Iron ore miners have been enjoying higher commodity prices in 2013, although some weakness is starting to creep in. The big miners have been increasing production to drive revenue, but what have the coal miners been able to achieve?
They have been following the same path – cut costs, increase production and focus on high-grade ore mining. Now we’re starting to see the results.
WHITEHAVEN COAL LIMITED (ASX: WHC) just announced record quarterly production and sales data from its December quarter. Production was 2.86 million tonnes, up 44%, and sales saw a 52% rise to 3.15 million tonnes compared to the previous corresponding period.
It just finished its Werris Creek mine expansion, which will bring that mine’s annualised production rate up to 2.5 million tonnes, and a legal application against its Maules Creek mine development has been dismissed by the Federal court, making way for its plans to have first coal production there by early calendar-year 2015.
Asciano Ltd (ASX: AIO) has entered into a 12-year agreement with Whitehaven to haul coal from Maules Creek and other mines in the Gunnedah Basin area, with plans to use higher-tonnage-capacity rail cars to ship more ore in a more efficient way so as to cut cost. Leighton Holdings Limited (ASX: LEI) will be constructing the new rail lines to the Maules Creek and Boggabri mines.
Whitehaven saw a $60.8 million net loss in 2013, and its share price has been trending down since early 2012, as thermal coal prices fell from around $115/tonne to $82.45/tonne in August 2013. Coal is recovering, up to $90.36 in December. Its current $1.87 share price is only 58% of its $3.20 book value per share.
Major coal producer BHP Billiton Limited (ASX: BHP), through its BHP Billiton Mitsubishi Alliance joint venture, has reported a 22% increase in coking coal production over the six months to 31 December, compared to the previous corresponding period, and a 1% reduction in thermal coal.
As a diversified miner in iron ore, copper and petroleum, it is benefitting from higher commodity prices and production expansion as it waits for a revival in coal prices, so of the two, I would be sticking with the Big Australian for better returns and more potential growth.
Like a retail store, if you have to discount your products, you can possibly get the same earnings if other costs don’t blow out. Also, you want to sell more than one product, or you will be riding a rollercoaster of sales ups and downs as supply and demand strengthens and wanes.
Similarly, if you follow mining companies in your portfolio, then diversity in product and region is important so that you can gauge what returns to expect. You need to concentrate on those companies that can give a steady growth story over the long term.
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