| Thu 8 May 2003, 10:15 | | Double blow prompts BHP Billiton to review SA ener |
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Resources Correspondent
BHP Billiton, the world's largest diversified resources company, is to review its SA coal operations as the double impact of a strong rand and depressed coal prices put pressure on the company's SA energy coal earnings.
The company's SA coal business, Ingwe, is the biggest of SA's coal producers and operates a number of mines in Mpumalanga, employing about 8500 people.
"Ingwe is the largest cyclical part of BHP Billiton's coal portfolio and is being hit with the double impact of a stronger rand and a weaker dollar export price for energy coal," said Michael Campbell, BHP Billiton's spokesman in Johannesburg.
The review will generate operational changes, focusing on synergies across its coal mines that can cut costs.
These measures are expected to be introduced towards the end of July.
BHP Billiton reported its earnings for the nine months ended March 31 yesterday and energy coal was the company's worst-performing division.
Earnings before interest and tax (EBIT) slumped 64,3% to 165m. The price of energy coal exported through Richards Bay Coal Terminal is about $23 a ton free-onboard (fob), down from an average price of $27,71 a ton fob in January.
In the nine months, BHP Billiton's group attributable profit fell 11,5% to $1,4bn compared with the previous nine months. The company attributed much of the decline to the movement in rand/ dollar exchange rates.
Of its seven product divisions, petroleum was the highest contributor. The petroleum division's earnings, before interest and tax, were $988m for the nine-month period.
The group's earnings before interest and tax increased 11,8% to $2,6bn.
Attributable profit in the three months ended March 31 rose 11,6% to $444m, boosted by higher oil prices.
On a conference call presenting the company's results, Chris Lynch, BHP Billiton's chief financial officer, said profit at the company's SA coal, titanium and ferrochrome operations had been affected by the strong rand.
"The quandary in SA is the strengthening rand and high inflation. The rand is largely an issue about the high interest rate differential between the rand and dollar, probably attracting a lot of short-term investment," said Lynch.
The rand appreciated 22% in the nine-month reporting period, compared with a depreciation of 42% in the corresponding period.
BHP Billiton said it would pay a final dividend of 7,5 US cents a share an increase of 15,4%. This will be paid on July 2 and brings the company's total dividend for the year to 14,5 US cents a share.
Lynch said demand for iron ore and alumina had benefited from the strong Chinese economy. "As yet, we have seen no decrease in product demand in China, however the emergence of Sars (severe acute respiratory syndrome) has the potential to disrupt economic growth in China in the short to medium term," said Lynch.
Lynch said that sales to China in the nine-month period were $800m.
"While EBIT and dividends were well above expectations, comments on Sars and China were surprisingly cautious," said Jack Jones, a mining analyst at CIBC World Markets in London.
May 08 2003 07:00:43:000AM Julie Bain Business Day 1st Edition
