BHP Coal Operations at Whim of Markets
By Charlotte Mathews and Viwe Tlaleane
24 Aug 2006 at 09:02 AM EDT
JOHANNESBURG (Business Day) -- BHP reported record profits yesterday, however two commodity sectors underperformed, coal being one of them. In “energy coal”, prices and volumes were flat and BHP Billiton’s [ASX:BHP; NYSE:BHP; LSE:BLT] coal operations experienced the same cost pressures as the rest of the industry.
Cost pressures affected underlying earnings before interest and tax by 5.7%, excluding the effects of inflation. About a third of this was structural and the remainder was one-off costs, he said. About a quarter of cost pressures came from higher energy and fuel prices, more than offset by higher prices BHP Billiton received for the sale of energy products.
The recovery plan at SA’s Ingwe Coal was “taking hold” BHP Billiton chief financial officer, Alex Vanselow said, and improved results were expected from Ingwe in the medium term.
BHP Billiton executive president Mike Salamon insisted yesterday that energy coal, and Ingwe Coal in particular, were core parts of the group’s overall strategy.
There is continued suspicion in South Africa that BHP Billiton is planning to withdraw from its coal operations in the country.
The speculation has been fuelled by Ingwe’s sales of assets such as Koornfontein and part of its Richards Bay Coal Terminal export allocation.
But it would be an odd decision in view of South Africa’s growing demand for electricity, much of which would come from coal-fired power stations.
Salamon said that although energy coal for BHP Billiton meant its operations in South Africa, Colombia and Australia, more significant growth was expected from Australia and Colombia.
Ingwe Coal had been through “a tough few years”, aggravated by heavy rainfall in the Witbank area this February and March, which had affected all coal producers in the area, he said.
The focus had been on reestablishing production, which was now going well, and bringing costs down. The expansion of the Douglas and Middelburg collieries was at feasibility stage, and there was no doubt BHP Billiton’s executive committee would be happier to give the green light to major projects at Ingwe if there was an overall performance improvement, Salamon said.
The sale of Koornfontein was part of Ingwe’s portfolio management activities, but the group was looking at building good relationships with Eskom, said Salamon. Ingwe’s Khutala, Middelvlei, Optimum and Klipspruit collieries were all Eskom suppliers and export businesses.
Salamon said longer-term prospects lay in exploration in sub-Saharan Africa and the former Soviet Union, where it was looking at copper, nickel and diamonds.
Salamon added that “China is very important - it’s now 17% of our turnover in the last year. Interestingly over 3% was India - so the rate of change in India is actually faster than the rate of change in China. That’s 20% to two markets which five years ago hardly featured - so they’re very important.” With Classic Business Day.
