Wesfarmers Cuts Coal Sale Outlook After Australia Floods

Coal Mining: Very Risky Business

Australian mining-to-retail conglomerate Wesfarmers on Wednesday cut its full-year coal sales forecast, citing flooding in Australia and weak demand in Asia that is depressing sales prices.

Heavy tropical rains over the last week that inundated Australia's eastern coalfields, cut rail haulage lines and shut mines and ports across two states.

More than half the world's metallurgical coal exports come from Australia.

Sales of metallurgical coal from Wesfarmer's Curragh mine in Queensland are expected to be in a range of 7.5 million to 8 million tonnes in fiscal 2013. The mine recently completed A$286 million ($299 million) of expansion work to enables it to produce as much as 8.5 million tonnes.

"Sales of metallurgical coal in the first half of the 2013 financial year were affected by a scheduled mine shutdown in December and lower short-term demand from traditional North Asia customers," Wesfarmers Managing Director Stewart Butel said.

"Recent high rainfall and localized flooding experienced in the aftermath of Cyclone Oswald has, in late January, affected mine site production and rail and port availability," Butel said.

The floods in the aftermath of Oswald in Australia's far north were severe, although not as widespread as the monsoon-like rains that saturated Queensland and New South Wales states in late 2011 and reduced coal exports for most of 2012.

Between 200 and 400 millimeters of rain fell over Queensland state's Bowen Basin, home to giant open pit mines owned by BHP Billiton , Mitsubishi Corp, Anglo American, Peabody Energy and others.

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While television images show flood waters raging out of control across the state, it appears that, by and large, the major coal producing areas have got off lightly, compared to the devastation around this time two years ago.

The price of coking coal hit a record in 2011 above $300 a tonne, owing to the widespread damage to collieries and infrastructure at the time.

On world markets, metallurgical-grade coal is now selling for around $155-$165 a tonne. UBS has a long-term nominal forecast of $150 a ton.

AngloAmerican this week said some its operations were affected by heavy rains, while BHP said it was working to return to normal.

(Read More: Anglo American's $4 Billion hit Clears Decks for New CEO)

A levee bank surrounding the Middlemount mine in the Bowen Basin was breached and water flowed into the open cut, according to part owner Yancoal.

Production from the mine is likely to be affected for at least three weeks, although Yancoal could not say for certain.

Peabody and Yancoal Australia are joint owners of the mine.

Separately, production was suspended at Yancoal's Yarrabee mine at the weekend but was expected to resume this week.

Wesfarmers settled on a roughly 2 percent increase in coal sales prices for the current quarter, amounting to about $4 a tonne, which was in line with other settlements in the industry and reflects weakness in the market.

In Queensland, where most of the metallurgical coal is mined, it could take several weeks to resume full production, according to the Queensland Resources Council.