Illawarra mines deal with flow-on effects of flood


07 Jan, 2011

Mixed fortunes are predicted for Illawarra-based coalminers after flooding in Queensland shut down several mines there, sparking predictions of coal price rises.

The flooding that has devastated Rockhampton and Emerald has also forced the temporary closure of several coalmines in Queensland, which produces up to 40 per cent of the world's coking coal.

Roads and rail lines have also been cut and the production halt is expected to drive up coal prices - some say by up to a third.

Major miners, including BHP Billiton, Rio Tinto, Anglo American, Peabody and Xstrata have declared "force majeure" on coal contracts - meaning forces beyond their control have made delivery impossible.

Some miners' share prices have dropped as Queensland production halted.

Several of these companies have operations in the Illawarra - BHP Billiton's subsidiary Illawarra Coal operates mines at Appin and Dendrobium, Xstrata has a colliery at Tahmoor, while Peabody owns the Metropolitan Colliery at Helensburgh.

Cockatoo Coal, which has temporarily closed its Baralaba mine in Queensland, is looking to begin exploration work on a coal lease underneath Sutton Forest and Exeter in the Southern Highlands.

The companies have been reluctant to comment on whether problems in Queensland will place more pressure on Illawarra operations to boost production.

But Illawarra miner Gujarat NRE, which does not operate in Queensland, is on track for more growth.

Daiwa Capital Markets analyst David Brennan said the coking coal price could reach $US300 a tonne, as happened during the 2008 floods in Queensland.

"If it happens it's going to happen now, when buyers are desperate to get coking coal at whatever price they can get it," he said.

"They'll be willing to get it at the spot price."

He said the benchmark was set by BHP Billiton selling coking coal to Japanese buyers at $225 a tonne, a deal negotiated last year. But miners will now be keen to try to negotiate more short-term prices.

This is good news for Gujarat NRE, whose Illawarra operations at Russell Vale and Wongawilli are far from flood damage.

Gujarat NRE Coke's chief financial officer P R Kannan said prices would rise and availability would be an issue.

"There are no issues in NSW, so my mine is operating normally," he told Reuters. "But I'll benefit from higher prices.

"It will definitely help our fortunes in the last quarter.

"Steelmakers might not get adequate quantity of coal they require and also the cost will go up drastically if they go for spot purchases outside the contract.

"Availability will be an issue."

BHP Billiton would not comment on production levels in the Illawarra other than to confirm the force majeure declaration through a spokeswoman.

Cockatoo spokesman Michael Vaughan said the company did not expect the shutdown of its Baralaba mine would affect its NSW operations.

Peabody spokeswoman Jennifer Morgens said there had been no change in production at the Metropolitan Colliery.

© 2009 GNCL. All Rights Reserved. A GNCL Creation