Port delays carve up Coal & Allied profit

COAL & Allied has fulfilled its lower profit predictions made earlier this month, with shipping queues at Newcastle bringing down the miner’s 2006 annual earnings despite strong demand for coal.
Port delays carve up Coal & Allied profit Port delays carve up Coal & Allied profit Port delays carve up Coal & Allied profit Port delays carve up Coal & Allied profit Port delays carve up Coal & Allied profit

Douglas Ritchie

Staff Reporter

The Rio Tinto subsidiary posted a net profit after tax of $A206.8 million for 2006 compared with $291 million in 2005, while production of 28.8 million tonnes was on par with 2005 production.

Coal & Allied managing director Douglas Ritchie said the 29% profit slump was largely attributable to decreased sales as a result of the constrained infrastructure system.

Higher demurrage alone increased Coal & Allied’s costs by $10 million compared to 2005 and Ritchie warned that despite infrastructure expansions, there is a risk that the system capacity may remain constrained during 2007.

Ritchie echoed the statements he made after the company’s second-half 2006 performance, saying while full-year results reflected a continuing positive demand for coal, it was offset by ongoing constraints in infrastructure capacity and the increased cost of business inputs.

“While global demand for thermal coal remained relatively high throughout the year and resulted in strong prices, our total shipments were constrained by available port and rail capacity and were nearly 5 percent lower than 2005,” Ritchie said.

In late 2006, Hunter Valley coal producers voted not to continue with the capacity balancing system in 2007 and a take or pay system came into effect this month.

“In Coal & Allied’s view, the capacity balancing system ultimately failed because it did not address all aspects of the coal chain,” Ritchie said.

“Hunter Valley producers need a transparent demand management system that determines coal chain entitlements based on production, guaranteed rail capacity and port allocation.

“Any system must effectively manage coal logistics for at least a two or three year time frame until investment in rail and port capacity matches demand.”

In late 2006, the company confirmed its long-term commitment to the Mount Pleasant Project, adjacent to the Bengalla Mine near Muswellbrook in the Hunter Valley, with the commencement of a feasibility study.

The proposed Mount Pleasant operation will include two opencut operations, with a combined potential life of more than 25 years.

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