Rio Tinto’s Coal & Allied Division announced a 20 percent cut in coal production due to bottlenecks in rail infrastructure and Newcastle Port. As a result, 250 miners will lose their jobs this month.

Other mining companies in the NSW Hunter Valley have also had to scale back production due to these same issues. The Austar mine last month announced that it would cut 79 jobs because it could not get enough port access.

Mining companies have tried to reduce the impact of the port problems by re-introducing a quota system for port access.

A consortium led by BHP Billiton has recently been granted approval to build a third coal export terminal. However, this will not open until 2009.

There has been a lot of people jumping up and down about this issue with the port infrastructure.

However, as an engineer, I understand that infrastructure and equipment has operating capacities. When designing systems to handle coal throughput, you only design the system for the required throughput.

Why?

We know that extra capacity or throughput costs more money. Therefore, predictions are made about requirements and the system is designed to meet those requirements. Any bigger, and it costs more – sometimes a lot more.

Recently, I was in charge of a coal handling system upgrade, and we were faced with the same issue. Many people wanted to know why we didn’t install larger conveyors, etc.

Another issue lies in accuracy of predicting coal output requirements. Some people were saying that the mining boom was going to continue; others were predicting an end.

Lastly, there is the issue of handling peaks in capacity. Sydney’s hospitality industry faced this issue during the 2000 Olympics. What happened after the Games finished? There were a whole lot of vacant motel rooms.

If you have sufficient capacity to handle any possible requirement, most of the time there will be idle capacity. Again, this costs money.

Sometimes, it is hard to make decisions about required capacity, and we are seeing the results of reaching capacity limits with our infrastructure due to the mining boom – just like we did with motels during the Sydney Olympics.

Calvin Close
Managing Director
Australia’s Mining Reference

Although this profit is great news for BHP Billiton shareholders, their record profit has also allowed them to invest a significant amount of money into new growth projects. This investment is good news for the Australian economy and employment.

BHP Billiton also announced a share buy-back program of US$3.0 billion over the next 18 months.

A summary of the results for the full financial year ending 30 June 2006 are as follows:

• Commodity markets remain strong underpinned by supply restrictions and a generally constructive global economy.
• Annual records for all key earnings measures including Underlying EBITDA up 50% to US$18.1 billion and Underlying EBIT up 54% to US$15.3 billion.
• Attributable profit up 63% to US$10.5 billion, including exceptionals, and up 58% to US$10.2 billion, excluding exceptionals.
• EPS up 66%, including exceptionals, and 60%, excluding exceptionals, benefiting from recent buy-backs.
• Underlying EBIT margin and Return on Capital Employed increased to 44% and 35% respectively.
• Record annual production volumes for aluminium, copper, iron ore, nickel and natural gas in a strong demand environment.
• Four major growth projects completed and seven major growth projects approved. 23 projects in execution or feasibility, representing US$13.8 billion of investment.
• Final dividend of 18.5 US cents per share, an increase of 27.6% on last year’s final dividend. This brings the full year dividend to 36.0 US cents per share, up 28.6%.
• Further capital return of US$3.0 billion, bringing total for FY2006 to US$5.0 billion.

(Source: BHP Billiton News Release Number 26/06, 23 Aug 2006)

Further details can be obtained by viewing their full news release.

Please note that this post does not represent financial advice of any sort.

Calvin Close
miningreference.com – Australia’s Premier Mining Directory