Xstrata Plc's half-year results reflected a strong earnings performance, with EBIT up by 83% to $1.95 billion and acquisitions and developments completed on budget, despite disproportionately high inflation and cost increases in mining.
Australian thermal coal saleable production for the first half of 2006 was 19.8 million tonnes, 1.8Mt more than the same period last year. Xstrata Coal said the increase was driven by the commencement of production at Rolleston in Queensland and the start-up of Ravensworth West in New South Wales.
Coking coal production for the first half of 2006 increased by 11% on the corresponding period to 2.7Mt. This was mainly due to increased production at Oaky No. 1 following the commencement of a second longwall unit in December 2005.
Xstrata chief executive Mick Davis said the Beltana mine continued to operate at a managed rate of 7Mt per annum maintaining its position as the most productive underground operation in Australia, while the Ulan opencut remains the most productive opencut mine in New South Wales.
“Longwall production at the Newlands Northern Underground also commenced during the period and replaced production from the Southern Underground, which closed in September 2005,” Davis said.
The majority of Xstrata Coal’s Australian thermal coal export sales continue to be sold into the Asian market – in particular Japan, Taiwan and Korea. Sales have also been maintained into the Mexican market, with further diversification into China, the Philippines and Chile.
Rolleston mine, which officially opened in April 2006, has increased sales in line with the planned ramp-up in production and has produced over 2.1Mt so far – on track for full annual production of 8Mt in 2008.
In late June 2006, Xstrata Coal reached agreement on prices for the April 2006 to March 2007 contract year with major Japanese thermal coal customers at around $52.50 per tonne. This resulted in an average export thermal price out of Australia for the first half of $47 per tonne.
Davis said allowing for the impact of mining sector inflation, Xstrata Coal has continued to deliver real unit cost savings in the Australian coking and thermal coal businesses, where performance would have been even stronger if not for the additional costs of $9 million relating to a delay in the delivery of the Newlands wash plant.
“In common with the rest of the mining industry, Xstrata experienced steep increases in the cost of labour, fuel, explosives, tyres, construction materials, and transport and freight charges,” Davis said.
“With forecasts indicating the inflationary environment is set to continue, Xstrata Coal is working to mitigate cost increases through productivity improvements and the implementation of cost management initiatives.”
Overall, Davis said the outlook for Xstrata is very encouraging.
“Following Xstrata’s acquisition of a one-third stake in the Cerrejón operation in Colombia, further growth potential at this operation has been added to our suite of potential low-cost, brownfield expansions in Australia and greenfield projects in South Africa.
“Strong commodity prices, productivity improvements and further progress on a number of growth projects … ensure that Xstrata is well positioned to continue to create significant value in the second half of 2006 and in the years ahead.”
