Floods damaging Australia’s mining exports

The floods in Queensland are damaging the mining industry, and companies are projecting far lower profits than expected as work remains impossible inside the waterlogged mines.

The floods in Queensland are damaging the mining industry, and companies are projecting far lower profits than expected as work remains impossible inside the waterlogged mines.

Macarthur Coal has downgraded its profit outlook for the first half of 2011 and had slid almost 2 per cent on the share market at the end of last week.

Albert Hung, from Alleron Investment Management said the slide across the share market was due to the weaker resource and energy stocks and “significant profit-taking on mining stocks.”

Macarthur said it was able to mine coal at Moorvale but coal recovery has slowed at Coppabella and December’s force majeure remains in place, allowing the company to miss contracted deliveries to clients due to reasons beyond its control.

"Once the pits are free of water, we’ll have more coal exposed that can be processed and transported, but it is not possible to predict when we will return to a steady state of mining as that largely depends on any future rain," chief executive Nicole Hollows said

Wood Mackenzie analyst Ben Willacy estimates Australia’s loss to be 14 million tonnes of exports, if each of the  affected mines remain unable to operate for a month.

Willacy said about 46 mines have been affected, directly and indirectly, by the floods and those mines account for 91 per cent of Australian hard coking coal and all of the pulverised coal exports.

The president of Kobe Steel, the world’s largest coal importer, Hiroshi Sato said he was “concerned” about the impacts the floods were having and said the company is considering supplies from North America and Africa to meet demand.

Analysts say the floods could provide an unexpected boost for mines in New South Wales and coal producers in the Hunter Valley will come be under pressure to make up export supplies.

“There’s likely to be a big swing towards Newcastle for that additional supply. We’re already hearing of customers  that are already rushing towards Newcatle for more coal,” Mark Pervan, ANZ Commodity Research

Pervan predicts another 20 to 30 per cent rise in price if current disruption levels continue over the next month.

The waters are also damaging  coal transportation, with floodwaters not expected to recede enough to allow damage assessment until later this week, according to coal hauler QR National.

The company’s earnings could be reduced by $46 million, before interest and tax, this financial year.

QR National said yesterday that its ”best guesstimate” was for the floodwaters to recede from the Blackwater network’s tracks by Thursday or Friday. Although it has conducted aerial surveys, it said it would not know the extent of the damage until its workers could access the tracks.

”This is not a precise science because these are slow-moving floodwaters,” a spokesman, Mark Hairsine, said.

The second biggest rail network, Blackwater, has been closed since December 27, preventing coal hauling from mines to loading docks at Gladstone.

JPMorgan has estimated a 65 per cent fall in coal-haulage volumes over a month will reduce QR National’s pre-tax earnings by $29 million and also expects the earnings of QR Networks, which operates and manages the rail systems, to be cut by $17 million before tax.

However, the broker believes the division will be able to recoup the earnings in 2011-12. 

Major miners BHP Billiton and Rio Tinto have dug deep and each provided $1 million for flood relief efforts.

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