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Spotlight on Wesfarmers’ coal division

Wesfarmers (ASX: WES) has released its production numbers for the June quarter for its two coal mines and shareholders will be pleased to hear that volumes are up.

The Curragh mine which is situated in Queensland’s Bowen Basin saw volumes spike 25.2% higher as the mine recovered from the impact of Cyclone Oswald which had affected production in the March quarter. Even with the severe weather and a scheduled shutdown during the year, Curragh still managed to produce 2.3% more metallurgical coal in 2013 than in 2012.

Meanwhile, Wesfarmers’ 40% owned Bengalla mine in NSW’s Hunter Valley also boosted production significantly. Volumes were up 27.8% for the quarter thanks to operating in a more productive section of the mine. For the 12 months to June, production of steaming coal at Bengalla was up 32.6%.

Last year earnings from coal mining contributed just 12% to Wesfarmers earnings before interest and tax (EBIT). On a relative basis, the expansion of Wesfarmers retail operation have meant the company is less exposed to coal. This in turn has protected shareholders as the coal price has fallen.

Diversification has been a blessing for shareholders exposed to coal prices in the past 12 months. As the chart below shows, both Wesfarmers and Washington H. Soul Pattison (ASX: SOL) have performed significantly better given their diversified conglomerate structures. Washington’s coal earnings last year represented 38% of total earnings, so the firm is relatively more exposed than Wesfarmers. In both instances though, Wesfarmers and Washington have significantly outperformed less diversified coal miners such as Whitehaven Coal (ASX: WHC) and Aquila Resources (ASX: AQA).

WesChart

Source: Google Finance

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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