“There have been some design changes to Stage 1, principally a decrease in the grade of the access drifts which has increased the length of tunnelling required to reach the coal seam,” the company said.

The company released its quarterly update for September yesterday, commenting that despite the cost increase, Narrabri was on track to produce first coal in the first quarter of the 2010 financial year.

Contracts on more than 80% of Stage 1 works have also been awarded for the project. However, the company noted there remained some risks to cost and time budgets, principally with regard to driving the access drifts. Drift excavation began in September.

Whitehaven also expects to shortly lodge an application for project approval for Stage 2 with the NSW Department of Planning.

An agreement to sell a 7.5% joint venture interest in the Narrabri project to EdF Trading for $US120 million and the decision to sell a further 7.5% JV interest to J-Power for $A126 million are expected to be completed in the current quarter.

Across all operations Whitehaven reported the September quarter saw saleable coal production of 598,000 tonnes, up 28% from 468,000t over the previous period.

Whitehaven said this reflected the continuing strong performance at Tarrawonga and the growing contribution from Werris Creek.

The company said it expected saleable production to increase in the next financial year with the Rocglen and Sunnyside mines, both 100% owned by Whitehaven, to come into production in the current quarter.

Meanwhile, total coal sales including traded coal of 828,000t for the quarter were up 64% over the previous period.

However, the company reported port and rail capacity continued to constrain coal sales, although this was partly offset by an increase in coal prices and a lower Australian dollar.

A reduction in production at Werris Creek over the quarter has been attributed to the poor ongoing performance of a mining contractor.

Whitehaven reported an agreement in principle had been reached to terminate the contract effective January 31, 2009. From this time onwards Whitehaven will operate all of its mines and projects.

In summary, Whitehaven said it continued to generate strong cash flow from operations in the September quarter, with cash on hand at the end of the period of about $101 million.