Australian coal assets an attractive option for internationals: Peabody

Major coal player Peabody Energy has moved to cut over 600 staff in just over a month and announced Australia’s coal sector is at a turning point, warning the nation’s environmental policies and economy will be risked if the coal sector doesn’t improve.

But with the Australian dollar recently dropping below parity with the US, the miner has now declared as companies move to decrease costs quality Australian coal operations are looking more attractive to international companies.

Peabody chairman and CEO Gregory Boyce said recent currency movements are improving the cost structures of Australia’s coal sector and helping to lift its competitive advantage.

Boyce explained that high quality Australian coal mines remain on the wish list of many miners around the world, The Australian reports.

He said as cost per tonne improves and the Australian dollar drops Australian coal mines could be targeted.

"We're starting to see Australia come back into the competitive range that it always held in terms of the global seaborne market," Boyce said.

"So I think Australia is still a place that you want to have quality assets, and that's why we're there.”

In the last month the US coal miner has taken the axe to Australian coal jobs, slashing about 450 contractor positions across its coal mines last month, and this week adding another 170 jobs to the head count.

Peabody operates three coal mines in New South Wales and eight in Queensland.

Releasing its second quarter results this week, Peabody reported revenues of $US1.73 billion ($AU1.88billion), resulting in adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $US254.3 million, down from the $US450.1million achieved in the same quarter last year.

Peabody executive vice-president and chief financial officer Mike Crews said while coal volumes in Australia have increased 5 per cent in comparison to the same period last year, the increased production has been offset by lower commodity prices for both thermal and metallurgical coal.

"Our Australia team continues to advance our cost containment initiatives, reducing costs by 6 per cent from 2012 levels to $US73 per tonne," Crews said.

Boyce explained the company would continue to implement productivity and cost initiatives, which will allow the company to cut its contractor and employee workforce by more than 20 per cent since the beginning of the year, without affecting production targets, The Australian reported.

"One of the major benefits to our capital program and our owner-operator conversions in recent years is a modern equipment fleet and significant base of installed capacity," he said.

Despite current market headwinds, Boyce explained the long-term fundamentals for coal remains strong and Australia's coal exports will have a critical part to play in shaping the Asia-Pacific region's future.

"Coal remains the fuel that can advance Australia's energy, economic and environmental goals, but recent policies have eroded competitiveness and jeopardised economic growth," he said last month at an industry event.

A number of sources close to Australian Mining claim some coal mines in Australia are operating below cost, taking on the loss because of take-or-pay contractual obligations, which if not met would see the company incur a larger impairment.

Commenting on take-or-pay contracts, Boyce said the costs of closing an Australian mine are negatively affected by the port and rail charges, which he says are causing miners to stall on decisions regarding high cost, or loss making sites.

Boyce said cost reductions have been made to ensure Peabody runs sustainable operations.

"We announced some additional reductions in Australia as our productivity numbers continue to improve," he said.

"All of that is designed to have as many of our tier-one assets at the low end of the cost curve as we possibly can, and that's always been the nature of how you succeed in the commodities business."

Boyce last month called on Australia's incoming government to implement comprehensive policy reform aimed at returning the nation's coal sector to international competitiveness.

He stated that no matter who takes power at the next election it’s imperative a new strategy is implemented for the coal sector to regain ground and drive economic growth.

"It's now up to Australia's leaders to implement the policy reforms that will ensure coal can continue to drive the economy and enhance Australia's position as a global leader in the decades ahead,” he said.

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