Wesfarmers Ltd (ASX: WES) has announced the acquisition of a mineral license adjacent to its current Curragh and Curragh North mining leases for $70 million. The acquired license which contains 67 million tonnes (mt) of coal reserves within a total coal resource of 255 mt, will boost Wesfarmers total base of coal reserves by 29%.
News of the acquisition came on the same day Wesfarmers released its Quarterly Statement of Production, Development and Exploration. For the December quarter, coal production at Curragh was 3.9% higher than the previous quarter, however for the 12 months, coal production was 5.7% lower due to the impact of Cyclone Oswald early in 2013 which interrupted rail and port activities.
Wesfarmers also announced the result of price negotiations for coal to be exported from the Curragh mine during the March 2014 quarter. The result of those negotiations was a 5% fall in prices. The Managing Director of Wesfarmers Resources described the result as “in line with recent market price settlements.”
It’s certainly not a great time for coal miners or related service providers. Mastermyne Group Limited (ASX: MYE) who provide contracting services to coalfields in NSW and Queensland has seen its share price fall from around $1.90 to 71 cents over the past 12 months. In Wesfarmers case, earnings from its resources division have declined from $439 million in financial year (FY) 2012 to $148 million in FY 2013.
Wesfarmers’ earnings from resources are likely to be lower still in FY 2014, however the beauty of its conglomerate structure is its multiple sources of earnings. Unlike Woolworths Limited (ASX: WOW) which is completely dependent on retail or Mastermyne which is dependent on the coal sector, Wesfarmers also has exposure to industrial safety and chemicals, energy, and the fertiliser sectors. While this creates a lumpier stream of earnings, it also offers more avenues for growth. It’s this diversity of earnings and growth opportunities which makes Wesfarmers a core, blue-chip holding of many portfolios.