Yancoal scales back spending to weather unpredictable coal storm

Image: Yancoal.

Yancoal is confident that the company is well placed to manage Australia’s uncertain market relationship with China and the current lows in coal prices.

The company is aiming to reduce operating costs where possible by optimising production and has added 700,000 tonnes to its stockpiles, which are historically depleted during the fourth quarter ahead of Asia’s winter.

Chief executive officer David James Moult confirmed that the company will be deferring all non-essential capital expenditure until 2021 but does not expect this to have a detrimental impact on production.

“During the remainder of 2020, we expect to see a recovery of (the) global economic conditions but this will be offset by coal supply cuts not matching demand reduction and elevated gas supply,” Moult said.

“In China, the arbitrage between domestic and import prices remain above $US25 ($35) per tonne, supporting the demand for imported coal and it is unclear if China will relax its custom clearance times and allow for further imports.

“Uncertainty will remain regarding the direction of coal prices over the rest of the year.”

Yancoal’s coal index relevant to its products is down by 25 to 30 per cent compared with 12 months ago and its realised price has also fallen from $107 per tonne in the third quarter of 2019 to $70 per tonne for the third quarter of 2020.

Despite these challenges, Yancoal’s saleable coal production for the first three quarters of 2020 is 11 per cent ahead of the 2019 volume, thanks to increased output from the Moolarben mine in New South Wales.

Moolarben’s processing plant performed above Yancoal’s expectations, thanks to higher than expected volumes by-passed at the plant, with the company producing 5.1 million tonnes of saleable thermal coal during the third period, up 6 per cent on quarter two.

Fellow New South Wales operation Mount Thorley has caught up to 2019’s year-to-date saleable coal production levels of 3.5 million tonnes of met thermal coal, after prior disruptions such as bushfires and ongoing rains.

At the Hunter Valley operations, New South Wales production was scaled back to 4.1 million tonnes in the third quarter compared to 4.4 million tonnes in the second, to ride out soft market conditions.

The Middlemount met thermal coal mine in Queensland achieved an 11 per cent increase quarter on quarter to 700,000 tonnes of saleable coal production despite low stocks impacting output at the start of the period.

The Straford Duralie (New South Wales) site experienced low run of mine volumes but managed to match its year-to-date saleable production of 100,000 tonnes of met/thermal coal, while Yarrabee’s (Queensland) saleable coal production dropped by 11 per cent to 800,000 tonnes.

Despite the uncertainty ahead, Yancoal is still future focussed, having received the required approvals to increase Moolarben’s run of mine production from 21 million tonnes to 24 million tonnes annually.

Studies are underway to address further licensing requirements and to assess the optimal production profile.

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