South32 says $1.5bn Eagle Downs mine needs structural market shift for development
South32 is unlikely to back the development of its $1.5bn Eagle Downs coking coal project without a significant shift in the long-term outlook for the commodity.
South32 is unlikely to back the development of its $1.5bn Eagle Downs coking coal project without a significant shift in the long term outlook for the commodity, according to chief executive Graham Kerr, despite doubts over the future of its Illawarra coal mine.
The mining major announced it would not pursue development of the coking coal mine project earlier this year, saying returns from the joint venture with Chinese steel giant Baowu did not stack up for further investment.
The coking coal price has since surged after the coking coal market shifted to take account of China’s bans on Australian exports, but Mr Kerr said on Thursday the company would need to see a major structural shift in the metallurgical coal market before it would consider sanctioning the project.
“It‘s a commodity that has a fair bit of volatility in price. I think the biggest thing for us would be a change in our long term view of where do see that going,” he said.
“I think we‘d have to see some kind of discontinuity that occurs in the market in the next five to 10 year period that would sort of make this really the sweet spot (for Eagle Downs).”
Mr Kerr said his view of returns from Eagle Downs were coloured by the commodity it would produce, saying a long term base metals project offering similar returns – about a 13 per cent internal rate of return – would probably have been sanctioned.
South32’s massive write down of its Illawarra coking coal assets put the company into the red last financial year, with the mining major declaring a $US195m statutory loss for the year despite the company booking a 150 per cent lift in its underlying earnings, to $US489m.
South32 flagged the $US728m write down on the value of its Illawarra metallurgical coal mines earlier this year, after the NSW government’s Independent Planning Committee refused to approve a mine life extension at the operations, citing the likely environmental impact of the mine.
It also booked a $US159m net loss on the sale of its South African thermal coal mines.
The company booked underlying earnings before interest, tax, depreciation and amortisation of $US1.6bn on the back of a 4 per cent lift in revenue to $US6.33bn.
Mr Kerr said the company had recorded a strong operating performance last financial year, with its cost base largely unchanged from the previous financial year and South32’s operating margin increasing to 26 per cent.
South32 shares closed down 3c to $2.87 on Thursday.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout