Yancoal Australia Swings to Loss, Hires New CEO

SYDNEY--Yancoal Australia Ltd. (YAL.AU), controlled by one of China's biggest coal miners, said there was little sign a global glut of coal is easing, as it swung to a fiscal first-half loss of 749.4 million Australian dollars (US$688.4 million).

The downbeat outlook came as Yancoal named Reinhold Schmidt, a former senior executive at Glencore Xstrata PLC (GLEN.LN), as its new chief executive to succeed Murray Bailey who stepped down mid-March.

"For both metallurgical and thermal coal markets to return to balance, the market will require production cuts from some producers," said Yancoal. "At this stage, there is no sign of any production cuts so the outlook remains weak."

Yancoal, which is 78%-owned by China's Yanzhou Coal Mining Co. (YZC), said its net loss for the six months to June 30 compared with a A$410.0 million profit a year earlier. It said currency swings which had increased liabilities on its U.S.-dollar-denominated debt and a A$343 million writedown on its coal assets were the main causes of the loss.

Once the engine of Australia's economy, helping the nation stave off a recession during the global financial crisis, the mining industry is reeling from a sharp slowdown in prices of many commodities amid cooling growth in top trading partner China. Several big companies like BHP Billiton Ltd. (BHP) have canceled or delayed projects, closed mines, and put assets up for sale as the outlook for major commodities has worsened.

The current problems facing Australia's coal-mining sector partly have their roots in its earlier success. When prices of thermal coal used to generate power surged to a record high above $190 a metric ton in 2008, companies rushed to invest billions of dollars in new mines and lock in space at ports so they could export more raw materials to Asia.

That new supply is now weighing heavily on the market, with Australian coal having to compete for customers with cargoes rerouted from North America and Europe, where demand is lackluster. Coal shipments into China and Japan--the world's two biggest importers--rose 13% and 9%, respectively, in the first five months of the year, but this hasn't been enough to drain the excess supply.

Thermal coal prices in Australia are currently below US$80 a ton--about half the level of coal's 2008 peak.

"The weakening Australian dollar has helped producers to some extent, but hasn't entirely offset the decline in prices," said Yancoal, which operates coal mines in New South Wales and Queensland states, and has been cutting costs by using fewer contractors.

The Australian dollar fell 14% versus the greenback between mid-April and the end of June.

Last month, Yanzhou offered to buy out minority shareholders in Yancoal, which include Singaporean commodities trader Noble Group Ltd. (N21.SG). At the time, Yanzhou said it could better manage the impact of weak coal prices if it had full control of the Australian unit.

On Monday, Yancoal said its independent directors "are considering the proposal and are undertaking appropriate due diligence investigations to enable it to assess the proposed terms of the proposal".

-Write to David Winning at [e-mail]

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