Yanzhou Coal aims for first profit in four years at its Australia unit
Cost-cutting and higher coal prices will change Yancoal Australia’s fortunes this year, says Yanzhou boss
Yanzhou Coal Mining, the listed unit of China’s fourth largest miner of the fossil fuel, is confident it can turn around its loss-making Australian business this year on the back of higher coal prices and cost cutting.
Yancoal Australia, which is 78 per cent owned by Shandong-based Yanzhou, is on course for a “remarkable turnaround” by the end of this year, Yanzhou general manager Wu Xiangqian told reporters on Monday.
“We believe in the not too distant future it will reach break-even,” he said of the unit that posted net losses of 1 billion yuan last year, 1.4 billion yuan in 2015 and 1.8 billion yuan in 2014 amid depressed coal prices.
Yancoal, which mines coal in New South Wales, Queensland and Western Australia, contributed 23.5 per cent of Yanzhou’s raw coal output last year.
The price of power station coal delivered at Australia’s Newcastle port suffered steep losses after coal prices fell precipitously from US$142 a tonne in late 2010 to a trough of US$55 a year ago. It almost doubled to US$107 last November, helped by reduced supply and higher demand in Asia. It has since come back down to US$86.
Its average selling price fell 2.8 per cent last year from 2015, while its unit cost of sales per tonne dropped 21.4 per cent.
Yanzhou, a subsidiary of Yankuang Group, on Sunday announced a tenfold jump in annual net profit to 1.65 billion yuan from 164.5 million yuan in 2015.
The huge increase in earnings was mainly down to a 25 per cent jump in the average selling price at its Shandong mines, though this was partly offset by a 13.4 per cent cost of sales increase.
The company plans to raise coal output by 29.2 per cent to 78.6 million tonnes, with the additional production coming from its new mines in Inner Mongolia and Australia.
Another 12 million tonnes of output is expected to be added when the US$2.5 billion acquisition of mines from Australian global mining giant Rio Tinto is completed later this year.
The deal is pending approval by Yanzhou’s shareholders and authorities in China and Australia.
Yanzhou has budgeted 7.7 billion yuan of project spending this year, up from 6.3 billion yuan last year. Most of the increase is for new projects in Australia and Inner Mongolia.
Meanwhile, Wu said the company has not given up on developing its potash resources in Saskatchewan province in central Canada, despite its depressed market prices. Potash, a salt that contains potassium, is the key ingredient of fertiliser.
In late 2011, Yanzhou paid US$260 million for 19 permits to explore for potash in Canada.
Most of this year’s 422 million yuan project budget set aside for Yanzhou International, which owns the permits, is targeted at developing the potash business.
The potash price has plunged from nearly US$500 a tonne in 2011 to around US$210 recently.
Yanzhou closed 5.1 per cent higher at HK$6.35 on Monday. It has gained 20 per cent since the beginning of the year.
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