29
January 2008
Download PR602g released at 10.38am
Summary
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Profit before tax was $79.3 million
compared with $270.3 million in 2006
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Profit after tax was $109.8 million
compared with $207.6 million in
2006
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2007 production of 23.9 million
tonnes was 17 per cent lower than 2006
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Final dividend has been maintained
at 25 cents per ordinary share.
Commenting on the full year results,
Coal & Allied’s Managing Director, Hubie van Dalsen, said; “Coal
& Allied’s profit in 2007 was disappointing and was adversely
affected by infrastructure constraints and Hunter Valley Coal Chain
performance. This was exacerbated by severe flooding in the
Hunter Valley in June following a severe weather event. Domestic
sales were also lower.
“The profit after tax benefited from a
one-off tax credit of $46 million, which was reported in the announcement of results for the half year to June 2007.
“Demurrage costs were substantially
higher than 2006 because of the extended queue of ships awaiting
loading and consequent delays at the port of Newcastle during the
year.
“In 2007, Coal & Allied suffered a
number of port allocation cutbacks, which prevented it from
maximising its production capabilities in a market experiencing
strong global demand and buoyant prices for thermal coal.
“In response to these cutbacks, Coal
& Allied had to reduce production at its three operations. Coal
& Allied is well placed to take advantage of the strong market
conditions when capacity becomes available in the Hunter Valley Coal
Chain.”
Mr van Dalsen said the Capacity
Balancing System was approved by the Australian Consumer and Competition Commission (ACCC) to manage allocations of port capacity
to producers.
“After both the shipping queues and
demurrage fees rose, producers later agreed to reinstate a revised
Capacity Balancing System, which remains in place today,” Mr van
Dalsen said.
“Coal & Allied has always maintained
that a long term sustainable commercial framework is required to
underpin investment and provide certainty in the Hunter Valley. We
welcome the appointment of the former Premier of the State of New
South Wales, Nick Greiner, as facilitator in finding a resolution to
the Hunter Valley Coal Chain constraint issues. We look
forward to a speedy and effective resolution to this critical
infrastructure problem.”
Summary of
performance
Coal & Allied's results for 2007 are
shown below, along with comparative results for 2006.
Year to 31
December
Change 2007 2006 % Revenue
($ millions)
1,374.5 1,415.0 (2.9) Profit
before tax 79.3 70.3 (70.7)
Profit after tax ($ millions)
109.8 207..6
(47.1) Operating cash flow ($ millions)
76.3
127.5 (40.2) Final
dividend (cents per share) 25.0
25.0 -
Coal production1 (million tonnes) 23.9
28.8 (16.9) Coal
shipments1 (million tonnes) 25.5
27.6
(7.6)
1 Production and
shipments are on a 100% basis. Shipments exclude purchased coal.
Details of full production and shipments are shown in the Financial
and Operating Statistics appendix.
Profit Profit before
tax was $79.3 million, which was 70.7 per cent lower than
2006. Despite higher US dollar coal prices, the main reasons
for the reduced profit before tax in 2007 were lower sales volumes,
the adverse effects of a stronger Australian dollar, higher
demurrage costs resulting from extended ship queues off the coast of
Newcastle during the year and higher interest costs on higher debt
levels. In addition, due to port allocation constraints it has
been necessary to purchase coal at spot prices to satisfy 2007
contractual commitments. These coal purchases resulted in an
approximate $20 million reduction in 2007 profit before
tax.
Profit after tax was $109.8 million and
benefited from a $46 million one-off credit to income tax that was
announced at the release of results for the June 2007 half year.
Revenue Revenue was
2.9 per cent lower than in 2006. However, Free-on-Board coal sales
revenue was 5.2 per cent lower, with coal shipments being adversely
affected by Hunter Valley coal chain infrastructure constraints
throughout 2007 and severe weather conditions in June 2007. US
dollar denominated coal prices were higher by seven per cent, but
were offset by the adverse effects of the stronger Australian dollar
which averaged 11 per cent higher in 2007.
