Anglo American to Meld Thermal and Coking Coal

BRISBANE, Australia - Aug. 11, 2013 - PRLog -- Speaking at his inaugural results presentation, Anglo American CEO, Mark Cutifani, said he had spent time thinking about the benefits of putting together an operating division that cuts across geographies because there could be price benefits.

“I spent time thinking about Glencore while I was at Inco (where Cutifani was chief operating officer); how there could be improvements to timing, quality and arbitrage [of coal] if we get the connections right,” said Cutifani at the release of the group’s interim results last week in which the group booked a 28% decline in earnings to $1.3b.

As a result, Anglo Thermal Coal and the group’s metallurgical coal division would be put under the single management of Seamus French, head of the metallurgical assets in Australia. The merger of the two business division was expected to be complete by the year-end, Cutifani said.

“There is an opportunity to mix and match in order to blend coals which we can take to the market,” said Cutifani. “We are producing thermal coal in Australia as well as globally,” he added.

Cutifani has said in the past that Anglo American, a company over which he took the management reins on April 3, could learn from the marketing power of Glencore Xstrata, although some analysts have asked if the group has the backroom marketing skills to achieve this.

Cutifani’s comments come amid a difficult time for the group’s coal assets. Export thermal coal production in the six month period was up by 5% to 9mt, but the division – currently headed by Godfrey Gomwe – saw operating profit down 43% to $247m owing to lower prices and sales volumes.

Whilst the export metallurgical coal market saw a 21% decline in prices, South African thermal coal was down a comparatively less painful 17%.

“Thermal coal prices continue to take a hit with supply continuing from all major producing basins and significant export volumes from the US,” said John Meyer, an analyst with SP Angel, a UK stockbroker. “There has been a buffer for marginal mines with a fall in the South Arican rand and Australian dollar of 12.5% and 10% respectively,” he said.

“Thermal coal prices are set to be under pressure with some respite from negative margins on US coal exports and high US gas prices resulting in switching back into the domestic market,” he said.

Cutifani also raised the stakes for under-performing assets, including its coal mines. In a transparency that is rare for Anglo American, Cutifani said only 11% of the group’s assets had met budgeted targets, defined as 75% of the time quarter-on-quarter.

“If an asset starts to drain cash and there is no turnaround – and I’m talking months here – we will close it,” he said. “We can’t afford it; we won’t accept it.”

For the full story, subscribe to Energy Publishing’s South African Coal Report. The South African Coal Report is published weekly and provides comprehensive analysis along with price, trade and tender information on the coal industry in southern Africa.  To receive the next few issues for free, contact us at epi.coalinfo@ihs.com or visit http://www.coalportal.com/ and sign up for a trial.