At its annual general meeting in Perth, managing director Richard Goyder said Wesfarmers had seen prices for its metallurgical coal decline this year and was also still working to counteract the impact of the Queensland floods on its operations.
“At this stage it is difficult to put concrete timeframes on the completion of the Premier sale but we expect that this will occur at the latest, early in the new year,” he said.
“In particular, this remains subject to satisfaction of a number of conditions, including Foreign Investment Review Board and certain Chinese government approvals.”
Goyder said ownership of the Premier mine had provided significant benefits to Wesfarmers since the acquisition of Western Collieries in 1989.
“Over the past 22 years of Wesfarmers involvement with the mine, significant improvements and investments have been made, including the $120 million expansion of the mine in 1998 and securing a number of long-term coal supply contracts with Verve Energy and other industrial customers,” he said.
“Since acquisition, the mine has been a good generator of cash at important times in Wesfarmers’ business cycle, with some half a billion dollars of cumulative cash flow after capital investment generated over this time.
“These cash flows have helped to fund further growth opportunities throughout the group and contributed to strong dividend payments to shareholders.
“The group’s involvement with the Premier mine has also provided the group with the expertise required to enable Wesfarmers to expand its exposure to the resource sector through the subsequent investments in both the Bengalla and Curragh mines.”
Yancoal operates four mines in Australia and reported a net income of $415 million last year.
It purchased a string of Australian companies since its Felix purchase in 2009, including coal developer Syntech Resources for $202.5 million and must float 30% of the company by next year.
Goyder said production at Wesfarmers’ Curragh mine was progressively improving as it continued its dewatering activities and undertook a lot of work to improve the mine’s ability to deal with future wet weather events.
“We continue to see ongoing cost pressures within this business and are working hard to manage the cost base and increase production levels to reduce mining costs per tonne.”
He said the Curragh expansion to 8-8.5 million tonnes per annum of export coal remained on track, with completion and commissioning expected in the first quarter of 2012.
Subject to satisfactory rail conditions and no significant issues with the commissioning of the new preparation plant or significant wet weather, the guidance for metallurgical coal sales volumes remains in the range of 6.8-7.2Mt for the 2012 financial year.
Quarterly pricing for metallurgical coal for the second quarter of the financial year declined by 9%, although it remains at historically high levels.
Since the second-quarter pricing, spot pricing for metallurgical coal has declined further.
Due to global economic concerns, indications are that prices will continue to reduce as supply returns to the market and steel demand weakens – at least in the short-term.
Production levels for the company’s Bengalla mine in the first quarter, while 3% below the last quarter due to operating in a less productive section of the mining sequence, was 17% up on the same time last year.
