Metallurgical Coal generated an operating profit of USD 491 million, an 87% increase, primarily due to higher realised
export prices, which more than offset the impact of heavy rain and a strong Australian dollar.
Production at the Queensland operations was affected by heavy rainfall and subsequent flooding in late 2010 and in the first
quarter of 2011. In June 2011, production returned to normal operating levels as a result of proactive recovery actions put in
place in the first quarter with previously announced force majeure declarations removed from the Queensland export
operations.
Insurance claims are currently being prepared but recoveries are not expected to be significant in the context of the Group’s
results.
Markets
The market experienced a shortage of metallurgical coal in the first quarter due to supply disruptions resulting from the
severe flooding in Queensland. Metallurgical coal sales decreased by 22% from 7.3 million tonne to 5.7 million tonne. The
shortages resulted in record quarterly price settlements in the second quarter across all metallurgical coal products, with
Metallurgical Coal being the first producer to settle quarterly pricing arrangements. Early engagement with customers
allowed the business to effectively manage the impacts of the floods.
Global steel production continued to grow, but developed economies are still producing at below prerecession levels with
steel prices being supported by escalated raw material costs rather than a recovery in steel demand.
Operating performance
Saleable production across all coal products decreased by 18%. Export metallurgical coal production decreased by 19% to 5.7
million tonne and thermal coal production decreased by 17% to 6.1 million tonne both owing to the weather. The recovery
actions initiated in the first quarter resulted in export metallurgical coal sales increasing by 79% in the second quarter
compared to the first quarter.
Projects
Studies continue at the greenfield projects of Grosvenor, Moranbah South, Dartbrook and Drayton South in order to meet
expectations of growing demand for both metallurgical and thermal coal. It is expected that a Board approval decision in
relation to the development of the 4.3 million tonne per annum Grosvenor metallurgical coal project in Australia will be
taken within the next 12 months.
Outlook
Production volumes are expected to increase in the second half of the year as operations return to normal levels of activity
and the recovery initiatives deliver some of the lost volumes. Significant progress has been made in embedding longwall
productivity improvement. A comprehensive program to reduce the impact of rain on the open cut operations ahead of the
next wet season has been implemented.
The global market outlook for hard coking coal remains strong, driven by continued demand from India and China. A gradual
price decline from record levels is expected in the second half of 2011 as Australian metallurgical coal supply recovers from
the disruptions in the early part of the year. A continued focus on longwall productivity and asset optimisation programs is
expected to increase production in 2012.