Costs The Hunter
Valley infrastructure constraints and subsequent production cutbacks
by Coal & Allied resulted in each of the company’s three mines
standing down equipment to match production capacity with its port
allocation. Accordingly, contractor costs and other variable
production costs were lower than 2006. Demurrage costs had a
$50 million adverse impact on 2007 profit before tax compared with
the corresponding period. As a result of a substantial net drawdown
of coal inventory (C&A share 2.2 million tonnes), the charge to
profit was $60 million higher compared with 2006.
Administration and other mining costs
were higher, primarily due to feasibility studies for the Mount
Pleasant project and Lower Hunter Land project, as well as higher
insurance costs and contributions to COAL21 Clean Coal research
funds.
Production Managed
production of saleable coal declined by 4.9 million tonnes to 23.9
million tonnes. This decline was consistent with Coal &
Allied’s reduced port allocation of coal sales through the Port of
Newcastle and a lower level of domestic contracted coal
sales.
Capital
expenditure Total capital expenditure for the year was
$122.4 million compared with $147.9 million in
2006. Expenditure related predominantly to sustaining purposes, including replacement of heavy mobile equipment
and major maintenance to plant and equipment.
Cash flow Net
operating cash flow was $76.3 million compared with $127.5 million
in 2006 because of lower profits. Capital expenditure was lower by
$25.5 million resulting in a free cash outflow of $38.5 million
compared with $15.7 million in 2006.
Debt Net debt of
$311.6 million at the end of 2007 was higher when compared with
$278.1 million in 2006, because of lower free cash flow, with
interest costs rising by $9 million. Gearing (net debt to net debt +
equity) was 28.0 per cent at 31 December 2007, compared with 25.7
per cent at 31 December 2006.
Dividends Final
dividend has been maintained at 25 cents per ordinary
share.
Infrastructure In
March 2007, a revised capacity balancing system was reinstated with
the approval of the ACCC. A severe weather event in June 2007 led to
increased shipping queues in the second quarter and very significant
loading delays.
Following the severe weather in June,
which caused extensive damage to the rail network, the queue of
ships awaiting loading at Newcastle peaked at 79 vessels. The
extent of the queue resulted in cut backs to port allocations for
all producers in the Hunter Valley.
Throughout 2007, coal producers engaged
in discussions with the aim of agreeing a methodology for allocating
coal chain capacity in 2008. In the absence of agreement by
producers, the providers of port and rail infrastructure for the
Hunter Valley Coal Chain developed a Vessel Queue Management System
(VQMS) based on their actual contracts with the coal
producers. In November 2007, an application was made to the
ACCC to have the system authorised. The ACCC did not grant interim
authorisation for the VQMS, but did grant interim authorisation to
continue the existing Capacity Balancing System.
Hunter Valley coal producers will be
required to work constructively to maximise efficiencies in the coal
chain. Coal & Allied supports the appointment of an
independent facilitator, Nick Greiner, to help resolve
short-to-medium term allocation issues. While these shorter
term issues need to be addressed, coal producers also need to
achieve a long-term resolution to the coal chain capacity
issues. Coal & Allied believes that the State Government
of New South Wales must allow Port Waratah Coal Services (PWCS) to
enter into fixed and firm long term contracts with coal producers,
which will allow all coal producers to realise their growth
potential. A long term commercial framework to underpin investment
and provide security to customers and producers is critical to this
objective.
PWCS has commenced an expansion to
increase nominal annual capacity to 113 million tonnes from the
current level of 102 million tonnes. The cost of this expansion is
expected to total $458 million, with incremental output scheduled
for availability in the final quarter of 2009. The additional port
capacity is expected to be available ahead of the corresponding rail
capacity.
Market
conditions During 2007, the growth in demand for thermal
coal was driven by imports from the Asia Pacific basin. Japanese
coal demand was stronger than 2006 (by about 3.3 million tonnes),
while Korean import levels grew solidly in 2007 (up 5.7 million
tonnes) due to the demand by new coal-fired capacity. Taiwanese
import growth was relatively weak in 2007, up 1.4 million tonnes on
2006 levels, while there was negative growth in most importing
Atlantic countries due to the milder winter. There was continued
strength in the semi-soft coking coal market during 2007.
