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Down but looking up

Oilfield Technology,

A number of big miners have recently released their full year results for 2009.

BHP Billiton
BHP Billiton announced underlying EBIT of US$ 772 million for its met coal business, a decrease of US$ 2.351 billion, or 75.3% on the corresponding period. However, the company also shipped record quantities of coking coal in H2 2009 in response to stronger market demand. Thermal coal EBIT was US$ 332 million, a decrease of US$ 740 million on the corresponding period, mainly due to lower average export prices. Record sales from Hunter Valley Energy Coal and the profit from the dissolution of the Douglas Tavistock Joint Venture partially offset the decrease in earning.

BHP Billiton also completed one major thermal coal growth project and approved another. The Klipspruit project, South Africa, went into production in H2 2009 and expects production to be 3.9 million tpa – 1.8 million tpa for export and 2.1 million tpa for domestic consumption. The company also approved the MAC20 project, Australia, which will increase production at Hunter Valley Energy Coal by about 3.5 million tpa. Two further projects – the Douglas-Middelburg optimisation project, South Africa, and Newcastle Third Port project, Australia – are scheduled to begin initial production in 2010.

Xstrata reported record annual production of thermal coal with total consolidated production increasing by 11% to 95 million t in 2009. This was primarily due to the inclusion of 10.5 million t from the Prodeco mine, Colombia, which the company acquired in March, although the Newlands Northern mine, Australia, also recorded increased volumes due to improved geological conditions.

The Groedgevonden thermal coal mine was completed in 2009 and is currently ramping up to its full production of 7 million t in 2011.In spite of this, South African production was down on the previous year due to the planned shutdown of Impunzi Underground and reduced demand for unwashed coal in the domestic and Atlantic market. Australian coking coal production also decreased due to the weak market conditions and industrial action at Tahmoor.

Xstrata also commenced construction of the Mangoola open cut thermal coal mine, Australia. The US$ 1 billion project is expected to produce 10.5 million t ROM of export and domestic quality thermal coal, with an expected life of 18 years. Meanwhile, the ASCOM East thermal project, South Africa, received board approval. Expected production will be 5.7 million t ROM and 3.1 million t of saleable thermal coal for a capital commitment of about US$ 407 million.

Arch Coal Inc.
Arch Coal’s net income decreased to US$ 42 million in 2009, down from the record US$ 354.3 million t the previous year. EBITDA was down to US$ 458 million in 2009 compared to US$ 753.2 million in 2008. Consolidated 2009 production declined 9% to 125 million t from 137 million t in 2008 due to planned reductions across the company’s operations, offset by the addition of Jacob’s Ranch mine production, which Arch acquired in March 2009.

Arch expects production to improve this year to 145 – 155 million t, including 4 – 5 million t of met coal. From Q2 2010, the company expects to benefit from higher met coal prices and volumes, higher pricing on market-priced tons and a more favourable mix of customer shipments under existing contracts.

Global trends
Global economic condition improved in H2 2009 as the US and Europe lifted industrial output, China returned to double digit growth, and industrial production in India surged towards the end of the year. Demand from Asia, and particularly China, which became a significant net importer of coal in 2009, will continue to tighten seaborne coal markets, pulling South African coal from the Atlantic market. This could create an opportunity for US producers to export into both Atlantic and Pacific markets: Arch Coal expects US exports to increase to at least 10 million t in 2010.

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