News article BHP faces six-month flood disruption

By Peter Smith in Sydney

Published: January 20 2011 08:32 | Last updated: January 20 2011 08:32

BHP Billiton said widespread floods in Australia were likely to disrupt its extensive Queensland coal operations for another six months as the world’s biggest miner reported a 24 per cent decline in coking coal production for the quarter to the end of December compared with the three months to September.

Nearly all the big mining groups operating in Queensland, including Rio Tinto, Peabody, Anglo American and Xstrata, have been hit by heavy rains and flooding that have swamped mines and shut down rail and port infrastructure.

The comments are the first from BHP on the impact of the Queensland floods that have triggered a large rise in coal prices on world markets. Spot cargoes of coking coal, used to make steel, have traded near $350 a tonne, up 55 per cent from quarterly contracts agreed in recent weeks. BHP shares fell nearly 2 per cent, down 89 cents to A$45.16.

BHP Billiton Mitsubishi Alliance, a joint venture between the miner and Japan’s Mitsubishi Development, is Australia’s largest exporter of seaborne coking coal, an ingredient for steelmaking.

Earlier this week, Rio Tinto said production of coking coal had fallen by 6 per cent in the three months to December, compared with the quarter ended September.

BHP and Rio, however, also announced record iron ore production from their operations in the Pilbara region of Western Australia.

BHP’s iron ore production rose 4 per cent compared with the three months to September, while iron ore shipments from Western Australia, on an annualised basis, rose to 148m tonnes a year.

BHP expressed optimism about the outlook in its latest production report.

“Robust growth in developing economies remains the primary driver of commodity prices and further positive signs are emerging in the US following the Federal Reserve’s ongoing efforts to stimulate the economy,” it said.

It added that supply side constraints had been exacerbated by weather resulted in disruptions to operations in Australia, Latin America and South Africa.

BHP said its Queensland mines had suffered from water accumulation and persistent heavy rains had restricted its activities.

“When combined with disruption to external infrastructure, we expect an ongoing impact on [coal] production, sales and unit costs for the remainder of the 2011 financial year,” BHP said.

QR National, Australia’s biggest rail freight operator, estimated coal haulage could fall by 20m tonnes in the three months ending March due to the floods and damage to its network.