Sydney — Mining giant BHP Billiton expects further declines in its thermal coal production in fiscal 2016-2017 after periods of drought and heavy rain took a toll on output in the current fiscal year that ended June 30.
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Production plunged 16% year on year to 34.25 million mt and well below the year's guidance of 40 million mt, the company said Wednesday in its annual operational review.
Further declines are expected in fiscal 2016-2017 and it sees output only at 32 million mt. "The economics are stacking up in the OECD nations; if the money isn't there, production is going to fall," an Australia-based analyst said.
BHP Billiton's New South Wales coal production fell 13% year on year to 17.1 million mt in fiscal 2015-2016 on bad weather as well as rescheduling of mine plans based on individual pit economics.
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"Productivity improvements at New South Wales Energy Coal [is expected to] partially offset the divestment of our New Mexico assets," BHP Billiton said.
The sale of the San Juan Mine to Westmoreland Coal was completed in January this year and the transfer of the Navajo coal mine to the Navajo Transitional Energy Company was on track for December 31, BHP said.
Its total production from US assets plunged 30% year on year to 7.05 million mt in fiscal 2015-2016.
US coal production has been hit particularly hard due to competition by shale gas and regulation, the analyst said.
BHP also has thermal coal assets in Colombia, but the Cerrejon mine was hit by heavy rain as well as nine months of drought, which cut production by 11% year on year to 10.1 million mt, it said.
Despite prices rising in recent months on the back of output cuts in Australia and Indonesia and stronger demand from China, BHP said its average realized price for thermal coal in fiscal 2015-2016 was down 17% year on year at $48/mt.
"The last three months have been particularly good for thermal coal prices. We've seen a rebound but how sustainable is this? We've probably gotten close to some bottom level, and maybe we've already reached it," the analyst said.
MET COAL EXCEEDS GUIDANCE, SETS RECORD
BHP Billiton's metallurgical coal production, meanwhile, exceeded its guidance of 40 million mt for the fiscal year at 42.84 million mt, almost flat from a year earlier, the company said.
Production was expected to rise further in fiscal 2016-2017 to 44 million mt despite the divestment of BHP's Indonesian asset IndoMet Coal in the January-March quarter because of higher output in Queensland, it added.
Record production at five Queensland mines, underpinned by increased plant and equipment availability and utilization, offset the shutting of the Crinum mine as well as a convergence event at the Broadmeadow mine and unfavorable weather conditions, BHP said.
"Record quarterly production resulted in a 17% increase in volumes from the March 2016 quarter," BHP said.
"Queensland coal production is forecast to increase to 44 [million mt] in the 2017 financial year," it added.
BHP saw average realized hard coking coal prices of $83/mt in fiscal 2015-2016, down 21% from $105/mt in fiscal 2014-2015.
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