Macarthur face Dalrymple impact

EXCHANGE rates, production issues and flooding all contributed to a $300,000 half year loss for Macarthur Coal, with the next six months expected to be a mixed period of insatiable demand for PCI coal, offset by the impact of the Dalrymple Bay coal terminal incident.
Macarthur face Dalrymple impact Macarthur face Dalrymple impact Macarthur face Dalrymple impact Macarthur face Dalrymple impact Macarthur face Dalrymple impact

Coppabella coal preparation plant

Angie Tomlinson

EBITDA for the half year ended December 2003 was $10 million, down 30% from the comparable period. Coal revenue rose 48% to $93 million.

"It's been a watershed half for Macarthur Coal. We completed the TIC project. We completed Moorvale development and achieved the goal of two mine ownership. We completed the acquisition of an additional 23.3% in the Coppabella mine and simultaneously unified the Coppabella and Moorvale joint ventures. Furthermore we completed all projects within budget," Macarthur CEO Ken Talbot said.

"Although first half production was disappointing, management has implemented a number of initiatives to address production issues, including appointing a second contractor at Coppabella. Additionally, access to the higher yielding coal in the South pit was achieved in January and will alleviate operational constraints applying to the Johnson pit," he said.

Coppabella had been plagued with production issues stemming from drill and blast failure in the middle of the dragline strip, creating a shortfall of 200,000 tonnes. This was coupled with 12 days of lost production from floods during September.

To ensure the mine does not continue to operate 10% below targeted output, Macarthur has installed second contractor Peter Champion, which will assume operations from Leighton Contractors in June.

With a troubled second half behind it, Macarthur now has to face up to handling costs passed on by Dalrymple Bay owner Prime Infrastructure, as port operator DBCT declared force de majeure after advising capacity would be halved for the next six weeks following a machine failure.

The terminal is expected to operate at about 40% of nameplate capacity for the next two weeks, increasing to 50% for the following four weeks, after the collapse of a reclaiming boom on the dedicated reclaiming machine on February 15.

Macarthur is yet to assess the impact on the shipping program and the cost of carryover tonnage, however it was confident fallout from the incident would be quarantined to 2004.

"We have commenced evaluating alternative port facilities to supplement the shipping program. Queensland Rail has indicated its ability to accommodate the transport of coal from our mines to other ports on a best endeavours basis," Talbot said.

Gladstone Port Authority has indicated it could accommodate tonnages from Macarthur Coal, resulting in extra costs which Macarthur proposes to share with customers.

Macarthur is also looking to minimise carryover tonnage from the incident, which would be sold at 2003 prices instead of higher 2004 prices.

The outlook for 2004-05 remains positive as Macarthur Coal is well placed to benefit from the growth initiatives achieved in the first half. The completion of the Moorvale mine and acquisition of the additional Coppabella interests will allow Macarthur Coal to exceed its target of 10% per annum average compound sales growth for the third successive year.

Additionally, demand for PCI coal has risen to unprecedented levels on the back of coking coal demand as buyers look to alternative supply. Much of the drive has come from China, with supply tightening primarily as a result of Canadian rationalisation, underperforming mines in Queensland's Bowen Basin, and the fallout from the Dalrymple Bay incident.

Macarthur has negotiated contract price increases of 28% for its PCI product.

Macarthur also welcomed the Xstrata announcement yesterday that it had won board approval to proceed with the $291 million open-cut Rolleston project it inherited from MIM. Macarthur confirmed it had substantial prospects in the West Rolleston area with access to shallow coal.