South32 lowers Illawarra output 10% following gas concentrations

SOUTH32 said production from its Illawarra Metallurgical Coal operation in Australia’s New South Wales would be at least 10% lower than its previous guidance of 7.9 million tonnes (Mt) following the suspension of mining.

This followed detection of “elevated gas concentrations” at the mine’s Appin Area 7 after which South32 employees were evacuated and authorities alerted.

“Production at the Area 7 and Area 8 longwalls, which form part of the broader Illawarra Metallurgical Coal operation, has been suspended until our investigation into the incident is completed,” the company said in a statement.

New production targets for the group’s financial year, which ends June 30, would be provided “in due course”, it said. It added that lower production would translate directly into sales as there were low inventory levels at the mine.

“A commensurate increase in unit costs is also anticipated,” it said.

South32 has largely had a successful year after rubbing out net debt and establishing a large cash pile from which is has launched a capital return programme beginning with share buy-backs, now underway.

But the company has had its fair share of production misfortune.

Commenting in its March quarter update last month it said coal production from its South African energy operations had been hit by heavy rainfall. It consequently lowered production guidance for its financial year as well as for financial 2018.

Coal production dropped 11% to 21.5Mt (previous comparable period – 24.Mt) in the nine months to end March with domestic sales dipping by 1% but export sales 25% down at 8.8Mt (11.6Mt).

South32 has revised its coal production guidance from South Africa to 30Mt for the year to end-June and predicted a further drop to 27.5Mt for the year to end-June 2018.

According to South32 CEO Graham Kerr the 2018 drop in output is became of the depletion of existing pits and the delayed development of new mining areas at the WMC (Wolvekrans Middelburg Complex).

Said Kerr at the time: “While our budgeting process for FY18 is currently underway, we do anticipate a significant increase in operating unit cost – including sustaining capital expenditure – as a result of the temporary reduction in production and rise in sustaining capital expenditure at the WMC”.