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South32 flags Illawarra coal output hit

AAP logoAAP 31/10/2016 Prashant Mehra

South32 has flagged a further hit to coking coal production after safety concerns forced a temporary shutdown at a part of its troubled Illawarra Metallurgical Coal operations.

The diversified miner said on Tuesday it expects a production loss of at least 500,000 tonnes of metallurgical coal output, which will directly affect sales because of low inventory levels.

The hit comes at a time of surging coking coal prices due to tightening global supply since June.

South32 said a ventilation fan failure last month at its Appin underground mine, part of the Illawarra operations, resulted in a build-up of methane gas levels.

The incident was investigated by the state's mining regulator, which issued a prohibition notice on October 26 and resulted in operations being suspended.

The company said production in part of the Appin mine will remain suspended for four weeks to carry out remedial work, while operations in another part will be carried out at a reduced rate until tests confirm a safe level of gas concentration.

South32 has faced continued problems at the Appin mine in recent months. Production was disrupted in September due to roofing problems at one of the longwalls, which led to a disruption in shipments.

As a result, the miner last month flagged a slight cost increase at the Illawarra operation and lowered full year production guidance to 7.55 million tonnes, from 8.15 million tonnes previously.

It had produced 7.06 million tonnes of metallurgical coal, and another 1.3 million tonnes of thermal coal at Illawarra in FY16.

The output loss is likely to have an impact on the company's profitability as it comes at a time when coal prices have jumped on the back of production cuts in China and South East Asia.

Spot prices for metallurgic coal currently trade around $US250 a tonne compared to $US90 in June.

South32 said in a separate presentation this week that recent price movement has been heavily affected by short term supply factors, and is unlikely to continue in the long term.

Shares in the company were trading nearly flat at $2.56 at 1235 AEDT.

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