Miners weather storms

Cameron BartramCountryman

As corporate news for the first quarter of 2011 starts to flow through the market, it is worth taking a look at some of the more significant results.

Wet weather has been a key feature in this reporting period, with the cyclone season in WA’s north and the devastating floods in the eastern states.

In the coking coal country of central Queensland, BHPBilliton (BHP) surprised investors by warning that it may take until the end of the calendar year — six months longer than previously expected — for its coal operations to return to normal.

This is not overly surprising considering the time it takes these mines to get back into the optimal mining sequence after such a large disruption to operations.

The largest and third-largest iron producers in the Pilbara, Rio Tinto (RIO) and Fortescue Metals (FMG), both reported production declines of about 15 per cent compared with the previous quarter as the cyclone season played out.

However, BHP only reported a mere one per cent fall in iron ore production in the Pilbara during this period, benefitting from its heavy investment in ramping-up production during the depths of the global financial crisis (compared to its peers).

In the Cooper Basin in central Australia, Santos (STO) blamed the wet weather as a key reason for downgrading its calendar year 2011 production guidance to 47 to 50 million barrels of oil equivalent (mmboe) from 48 to 52 million barrels of oil equivalent.

Santos is heavily leveraged to the results of its Gladstone LNG project so a successful implementation of this project is a larger driver of their share price at this stage.

Still on the oil and gas front, Woodside (WPL) was less affected across their North West Shelf assets with only a minor LNG production disruption.

Perhaps the most dramatic impact has been felt by uranium producer, Energy Resources of Australia (ERA), which has been forced to suspend mining and plant processing at its Ranger Uranium Mine in the Northern Territory due to flooding.

ERA has downgraded its calendar year 2011 production guidance to 2400t of uranium oxide (from about 3800t).

The mine, within Kakadu National Park, has a history of mine flooding during the wet season, however, this is a major setback even in their terms.

It also comes at a poor time for an industry already struggling on the back of the nuclear disaster in Japan.

The adverse weather across most of Australia is not all bad news. In particular, the major bulk commodity miners are benefiting from higher prices caused by supply disruptions which will help offset losses of production volume, keeping revenues generally in line with expectations.

For more information, contact Cameron Bartram at Sentinel Stockbroking on 9225 0028 or email cbartram@sentinelgroup.com.au

Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making investment decisions. Sentinel may hold positions in stocks discussed from time to time.

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