MIM's EBIT from coal operations decreased to $178.2 million, compared with $233.9 million for the previous period. Gauci said while MIM’s coal operations are in the bottom cost quartile of world producers, there was still room for improvement.

Further cost savings are expected to be delivered by the new high efficiency, high capacity underground longwall mine, the Northern Underground at Newlands.

“This will increase the proportion of lower cost underground coal when the Southern Underground reserves are exhausted in 2005,” Gauci said.

The new mine will be a longwall punch mine developed off an existing highwall. Costs are expected to drop due to a reduction in development, longer longwall panels and better ground conditions than the Southern Underground.

Unit costs at Oaky Creek are currently higher than normal because of an increase in open cut production to compensate for a shortfall from the Oaky No 1 underground.

“A staged increase in production at No 1 will reduce average unit costs by increasing the proportion of underground coal,” Gauci said. “The open cut will continue to be utilised to provide flexibility of coal supply to meet demand, and will be operated when the margins are there.”

Gauci said there are several opportunities to grow the coal operations and achieve economies of scale benefits. That will be through further expansion at NCA and two possible new projects, Rolleston and Wandoan, expected to be very low cost on a global scale.

Gauci does not expect the new Japanese government tax of $10 per tonne tax on thermal coal imports to have a major affect on coal prices or sales to Japan.

While Australia currently exports 58% of its thermal coal to Japan, MIM only exports 27 percent of its thermal coal to Japan.

“We aim to continue substantial exports into Japan but there is a growing level of demand for thermal coal around the world, not just in Japan.