Peabody Energy, the world’s biggest listed coal group, has shown us just how profitable the Australian coal industry is and how attractive an outlook there is in China for the industry.
Last week it reported a surge in second quarter earnings off the back of a 50% jump in profits from Australia and forecast more to come.
Peabody was the group that bid for Macarthur Coal, but tried to cut its offer price because of the rent tax brawl, then abandoned the bid.
They should have paid top dollar.
Macarthur told us this week that its on track for good profits and higher sales.
That’s no wonder, because Australia is where the action is happening in resources as Asia hauls the rest of the world economy along with it.
Peabody reported income (profit) from continuing operations of $US214.7-million in the second quarter, up 138% from $US90-million in the depressed second quarter of 2009.
Peabody, which mines coal in the US and Australia, said that its earnings before interest, tax, depreciation and amortisation (EBITDA) rose 35% year-on-year, to $US440-million, and revenue was up 24%, to $US1.66-billion, helped by an almost doubling of revenue from Australian operations.
The company said in its statement that results were boosted by strong increases in volumes from the company’s Australian operations, as well as higher prices for metallurgical coal.
"In the United States, EBITDA (earnings before interest, tax, depreciation and amortisation) was $US278.7 million compared with $US225.4 million in the prior year. Improvements related to higher average realized prices in the Midwest and lower costs in the West that drove a 24% percent margin per ton expansion."
That’s OK for a low growth, low margin business like supplying American power stations.
But the real gold is here. Peabody said "Australian EBITDA reached $US223.6 million on higher volumes and a nearly 50 percent increase in realized prices.
"Second quarter realized metallurgical coal prices increased 22 percent above the prior year, and realized export thermal coal prices rose 28 percent. Australian margins grew 42 percent to $US34.69 per ton."
CEO Gregory Boyce said in the statement. "We expect second half results to be stronger than the first." So better figures await us in coming months from this energy giant, and all due to Australia.
And the most telling figures: Peabody’s coal sales were almost static in the quarter as a 28% jump in Australian sales offset lower US output.
Peabody has maintained its 2010 sales guidance of 240-million to 260-million tons, including US production of between 185-million and 195-million tons and Australia production of 27-million to 29-million tons.
Peabody makes almost as much from its Australian coal sales which are one seventh the size of its US operations.
No wonder it opposed the Rudd RSPT. It has a golden cow in Australia.
And the outlook is very solid, according to Peabody.
To convince global investors who might not understand the impact China and the rest of Asia are having on the Australian resources industry, and especially coal, Peabody outlined its view of the future for coal.
"International markets continued to strengthen in the second quarter, led by rising imports in China, India and the recovering developed economies in Asia.
"As a result, Australian thermal coal prices are running more than 40 percent ahead of the prior year and are above the prices at the beginning of both the first and second quarters.
"And benchmark metallurgical coal prices for the third quarter have settled more than 12 percent above second quarter agreements.
"China’s key statistics for the first six months of the year show power generation up 19 percent over 2009, with total exports of goods up 35 percent, steel production up 22 percent and vehicle sales up 48 percent.
"China’s year-to-date net coal imports through June are estimated at 70 million tonnes, nearly double the 36.5 million tonnes in the comparable prior-year period."
Peabody expects China net imports to set a record in 2010 given ongoing mine consolidation, rising domestic coal production costs, rail congestion, limited supplies of high quality hard coking coal, and rising electricity generation and steel mill capacity along the coast.
"India coal imports have increased 22 percent year to date. Coal imports for 2010 are estimated to increase 15 to 20 percent above 2009’s 89 million tonnes.
"Other Asian nations such as Japan are expected to continue to rebound sharply from 2009 output. Japanese steel production is likely to rise more than 20 percent in 2010; while Japan’s thermal coal imports through May are 13 percent above 2009 levels.
"Australia exports continued at a strong pace in the second quarter, with record shipments reached at the key Dalrymple Bay port in Queensland. Australian coal exports are running 15 percent above record 2009 levels.
"China and India are bringing nearly 68 gigawatts of new coal-fueled capacity on line in 2010. Combined with another 20 gigawatts of new generation beginning operation around the world, new coal plants represent approximately 340 million tonnes of annual coal demand.
"Overall, thermal coal imports in the Pacific are expected to rise 10 to 12 percent in 2010, reaching the 500 million tonne mark for the first time.
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