Eagle eye on costs pays off for Xstrata

XSTRATA Coal has reported a profitable first half despite industry-wide cost pressures with progress during the period made on the integration of its acquired Ravensworth and Tahmoor longwalls and the development of new mines, including the Blakefield South project.
Eagle eye on costs pays off for Xstrata Eagle eye on costs pays off for Xstrata Eagle eye on costs pays off for Xstrata Eagle eye on costs pays off for Xstrata Eagle eye on costs pays off for Xstrata

Courtesy Xstrata Coal.

Angie Tomlinson

Xstrata said it achieved real cost savings of $US166 million in the face of unprecedented cost pressures and EBITDA of $US5.7 billion.

As previously reported, Xstrata achieved record first-half production in coking and semi-soft coal.

It continued to develop its suite of brownfield and greenfield projects during the period.

Five major projects now in the execution phase have the potential, Xstrata says, to deliver compound annual growth in coal production of 11% over the next five years.

It said the integration of the Resource Pacific businesses, bought by Xstrata for $910 million in the first half, had proceeded smoothly.

The Newpac mine, now renamed Ravensworth Underground, had made “good progress” on development rates, increased ventilation and improvements to underground conditions.

Xstrata said life of mine planning studies suggested the mine would deliver a nominal long-term production level of 3.4 million product tonnes per annum of predominantly semi-soft coking coal.

Japan’s Marubeni is currently reviewing its option to increase its stake in the mine to 22%.

Xstrata also progressed work on the $A375 million Blakefield South project, which is expected to replace production at the Beltana longwall in the first half of 2010.

Prefeasibility work continued at the 30Mtpa Wandoan project in Queensland’s Surat Basin. A 50,000t sample pit was developed during the first half, generating large volumes of coal for processing and test burns of washed product.

Infrastructure work at Wandoan progressed during the first half, including the development of a rail link through the Surat Basin Rail Joint Venture in which Xstrata owns a 20% stake and plans to develop a new coal terminal at Gladstone Port.

Xstrata Coal has also secured exclusive rights to investigate the development of a dedicated port at Port Alma, north of Gladstone.

Since Xstrata’s acquisition of the 10.5Mtpa ROM Mangoola development, formerly Centennial Coal’s Anvil Hill project, the project has been entirely re-engineered and optimised.

The feasibility study was completed in the first half and Xstrata board approval has recently been granted to progress development immediately upon the grant of the mining lease.

Overall production volumes increased 4% compared with the first half of 2007 with sales tonnes increasing by 13%.

Consolidated saleable thermal coal production including semi-soft remained stable at 20.2Mt.

Consolidated saleable production increased by 39% against the corresponding period for 2007, thanks to the Tahmoor acquisition, contribution of the new Wollombi pit, and improved productivity at the Oaky Creek longwall operations.

Xstrata said production at Tahmoor is expected to increase further in the second half, following the completion of surface rectification works, which required the shutdown of the longwall for two months.

During the first half Oaky Creek was able to take advantage of extra port capacity due to other producer shortfalls during the extreme weather and overall export sales increased to 4Mt.

Xstrata announced some impressive contract price increases across all grades of coal for the contract year, starting April 2008.

Major coking coal contract negotiations have been substantially completed at a record average price of $362 per tonne, 277% higher than the previous year.

Record thermal coal contract prices were achieved of up to $125/t, 125% higher than the previous year.

Semi-soft coking coal contracts settled at $258/t, benefiting from an exceptionally tight coking coal market, breaking the traditional nexus between semi-soft coking and thermal coal prices.

Xstrata will also benefit from cancelled carryover tonnage at prior year prices.

The company said it will feel the full benefit of the increased contract prices in the second half of 2008 and into 2009.

It predicted second-half earnings from the coal business are expected to represent around double Xstrata Coal’s first-half EBIT.

In its report, Xstrata said it continued to remain willing to explore “dispassionately” any proposal put forward to buy the business, despite discussions being terminated with Brazil’s Vale earlier this year.

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