WESFARMERS' COAL BUSINESS ON FIRE
Written on the 18 January 2017 by Lin Evlin
WESFARMERS (ASX: WES) has lifted its first-half profit guidance due to surging coal prices and higher than expected coal output in the second quarter of FY17.
The company's resources business is now expecting earnings before interest and tax of around $135 - $140 million for the first half of FY17.
This new forecast greatly exceeds the previous guidance Wesfarmers provided last October which stated that its resources division would likely produce a broadly break-even earnings result.
The company attributes the better than previously expected guidance to "strong production in the second quarter resulting from the implementation of recommendations from the productivity review, a new mine plane and opportunistic use of contract fleet to further increase volumes to take advantage of attractive coal pricing."
"This increase in production supported higher than expected sales volumes aided by improved shipping timing and higher realised prices for both Curragh and Bengalla," Wesfarmers says in a statement to the market today.
The Perth based conglomerate operates the Curragh coal mine in Queensland's Bowen Basin and also owns 40 per cent of the Bengalla thermal coal mine in the Hunter Valley of New South Wales.
Wesfarmers' profit in FY16 plunged by 83.3 per cent to $407 million compared to FY15. The alarming profit fall was largely attributed to the $2.2 billion in pre-tax write-downs of its discount chain store Target as well as the Curragh coal mine.
In its latest business update, Curragh mine's coal output in the fourth quarter of 2016 jumped by 22.5 per cent from the previous quarter to 3.2 million tonnes.
The company says the improvement in production is due to improved weather conditions compared to the third quarter of 2016.
In addition, the mine's overburden removal for the fourth quarter was also up by 5.2 per cent from the previous period, driven by the commissioning of new overburden removal equipment as well as improved weather conditions.
The Bengalla mine produced 902,000 tonnes in the fourth quarter, up by 11.1 per cent from the previous quarter. Wesfarmers attributes this improved performance to "mine sequencing."
Shares in Wesfarmers jumped up by over a dollar in early trade this morning before falling back down to $41.63 at 12.30 am AEST, still up 23 cents from close of trading yesterday.