Thermal slide wounds Centennial's earnings

A LARGER than expected slide in thermal coal prices and the underperformance of Angus Place were just two factors leading to Centennial Coal’s announcement this morning that its 2009 financial year earnings would be at the bottom end of analyst forecasts.
Thermal slide wounds Centennial's earnings Thermal slide wounds Centennial's earnings Thermal slide wounds Centennial's earnings Thermal slide wounds Centennial's earnings Thermal slide wounds Centennial's earnings

Courtesy Centennial Coal.

Angie Tomlinson

The New South Wales producer originally expected second-half profits of around $A42.7 million, in line with the first half. However, it said today full-year net earnings would be in the range of $65-72 million.

“Surplus metallurgical coal being redirected into the thermal coal market has had a significant impact on thermal export prices, although there are signs that this impact is now reducing,” Centennial CEO Bob Cameron said.

“Importantly, despite the difficult economic climate, Centennial has not experienced any significant demand weakness, with some early signs of a tightening thermal market now evident.”

Centennial said the spot export thermal coal price slid $10-15 per tonne below what it had predicted in mid-February, as surplus metallurgical coal was sold into thermal markets.

The company said Queensland PCI producers had been selling into the thermal market to get rid of stockpiles of delayed sales or defaulted shipments, driving down the price to around $US64/t.

“Over the longer term, the supply of PCI coals into the power generation market is unsustainable; low volatile PCI coals are not suited to the maintenance of an efficient power generating operation, and the price of this coal in some instances is understood to be below the cost of production,” Centennial said.

The company said the Japanese financial year benchmark price had now been set at around $70-72/t and the spot market appeared to have found a floor around $60/t.

Centennial’s equity share of run-of-mine production for the March quarter was 4.1 million tonnes and 11.8Mt for the year to date. Sales for the quarter were 4Mt. Figures were in line with the previous quarter and corresponding March 2008 period.

The Angus Place underground mine continued to struggle during the March quarter, with performance still below expectations despite showing some improvement.

The mine produced 606,000t for the quarter as it grappled with the Wolgan stress zone in January and early February.

“While mining conditions and production were clearly better than the previous quarter, Angus Place continued to experience longwall equipment-related issues during the remainder of the quarter, impacting what would otherwise have been manageable mining conditions,” Centennial said.

The mine’s management is continuing to work to tighten up operating parameters of the new longwall, especially the pan-line.

Management said that at the end of the quarter and into April they had seen improved mining conditions and greater operating consistency of the longwall pan-line, resulting in production more closely aligned with expectations.

Centennial said gate-road development for the next longwall block was comfortably ahead of schedule, with 2300 metres of Maingate 960 (against a total block length of 3300m) completed at the end of the March quarter, providing a significant development float in preparation for the mining of LW960.

In contrast to the performance of Angus Place was the Mandalong longwall.

The mine produced 1.52Mt for the quarter, 4.04Mt year-to-date, in line with achieving the 4.8Mt targeted for the 2009 financial year.

Mandalong is currently focusing on relocating the longwall to LW8.

At nearby Newstan, the operation was winding down as the mine entered care and maintenance. It produced 330,000t for the quarter.

At the Springvale longwall mine, 1.04Mt was produced, up 7% on the previous quarter. The mine’s next longwall changeover is due in July.

The Clarence bord and pillar mine continued to improve, with daily (12,080t) and monthly (207,444t) record production achieved. The mine produced 506,000t for the quarter – ahead of expectations.

“Mining conditions are expected to remain favourable for the remainder of this financial year, underpinning Clarence’s recent outperformance. Together with plans to commence weekend production after the Easter break, this additional production, using existing equipment and infrastructure, will help reduce unit costs and offset lower export margins,” Centennial said.

At Centennial’s smaller mines, Charbon produced 292,000t, Mannering 153,000t, Myuna 293,000t and Berrima 50,000t.

On the development front, at the Airly project construction site, plant has been mobilised and civil construction work commenced on the rail loop and surface coal handling system, with certain long lead-time items ordered.

The project team is currently finalising the design and layout of other supporting services in preparation for a progressive build-up to enable production to commence toward the end of the 2010 financial year.

At Olstan, where Centennial will look to extract remnant coal reserves from Newstan using underground auger methods, a prefeasibility study has been completed. Olstan is a three-year project extracting up to 1.5Mt.

At Mandalong, a contractor will shortly start construction of a haul road linking the mine with Newstan’s coal preparation and export facilities.

Final design of an upgrade to Mandalong’s coal handling facilities is well advanced, with contract negotiations for a contractor underway.

Construction is expected to be completed by February 2010, enabling Mandalong to begin exporting up to 1Mt in the 2010 financial year.

Centennial was trading down 6% late morning today, at $A1.86.

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