China’s net exports of coal continued to fall dramatically in 2007,
largely offsetting Indonesia’s coal export growth.
Looking forward, the demand for thermal
coal is robust and coal prices are expected to be higher compared
with 2007.
Safety At Coal &
Allied, the Lost Time Injury Frequency Rate was slightly higher at
0.44 per million person hours in 2007 from 0.21 per million person
hours in 2006. However, Coal & Allied sites recorded a number of
significant safety achievements.
The Mount Thorley Warkworth Safety team
reached the finals of the NSW Minerals Council Safety Innovation
Awards with its collision avoidance system called ‘Duck In”.
Hunter Valley Operations was awarded the Rio Tinto Chief Executive Safety Award in 2007, following on from its Most Improved
Safety Award in 2006.
Mount Pleasant In
2006, Coal & Allied commenced a feasibility study on the Mount
Pleasant thermal coal project located adjacent to the Bengalla coal
mine near Muswellbrook in the Hunter Valley. Greater certainty
surrounding coal chain infrastructure in the Hunter Valley is
required before the feasibility study can be finalised.
Lower Hunter Land
In 2006, Coal and Allied signed a memorandum of understanding
with the State Government of New South Wales to facilitate the
provision of extensive land conservation corridors in the Lower
Hunter Valley through the transfer of 80 per cent of the company’s
land holdings after mining has been completed, on condition that the
remaining 20 per cent of land holdings are developed. Extensive
community consultation continued throughout 2007 with various
options considered. Feasibility studies will be conducted in 2008 to
finalise these options.
Climate Change Coal
& Allied is a long-term contributor to a range of projects that
support the research, development and deployment of clean coal
technologies, including a voluntary contribution of funds to the
COAL21 levy. In 2007 Coal & Allied launched a climate change
action plan. This plan is multi faceted and aims to create an
enabling environment where all employees can contribute to the
solution for climate change. Initiatives include metering and
monitoring energy usage at Coal & Allied operations, and implementing energy improvement programmes across all sites.
Coal & Allied Financial and
Operating Statistics
2007
2006 Production and
shipments
'000 tonnes ‘000 tonnes
Total saleable
production 2 Hunter
Valley Operations
10,094
12,025 Mount Thorley Operations
2,924
3,895 Bengalla
5,155
5,545 Total 23,949
28,806 Coal & Allied
equity share of production Hunter Valley
Operations (100%)
10,094 12,023 Mount
Thorley Operations (80%)
2,339 3,116 Bengalla
(40%) 2,062 2,218 Warkworth
(55.57%)
3,211
4,082 Total 17,706
21,439 Total shipments
1
25,522 27,634 Shipments
by market 1 Japan
11,558
10,140 Asia (excluding Japan)
6,024 6,885 Europe
1,701 1,524 Americas
1,980 2,251 Domestic
1,588 4,257 Other
2,671
2,577 Total
25,522 27,634 Shipments
by product 1 Export
thermal
20,379 20,224 Domestic
thermal
1,588 4,257 Coking
3,555 3,153 Total
25,522 27,634 Financial
2007 2006
$
million
$ million Total
assets
1,899.8
1,864.9 Capital expenditure & investments
122
148 Depreciation and amortisation
101
96 Employees
1,417 1,355 Net
debt to net debt + equity (%)
28.0
25.7 Earnings per share (cents)
126.8
239.7
1 Shipments are
on a 100% basis and exclude purchased coal 2 Production is on a
100% basis
About Rio Tinto
Rio Tinto is a leading international
mining group headquartered in the UK, combining Rio Tinto plc, a
London listed company, and Rio Tinto Limited, which is listed on the
Australian Securities Exchange.
Rio Tinto's business is finding, mining,
and processing mineral resources. Major products are aluminium,
copper, diamonds, energy (coal and uranium), gold, industrial
minerals (borax, titanium dioxide, salt, talc) and iron ore. Activities span the world but are strongly represented in Australia
and North America with significant businesses in South America,
Asia, Europe and southern Africa.
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Bryan
Smith Principal
adviser, digital media Communications and
External Relations |
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