illawarra Coal ripe for cutbacks Illawarra Coal ripe for cutbacks Illawarra Coal ripe for cutbacks

The site of the Daning mine in China's Shanxi province

Blair Price

UBS has previously flagged that Illawarra Coal faced about 65 job cuts associated with such a closure.

Macquarie said South32 could achieve a total cost reduction of about $90 million by rationalising the head offices across the various former BHP Billiton divisions, for a net cost reduction result of $30 million.

Of the $90 million saved, $50 million was expected from office closures in Australia including $10 million from Illawarra Coal, $15 million from Worsley Alumina, $10 million from the Australian manganese assets and $15 million from the Cannington silver and base metal mine.

“We recently attended a site tour to S32’s core Australian assets, Worsley, GEMCO, Cannington and Illawarra,” Macquarie said.

“The key take away from the site tour was the potential for significant cost-out opportunities as S32 right-sizes the operations and centralises corporate functions.”

The broker also flagged that Illawarra Coal could face other cutbacks:

“We note that at spot prices, we would expect the Illawarra metallurgical coal and South African manganese and Cerro Matoso operations would come under pressure to cut costs or curtail production.”

Macquarie also viewed that Illawarra’s Dendrobium mine could be one of the focus areas for future exploration and development work.

“Assuming all approvals are granted a 20-year extension to Dendrobium would enable Illawarra to sustain a 10-12 million tonnes per annum run of mine production rate until 2040.

“Significant coal resources have already been defined at Dendrobium that are located within the same Wongawilli coal seam that is currently being mined. We believe that securing development consent from the relevant NSW government departments is the only hurdle that will prevent Dendrobium from securing a mine life extension.”