Record coal exports to China boost Aurizon’s forecast

Aurizon has hauled a record amount of coal. Photo: Darren PatemanAurizon chief executive Lance Hockridge signalled cost cutting by mining customers was paying off as the rail operator hauled record amounts of coal in the first half of the year and raised 2014 forecasts.
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The weakening Australian dollar and extensive cost cutting by key customers like the BHP Mitsubishi Alliance had improved local miners’ competitiveness as they sold coal to China, Mr Hockridge said.

”Our Australian customers are very focused on retaining, indeed improving, their market share of the available demand, and that’s all about a cost and efficiency game,” he said.

Aurizon has benefited from the higher exports, with the group’s coal haulage volumes rising 13 per cent to 109.7 million tonnes in the six months to December.

Underlying earnings before interest and taxation (EBIT) in its coal division rose 32 per cent to $187 million and Aurizon lifted its full-year haulage guidance to 207-212 million tonnes from 200-205 million tonnes.

The rail operator has been cutting costs and improving productivity to meet the mining companies’ demands for more efficient and flexible services, Mr Hockridge said. ”We’re able to give our clients the confidence they can sell against the available market.”

But despite stronger coal volumes, Aurizon’s half-year net profit fell 39 per cent as it took a $197 million asset impairment charge (previously announced in December) related to the shrinking of its locomotive and wagon fleet and job cuts.

Aurizon shed 262 jobs through a voluntary redundancy program in the first half and expects further redundancies as other parts of its business, such as its rail corridor between Townsville and Mount Isa in Queensland, are restructured.

Underlying earnings before interest and taxation, which exclude impairments and job cuts, rose 19 per cent to $423 million.

Aurizon is ”likely ahead of target” on its goal to reduce its operating ratio (which measures operating expenses as a percentage of revenue) to 75 per cent by fiscal 2015 from 94 per cent three years ago, Citigroup analyst Anthony Moulder said.

Mr Hockridge warned Aurizon could face industrial action from more than 100 train drivers in NSW’s Hunter Valley as it renegotiates long-standing employee agreements but said the group was committed to change.

”We will continue to reform the business no matter what the outcomes,” he said.

Aurizon has also made progress in discussions with Indian coal miner GVK Hancock over a joint rail and port venture in Queensland’s Galilee Basin, and hopes to sign a formal agreement in the first half of 2014, Mr Hockridge said.