Centennial Coal Announces Restructure
Centennial Coal’s announcement last week of the results of its Strategic Review certainly sent its share price plummeting, losing over 25% of its value since the announcement. The main “shock” in the announcement was the news that Centennial was closing Newstan Colliery after years of struggling with geological issues.
Centennial have likened the Newstan closure to the closure and subsequent re-opening of Clarence Colliery a few years ago. I was employed at Clarence Colliery when it was closed. I have also worked at Newstan and at other mines within the Centennial group, so I would like to comment on this analogy.
Before I do, I want to note that these comments are my own personal comments and do not reflect the opinion of my former employer, Centennial Coal.
In many ways, I see very good parallels between Clarence and Newstan.
Clarence, like Newstan, had geological problems with their longwall.The other likeness was that both mines, because of their cost structures, had to produce a lot of coal to break even. Clarence and Newstan both had the potential to produce a lot of coal and be profitable, but the physical issues were against them.
When I was working at Clarence, we were always optimistic that we had finally overcome the problems and that we would make a profit, but it never came. The hard decision had to be made to close the mine, and in hind sight, it was the best decision for Clarence. Centennial bought the mine from Cyprus / Oakbridge and re-opened it as a bord and pillar mining operation. The subsequent positive results from Clarence speak for themselves.
The hard decision with Newstan had to be made, and has been made. The mine will no longer be dragging down the good results from the other mines. Even more positive is that some of the equipment from Newstan is to be transferred to Mandalong, which will result in further improvements in production at Mandalong.
Centennial has said that they will be assessing options for Newstan, including re-birthing it as a bord and pillar operation like they did with Clarence. Centennial have a very good track record of converting mines like Clarence into smaller but very successful bord and pillar operations. I look forward to the results of Centennial’s review of options for Newstan.
Now that Newstan’s problems are behind Centennial, I believe that the future will be brighter for Centennial.
Calvin Close
Managing Director
miningreference.com
Disclaimer: Please note that the above information only represents a personal opinion of the author and is not intended to represent any advice for existing or potential share holders
December 6th, 2006 at 3:43 pm
On 1 December 2006, Centennial Coal have announced the next stage in their Strategic Review. This announcement was that they have reached an in-principle agreement to sell a 50% stake in Angus Place to their existing joint venture partners at Springvale.
Here is an extract from their announcement:
The Directors of Centennial Coal Company Limited (“Centennial”) are pleased to advise that an in-principle agreement has been reached to sell a 50% interest in its Angus Place mine and its two open-cut projects to SK Corporation and Korea Resources Corporation, Centennial’s existing joint venture partners at the neighbouring Springvale mine.
The consideration of $80 million comprises $65 million in cash upon completion plus $2 per tonne over coal mined from the Neubeck’s Creek and Wolgan Road projects. In addition, Centennial will receive a royalty of $2 per tonne over the balance of undeveloped resources.
These arrangements will create further opportunities to maximise synergies between Springvale and Angus Place, with enhanced sharing of infrastructure, technical services and other resources, which should result in greater production efficiency and marketing optimisation – including increased opportunity to participate in export market opportunities.
Future capital requirements at Angus Place, including a new longwall to be installed in late FY2008 will be met by the joint venture, thereby reducing Centennial’s forecast capital expenditure.
The sale of a 50% interest in Angus Place is the third leg of Centennial’s Strategy announced in February 2006, and follows the recently announced Central Coast restructure and the acceleration of Mandalong’s expansion to increase the Group’s export market participation.
The sale is subject to signing formal documentation and obtaining regulatory and other necessary consents and is expected to be completed by the end of March 2007.