BHP Queensland Coal Output Falls

SYDNEY -- In the latest hit to Australia's mining industry from devastating floods in Queensland, BHP Billiton Ltd. said Thursday that coking coal production from the state fell 30% quarter-on-quarter and warned of a longer term impact for operations this year that could push up prices for steelmakers across Asia.

"Heavy rainfall that persisted for much of the December 2010 half year has significantly restricted overburden removal," the world's largest mining company said in a statement. "When combined with disruption to external infrastructure, we expect an ongoing impact on production, sales and unit costs for the remainder of the 2011 financial year."

Some of the worst flooding on record in Australia threatens to disrupt the country's vast mining industry at a time when global economic growth is picking up, driving demand for resources like coal, iron ore and copper.

Flooding in Queensland's Bowen Basin since December has hit mines accounting for around 40% of global coking coal production, according to Macquarie Group, while above-average cyclone activity is expected in the Pilbara iron ore-producing region in Western Australia before the end of the southern tropical wet season in April.

BHP has been forced to declare force majeure on the majority of its coal products from Queensland's Bowen Basin, including that from the Goonyella Riverside, Blackwater, and Peak Downs mines, three of the world's largest producers of the coking coal used in steelmaking. In a second-quarter production report Thursday, BHP said total coking coal output was 7.8 million metric tons in the three months to Dec. 31, a 12% fall on the year.

"BHP's got a very big business there so they probably felt the effects of the flooding more," said Lyndon Fagan, a mining analyst at Royal Bank of Scotland Group Plc. in Sydney.

Iron ore output rose 4% to 33.7 million tons over the same period, hitting quarterly and monthly records and touching an annualised run-rate of 148 million tons a year. Total petroleum production fell 4% on the year to 37.3 billion barrels of oil equivalent, with natural gas falling most sharply by 9% to 82.54 billion cubic feet. Output of crude oil, condensates and natural gas liquids slipped 1% to 23.5 million barrels.

Anglo-Australian BHP is the world's fifth-largest listed company by market value and the largest producer of coking coal and silver. It's also a top-three producer of iron ore, copper, nickel, lead and uranium.

Its December quarter was marked as much by major failed corporate transactions as by its production activities. A long-idled joint venture of its Pilbara iron ore operations with Rio Tinto was abandoned in the face of opposition from E.U. regulators, while a US$39 billion bid for Potash Corp. of Saskatchewan Inc. was dropped after Canadian politicians indicated they would not approve the deal.

But booming prices for its core steelmaking materials of coking coal and iron ore have supported prospects for global miners of the commodities. Each ton of steel requires around 0.6 tons of coking coal and 1.5 tons of iron ore.

Thermal coal production from BHP's mines in Australia, South Africa, Colombia and the U.S. rose 7% on the year to 16.5 million tons.

As with iron ore and coking coal, other steelmaking materials showed a mixed performance. Nickel production fell 12% on the year to 43,000 tons in the December quarter, with a disruption in gas supplies at the company's West Kwinana refinery near the Australian city of Perth blamed. However, production of manganese ore jumped 19% to 1.8 million tons.