The Rio Tinto subsidiary, Coal & Allied Industries, will cut back production and 250 contracting jobs at its three Hunter Valley mines in NSW because of the continuing delays in shipping coal through the port of Newcastle.
The coal miner said in a statement to the ASX yesterday the cuts come after its rail and port allocations for Newcastle were reduced for the rest of 2007.
The news will be a blow to the NSW coal industry as demand and prices for the soft coking coal types, as well as the thermal, or steaming coals produced and shipped through the port, are rising.
It will cost tens of millions of dollars in lost sales and profits. The job losses at the CAIL mines will not be the first.
Coal & Allied Managing Director, Doug Ritchie, said the cutbacks were unavoidable given the reduction in allocation levels.
“We need to reduce our total production this year by approximately 20 per cent to adapt to these revised allocation levels,” Mr Ritchie “We need to reduce our total production this year by approximately 20 per cent to adapt to these revised allocation levels,” Mr Ritchie said in the statement .
He said the cuts will result in the loss of the equivalent of 250 contractor positions at Bengalla, Mount Thorley, Warkworth and Hunter Valley operations.
“The changes are being implemented to bring our production levels into line with the reduced allocation of port and rail capacity made available to all users,” he said.
“The current system of allocation and planning is clearly untenable.
“We are working with other parties involved in the coal logistics chain to develop a long term strategy to provide a more stable basis for industry to operate in.”
The shares were untraded with a last sale at $80.
The news comes two weeks after the company’s annual meeting was told in Sydney that Coal & Allied faced a number of challenges in 2007 with “one of the most significant is the constrained Hunter Valley coal chain”.
Chairman, Chris Renwick said “Earlier this year, Hunter Valley coal producers voted to introduce a modified capacity balancing system which we see as a short term solution to address the queue of more than 70 ships off Newcastle. While Coal & Allied recognises the urgent need to address the queue a longer term solution is required.
“Although global demand continues to strengthen and the outlook is positive, Australia’s coal producers are unable to meet this demand.
“Make no mistake about this. I am not talking just about a diminution in the wealth created by the coal industry but about our failure as a nation to capitalise on the growth opportunities and the need to remove constraints which are preventing us from maximising these opportunities generated by strong demand.
“In the Hunter Valley alone, infrastructure constraints are preventing producers from fully capitalising on demand with at least an additional 15 per cent production capacity not being realised.
“We can dig up the coal and put it into our load out bins but we simply can’t get enough rail wagons to the port and onto ships. This has the very real potential to put Australia’s reputation as a reliable energy supplier at risk.
“While the coal industry and Japanese customers own Port Waratah Coal Services (PWCS), it has been operated largely independently. As part of its lease conditions from the New South Wales (NSW) Government, the facility has carried out its role as an open access port and has tried to deliver everything to everybody.
“Operating in this way has meant that during the current resources boom, all producers – large, small, new and established – have suffered. This year the Hunter Valley coal chain is expected to deliver about 80 per cent of capacity requested by producers, and there is no certainty of allocation at all in future years. To cut back existing producers to set up new producers on an unsustainable basis is in nobody’s long term interest.
“Our industry does not have a short term focus, to the contrary, we have a long term view of mine development and operation and long term contracts with our customers, yet we have no long-term security of capacity of the necessary infrastructure.
“As a shareholder of PWCS we will be encouraging the establishment of long-term contracts with port users to provide certainty for producers and support the future expansion of the PWCS facility.
“Coal & Allied believes that a result can be achieved which will bring certainty and growth opportunities for the entire industry. However it is likely to be a difficult transition.
“What is required is a transparent demand management system that determines coal chain entitlements based on production, rail capacity and port allocation.
“Under such a system new producers and new operations would be able to plan their developments effectively with the security of knowing there is available port and rail capacity.
“Over a three to four year period we believe additional exports – 50 per cent more than exists today – could be achieved.
“Coal & Allied wants to see a system that rewards producers by allowing them to exploit strong demand.
“We want a system that ensures we retain our reputation as a reliable supplier, that rewards our local communities by ensuring ongoing sustainability of the industry and a system that financially rewards both our shareholders and Government’s willingness to support and foster long-term development of the coal industry in this state.
“What this unfortunate situation means for Coal & Allied in 2007 is that based on our allocation of port capacity this year production and sales will be constrained and are likely to be in line with production rates and sales achieved in the last two quarters.
“As a result our financial performance this year will be substantially adversely effected.”
Clearly that’s the case and other companies will a
