Wesfarmers continuing review of its remaining coal asset

JOHANNESBURG (miningweekly.com) - Australian conglomerate Wesfarmers said on Wednesday that the sale of its Curragh coal mine, in Queensland, would be completed in the second half of the year and confirmed that it was continuing the strategic review of its remaining coal asset, a 40% interest in the Bengalla mine, in New South Wales' Hunter Valley.

The company, which has businesses such as hardware chains Bunnings, Coles supermarkets and department stores Kmart, Target and Officeworks in its fold, in December announced the sale of its largest coal asset for $700-million.

MD Rob Scott said the sale of the Curragh mine to Coronado Coal Group included a value share mechanism that would allow Wesfarmers to participate in possible future coal price increases.

Wesfarmers will receive 25% of Curragh's export coal revenue generated above a realised metallurgical price of $145/t, which will be paid quarterly over the next two years.

"On successful completion of the transaction, which is subject to a number of conditions precedent, the group expects to record a post-tax profit on sale of about $100-million," Scott said in the company's half-year financial report to December 31.

Wesfarmers reported a major plunge in its net profit after tax (NPAT) of 86% to $212-million for the half-year. However, excluding significant items relating to Bunnings UK and Ireland (BUKI), as well as Target, the company's NPAT for the half-year decreased by 2.7% to $1.54-billion.

Scott said that Bunnings Australia and New Zealand, Kmart and Officeworks were highlights for the half-year in the retail environment. In the industrial division, strong production volumes and higher coal prices in the resources businesses contributed to a significant increase in the division's earnings.

"Higher earnings across a majority of the group's businesses were offset by losses in BUKI, and lower Coles earnings following planned investments in price and service."

Earnings for the industrials division were $449-million, which is $72-million higher than the previous corresponding period, thereby largely reflecting higher coal prices and strong production volumes in the resources business.

Earnings for Wesfarmers chemicals, energy and fertilisers were $188-million for the period, compared to underlying earnings for $165-million in the prior year, with higher chemicals and energy earnings partially offset by lower fertilisers earnings owing to continued competitive price pressures.

Resources' earnings of $209-million were $71-million above the prior corresponding period, primarily owing to revenue growth of 44.3%.

"Growth in revenue reflected the continued strength in export coal prices and strong production volumes in Curragh, partially offset by higher unit cash costs resulting from initiatives to increase production," Scott said.

Resources' earnings will be subject to rail capacity and thermal and metallurgical coal prices, and the full-year earnings contribution of the business will be dependent on the timing of the completion of the sale of Curragh, the company stated.

Work to achieve satisfaction of the conditions precedent relating to the sale is ongoing and an update will be provided to the market when appropriate, Scott said.

In line with the group's dividend policy, which considers earnings, cash flows, franking credits and credit metrics, the directors declared an interim dividend of $1.03 a share, in line with the previous corresponding period.