Macarthur Coal warned yesterday that it faces a huge drop in profit, but the news should be viewed very carefully.
The AGM in Brisbane was told yesterday the company faces a sharp drop in 2009-10 first half earnings due to significantly lower US dollar coal prices this half and higher Aussie dollar exchange and hedging rates.
But those first half prices from a year which were exceptional: all time highs for the company’s coal products and they probably won’t be topped for a few years.
So the comparison is with a period of very high profitability, compounded by the sharp rise in the value of the Australian dollar since July.
No wonder earnings will fall.
The Aussie dollar was much lower in the six months to June, so that will be factor when the June 2010 half year result is reported as well (along with the sharp fall in prices).
Macarthur said it expected to record a net profit for the six months to the end of December of between $30 million and $38 million, down from $106.9 million for the previous corresponding period.
The shares reacted oddly to the news, rising, then falling away in later trading yesterday to close 4.7%, or 48 cents, lower at $9.70.
The miner said the significantly lower US dollar sale prices applied during the Japanese financial year, which begins on April 1.
This was despite the company returning to full production, after scaling back last year as a result of the global financial crisis.
‘‘Constraints in the Goonyella coal chain and uncertainty about the next JFY (Japanese financial year) sales price impede the company’s ability to give any guidance on anticipated full year profit,’’ Ms Hollows told the company’s annual general meeting.
The company said the profit range for the December 2009 half is sensitive to the following assumptions:
- Achieving the budgeted shipping schedule (2.4Mt-2.7Mt)
- The valuation of financial derivatives at 31 December (estimated $3 million)
- Equity accounted losses for the Middlemount Mine project as a result of the development of the project and the bulk sample pit, estimated to be between $5 million and $8 million
- No additional demurrage associated with the Goonyella coal chain constraints currently being experienced.
Macarthur CEO Nicole Hollows told the meeting that although "we are now back to full production, after scaling back last year as a result of the GFC, there is uncertainty about the level of sales for the second half of the 2010 financial year due to constrained coal chain supply issues and the forthcoming wet season in the March quarter".
She said world steel prices have stabilised as producers cut back output and inventories were drawn down; steel production is starting to recover from the low levels experienced at the height of the impact of the GFC in the December 2008 and March 2009 quarters and China’s monthly steel output has exceeded previous levels from mid 2008.
"Imports of all coal types into China have increased significantly in recent months with a sharp jump in metallurgical coal imports during the first few months of 2009 calendar year."
"The sales target for the full year of 4.6Mt remains unchanged, as ongoing demand is uncertain and the upcoming wet season may impact production and sales," Ms Hollows said in her presentation to the AGM.
