Demand for Met Coal Slows, Teck Slashes Jobs

After acquiring all of the Fording assets last fall, which primarily consisted of its 60% interest in Teck Coal (formerly Elk Valley Coal Partnership) for $11.8 billion, Teck’s share of Teck Coal’s operating soared to $486 million compared with $30 million in 2007, despite the acquisition inventory adjustment. Coal sales for the fourth quarter of 4.7 million mt, however, were 22% lower than a year ago as customers significantly reduced their coal deliveries in late 2008 in response to lower steel production.

Coal production in the fourth quarter of 2008 decreased by 5% to 5.2 million mt compared with the same period last year. In addition, production at the Elkview and Cardinal River mines was disrupted by unexpected mechanical breakdowns, which were resolved before year end.

In January, the company announced it would reduce its global workforce by about 1,400 positions, or 13%. The workforce reductions, according to the company, will eliminate redundancies at the corporate level created by the Fording acquisition. The layoffs are expected to save the company approximately $85 million. Teck also said it plans to reduce coal production in 2009 to 20 million mt.

Peabody Obtains Option on Mongolian Coal Interests

Peabody Energy announced that it has obtained an option to purchase up to a 50% interest in a joint venture holding Polo Resources Ltd.’s coal and mineral interests in Mongolia. Polo’s Mongolian coal interests have potential resources of more than 1 billion metric tons (mt), with a majority of its coal licenses located in the South Gobi coal region. This region hosts some of the largest metallurgical and thermal coal resources in close proximity to China, with potential to also access the Russian and export markets. Polo also has an active mining operation in Mongolia, with more than 100 employees on-site, primarily supplying the domestic market.

Under the agreement, Peabody would also be granted warrants to enable the company to acquire an approximate 15% equity interest in Polo. The transaction is targeted to close during the first quarter of 2009, subject to the completion of Peabody’s due diligence review and other approvals. Polo is an emerging energy company focused on acquiring and developing advanced stage coal and uranium properties in Asia and Australia.

Xstrata Adds Significant Coal Reserves

During January, Xstrata Coal announced that its total managed coal resources increased by 2.1 billion metric tons (mt), comprising 1.6 billion mt of measured and indicated resources and 500 million mt of inferred resources. Recoverable coal reserves increased by 1.2 billion mt. Included in these figures is a substantial increase in the coal resource at the Wandoan Project to over 2.5 billion mt, an increase of approximately 1.4 billion mt, together with the declaration, for the first time, of a coal reserve of 540 million mt.

At 2008 mining rates, the new total reserve figures of 18.7 billion mt equate to 28 years of production. “This significant increase in reserves demonstrates the long term strength of our current operations, supported by substantial resources which will ensure our continued growth,” said Peter Freyberg, Chief Executive, Xstrata Coal.

The recently completed prefeasibility study of the Wandoan Project in Queensland’s Surat Basin, delineated more than 540 million mt of coal reserves and an increase of more than 470 million mt in measured and indicated coal resources. “The successes achieved in the exploration, geological and mining studies of the Wandoan Project once again confirms that Xstrata Coal is well positioned to meet future global energy needs and market demand for quality thermal coal,” said Freyberg. The Wandoan project is expected to deliver more than 20 million mt/y of thermal coal.

Shenhua’s January Production Surges

Shenhua Group Co Ltd saw its output of raw coal reach 27.20 million metric tons (mt) in January, according to China Knowledge, up 21.7% year-on-year, sources reported. The actual output is 111.2% of its original plan. During the month, the group’s sales of commercial coal reached 27.61 million mt, up 10.2% from a year earlier despite the weakening demand for electricity amid the global financial crisis. The company confirmed that its total coal output hit 185.7 million mt in 2008, up 17.5% year on year.