Coal-powered growth delivers results

The upwards march of global coal prices and a suite of premier collieries has helped make Excel Coal one of the best performing floats of the year. But don’t expect the growth to stop there. By Michael Weir
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Courtesy Excel Coal

Angie Tomlinson

Excel Coal's annual report simply states ‘We've Delivered’. It's a bold statement, but it is also absolutely profound.

The Sydney-based coal miner has been one of the best performing new floats in the past 12 months. The company only floated in April and already its $2 shares have soared to almost $5.

The reason? They've delivered.

In the prospectus for the float, Excel forecast operating revenue of $254.9 million for the year to June 30. It delivered $267.3 million. The company forecast a net profit of $22.7 million for the same period. It delivered $30.3 million.

It shattered its 12.4c per share earnings forecast by delivering 20.6c a share of earnings, and shareholders were rewarded with a dividend of 6c a share, up from the prospectus forecast of 4.4c.

"Financially, Excel has had an encouraging start as a publicly listed company," managing director Tony Haggarty said.

"Our earnings and dividend were higher than we anticipated at the time the prospectus was completed, our cashflow was strong and our balance sheet remains solid with $60.8 million in cash and net debt of $10.8 million at June 30."

Driving the company's financial performance has been the strong demand and prices for coking and thermal coal.

Coal is one of the hottest commodities in the world at the moment and Excel is in a prime position to take advantage of the continuing strong markets.

"Global demand for imported coal will continue to grow rapidly due to increasing demand for steel and energy, particularly in China," Haggarty said.

"Concerns over a slow down in China have been somewhat exaggerated, there is still enormous momentum there. And then there is the forecast growth in the growing Indian market.

"Australia will continue to dominate seaborne coal trade due to the quality of its coals, favourable geology, proximity of large resources close to tidewater, highly productive mines, established infrastructure and political stability."

The strong coal market is paying dividends for Excel and the company expects the positive financial performance delivered in the 2003-04 financial year to continue in the current period.

Excel has taken the somewhat unusual step of providing profit guidance for investors. Haggarty said this was because so much had changed since the prospectus was written, including the increase in coal prices, moving to 75% ownership of the Wambo mine in New South Wales' Hunter Valley and the company's hedging policy, which provides protection from the rising Australian dollar.

"There is a range of analysts' forecasts for Excel, however, we expect net profit for the 2004-05 financial year to be in the range of $60-$70 million," he said.

That would deliver a massive 100% earnings growth for the year.

"The external environment remains very positive for Excel and its operations," Haggarty said.

"We are focused on maximising returns during this period of high coal prices, ensuring the optimal productivity and competitiveness of all our operations and consolidating our financial position so that Excel remains well placed as a profitable, long-term coal producer."

Another factor driving Excel's share price is its proven track record. While it may be a newly listed company, it has been operating privately for more than 10 years as a developer and operator of coal operations.

The directors have more than 200 years experience between them and also control 56% of the company - closely aligning their interests with their fellow shareholders.

Excel's major assets include the Wambo mine, which produces some three million tonnes of premium export thermal coal but has significant potential for expansion of up to 8Mt a year.

The Metropolitan underground mine at Helensburgh, 50km south of Sydney, produces 1.4Mtpa of hard coking and semi-hard coking coal and has a life of more than 20 years.

Chain Valley underground mine is near Lake Macquarie, 100km north of Sydney, and produces about 400,000 tonnes of low sulphur thermal coal, rising to 700,000t.

Excel's Illawarra Coke operation owns and operates two coke manufacturing plants located about 80km south of Sydney, which together produce about 240,000t of metallurgical and foundry coke.

Haggarty said Excel planned to capitalise on the strong coal market and long-term favourable outlook by tripling production by 2009.

Together with expansions at the existing Wambo and Metropolitan operations, Excel is developing the Wilpinjong mine near Mudgee, some 300km north-west of Sydney.

The Wilpinjong opencut operation is expected to start producing in 2007 at a rate of 3Mtpa, increasing to between 5Mt and 7Mt by 2009.

Excel also has an interest in a coal operation in Venezuela and is developing an opencut operation in Queensland's Bowen Basin which will produce up to 2.5Mtpa.

Excel's current reserve base currently sits at 351Mt with resources of 1.35 billion tonnes.

Haggarty said Excel's income and cashflow risks were diversified on all four key fronts - mining, market, logistics and price.

Excel ran three operations, it was exposed to the domestic and export markets in both thermal and coking coal, it shipped from several ports and had a strict foreign exchange hedging program.

"We have continued to develop Excel's business in line with our strategy of creating value for its shareholders by identifying value-adding opportunities, reducing the risks, adding value to the projects through intellectual capital and active hands-on management," Haggarty said.

"Our existing business is profitable and provides a solid platform for growth.

"Since its founding, Excel equity has grown from zero to the current market capitalisation of more than $900 million.

"We see no reason why Excel cannot continue to grow rapidly.

"We are continuing to seek acquisition opportunities to allow us to further enhance the diversity of our income and operations.

"There almost certainly will be more deals, however size is not the driver and we are focused on building shareholder value."

Excel chairman John Massey-Greene, a 30-year veteran of the mining industry, sums up the Excel position.

"Excel made its first investment in the coal business 11 years ago," he said.

"Today Excel operates three significant coal mines in NSW and has interests in three substantial development or expansion projects in Australia and offshore.

"Incremental growth is underway at our other operations. We expect that together, these projects will deliver a substantial increase in Excel shareholders' interest in annual saleable coal production over the next three years."