BHP Billiton’s (BHP) (BBL) coal business is the world’s largest supplier of seaborne metallurgical coal. Along with iron ore and manganese, metallurgical coal is a key input in steel production. A sustained rise or fall in coal shipments is a significant indicator that affects the stock value of coal producers (KOL) such as BHP Billiton, Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD).
Record met coal volumes
- BHP’s metallurgical coal production rose 13% in fiscal 2015 to a record 43 million tons. Continued productivity improvements and the ramp-up of Caval Ridge helped achieve this record at Queensland Coal.
- An increase in equipment and wash plant utilization helped six other operations achieve record volumes.
- Energy coal production, on the other hand, fell 5% to 41 million tons. This was expected, as drought conditions and managing dust emissions at Cerrejon in Colombia impacted volumes.
Coal production expected to drop
- Met coal production is expected to drop to 40 million tons in fiscal 2016 as operations at Crinum come to an end in 1Q16.
- Wash plant shutdowns at Goonyella and Peak Downs mines are also scheduled for the quarter ending September 2015, which will impact production volumes for fiscal 2016.
- However, going forward, some of this drop in production should be offset by the 1 million tons per annum Haju mine in Indonesia, which is expected to commence production during fiscal 2016.
- Energy coal production is forecast to remain largely unchanged in fiscal 2016 to 40 million tons. This assumes a full year production from the San Juan mine. BHP sold this mine to Westmoreland Coal Company, and the transaction is expected to close at the end of 2015.
- Going forward, BHP’s energy coal production should drop since the San Juan mine, which produced 5 million tons of energy coal in fiscal 2015, no longer contributes to BHP’s energy coal volumes.
BHP management commented that going forward, if market conditions improve, the company can add a new mining fleet at Caval Ridge, where wash plant capacity exceeds mine capacity. This will help achieve high-quality metallurgical coal at a very low cost.