(For a full list of Hunter Valley new projects click here.)

In 2003 the outlook for the Hunter Valley and its producers was sombre, with the higher Australian-US dollar exchange rate, escalating ship traffic problems at the Port of Newcastle and higher freight rates all expected to eat away at profits. These conditions, combined with average thermal coal prices prior to this year hovering at a low $US27 per tonne, led some of the Hunter Valley’s producers such as Rio Tinto’s Coal & Allied and Xstrata Coal to review their production levels.

However, the market responded sharply to the threat of lower quality thermal coal supply and prices negotiated earlier this year shot up to a 20-year high.

AME Mineral Economics estimated most tonnage contracted between Australian suppliers and Japan's major electricity generation customers was settled at close to $US45/t, up a massive 68% on the previous year. The general consensus is that these strong prices are expected to carry over into 2005, encouraging Hunter Valley operators to become more proactive with mine expansions and greenfield developments.

Director and chief analyst for Sydney’s Energy Economics, Clyde Henderson confidently predicted buoyant market conditions for thermal coal in 2005 would allow producers to negotiate further increases in their contracts. “With conditions improving for producers we are forecasting that for the next Japanese fiscal year contract prices are likely to rise again to somewhere around $US50/t,” he said. “Obviously a lot of the benefit of this year’s price rise hasn’t really flowed through that much yet on to companies bottom lines so even at the current contract rate there is still a lot of upside of current profitability for their coal exports.”

Henderson said he expected to see a strong turnaround in the profits of several Hunter Valley producers thanks to higher prices. “Take a company like Coal & Allied, who just broke even last year, that looks like it will be just a momentary aberration,” he said.

Coal & Allied’s net profit after tax for 2003 was a mere $100,000 compared with $159.7 million in 2002, and production of saleable coal was down two million tonnes to 27.2Mt following its decision to “adapt to market conditions”. Coal & Allied chief executive officer Grant Thorne said 2003 proved to be a very challenging and sometimes difficult year for the company, which was only now seeing significant benefits of prevailing higher prices.

“The company is operating much more profitably, with realised US dollar prices expected to be approximately 25% higher for the second half of this year,” he said.

Coal & Allied’s net profit after tax of $7.2 million for the first half of 2004 was a sign of the major turnaround underway within the company.

“Half year production was similar to the same period in 2003, with production interruptions in the first quarter due to wet weather offset by operational improvements in the second quarter,” Thorne said.

No company appreciates better the change in current market conditions than the world's biggest thermal coal exporter, Xstrata Coal. Its NSW operations include both underground and opencut mines, most of which are located in the Hunter Valley. About 80% of Xstrata Coal's Australian thermal coal is exported to major power companies and steel mills in the Pacific region including Japan, Korea and Taiwan.

Xstrata said in the six months to June 30, 2004, it received an average price of $47/t for its Australian exports of thermal coal as opposed to $40.60/t in the six months to June 30, 2003. For the six months to June, coal sales turnover increased by 32% to $1.189 billion, due principally to higher received prices.

BHP Billiton has also taken advantage of strong export conditions this year, deciding to increase overall production at its Hunter Valley operations and boost export sales.

Production for the year to June 30, 2004, increased to 8.71Mt from 6.44Mt the previous year, and over the same period export tonnes rose from 4Mt to 5.27Mt. This played a significant part in BHP lifting its annual turnover from its energy coal division to $US2.569 billion for the year ending June 30, 2004, a 23% increase on the previous year.

Centennial Coal was another Hunter Valley based producer flagging significant performance upgrades having achieved a record after tax profit of $52.4 million for the year ended June 30, 2004, a 30% increase on the prior corresponding period. This was achieved on record production of 11.8Mt and sales of 12.6Mt. Raw coal production under management totalled 13.5Mt while sales rose to14.5Mt with export production and sales up by 38%.

While the company has taken advantage of strong export demand and prices by shipping some of its production overseas, Centennial enjoys a strong domestic market presence.

With 13 operating mines in the Hunter Valley, Centennial currently supplies about 40% of New South Wales’ energy coal requirements.

Managing director Bob Cameron said there was no doubt conditions for Hunter Valley producers had improved over the past year. “This was another record result for Centennial Coal, our profit after tax was up 30% on last year,” he said. “It is important to note that this increase was achieved despite operational difficulties at some of our operations, illustrating the benefit of our diversified portfolio of mines.

“Pleasingly, we continue to achieve productivity gains at our mines, particularly at Newstan, Awaba, Myuna and Clarence, and more recently at Angus Place.”

Centennial also expects to benefit from...click here to read on.