A slump in coal prices to a four-year low means the biggest producers are facing tough decisions to shutter unprofitable mines, Asia Resource Minerals Plc Chief Executive Officer Nick von Schirnding said.
His company, Indonesia’s fifth-biggest exporter of the power-station fuel, is considering closing its largest pit where almost half its production last year was sourced. The world’s biggest exporters, Glencore Xstrata Plc, Rio Tinto Group and BHP Billiton Ltd., have either halted coal operations or shelved expansion plans amid the price decline.
“This is crunch time for our business and the coal industry,” Von Schirnding said today. “Our most challenged pit is Lati, and that we are looking at very, very carefully. Clearly if thermal-coal prices continue at this level for a significant time, we are, as others are, going to be very challenged.”
Prices last week dropped to about $73 a metric ton, the lowest since November 2009, amid a supply glut that’s projected by UBS AG to be the equivalent of 4 percent of annual seaborne trade this year. Asia Resource Minerals today reported a wider full-year underlying loss of $173 million after selling coal for 16 percent less than in 2012.
“We are just break-even, but if this level of thermal-coal price continues for the rest of the year, and bear in mind we haven’t been above $80 this year, we may well have to take further action,” Von Schirnding said on a conference call. The company is currently “marginally profitable,” he said.
Asia Resource Minerals advanced 1.3 percent to 238 pence by the close in London, valuing the company at 574 million pounds ($955 million).
The company was founded by U.K. financier Nathaniel Rothschild and Indonesia’s Bakrie family three years ago. A long-delayed $501 million deal to unwind that transaction by severing ties with the Bakries was completed this week. The company has promised to return more than $400 million of the proceeds to investors.
The CEO said he told managers at Asia Resource Minerals’ PT Berau Coal Energy unit in Indonesia three weeks ago that the company must “adapt or die,” given the depressed state of the coal market. He wants to cut costs across the group by about 10 percent and the company is in talks with contractors to reduce overheads. It owns 85 percent of PT Berau.
Operating costs there last year were about $60 a ton and the company gets an average of about $56 or $57 a ton for its sales at current prices, given a discount applied to Berau’s coal, Von Schirnding said.
Berau’s Lati mine, the biggest of its three pits, produced 10.4 million tons of coal last year, out of a total output of 23.5 million tons.