BHP seeking to raise its thermal coal profile

BHP seeking to raise its thermal coal profile

SYDNEY (Reuter): The Broken Hill Proprietary Co Ltd is looking to raise its profile as a miner of thermal coal.

BHP last week dropped "Australia" from the name of its coal subsidiary to reflect an expansion of activities to include the management of several thermal coal mines in Kalimantan, Indonesia, a company spokesman said.

BHP's managing director, John Prescott, said recently that while weakening copper and steel markets were weighing on overall operations, coal operations were among the better performers.

The Indonesian properties, in which BHP has 80 percent stakes, will deliver around seven million tons of coal taking BHP's total coal-producing capacity to around 70 million tons a year, a BHP spokesman said.

BHP produces some Australian thermal coal and operates thermal coal mines in South Africa and the U.S., although it predominantly mines coking coal from Australia.

A larger share of the market for thermal coal would help diversify BHP away from coking coal, where demand and prices tend to move in tandem with world steel markets, analysts said.

BHP's coal mines in Australia -- nine in central Queensland and five in New South Wales -- account for about 20 percent of global trade in seaborne coking coal, the spokesman said.

Markets have been mostly steady for coking coal. But thermal coal use is seen growing in step with increasing demand for power generation, particularly in Asia.

The Asia-Pacific Economic Cooperation group estimates energy consumption among its 18 member nations alone will grow by an average 2.2 percent a year to 2010, with much of the new energy generated from coal-fired plants.

"We are not a big operator in that market (thermal) but we'd like a bigger share of it," the BHP spokesman said.

Thermal coal sold in to the Japanese market currently fetches a benchmark price of US$40.30 a ton, although recent mid-year tenders have seen smaller-sized shipments being delivered at as much as $7.00 a ton below that price, industry sources said. Negotiations between Australian coal producers and Japanese customers are traditionally held on an annual basis to coincide with the Japan's March-to-April fiscal year.

While BHP takes a leading role in negotiations with the Japanese in coking coal, it is less influential during thermal coal contract discussions.

In Australia, BHP is spending A$185 million to expand thermal coal production at its Mount Owen mine in New South Wales to 3.5 million tons from one million tons by the end of next year.

At the South Walker Creek mine in Queensland's Bowen Basin, a two-year trial of shipments of soft coking/thermal coals are underway to customers at annual rate of 1 million tons a year, the spokesman said.