Xstrata declares force majeure at Australia coal mines

An Xstrata mine is seen in a handout photo.

SYDNEY (Reuters) - Xstrata (XTA.L) became the fifth Australian miner to declare force majeure on coal shipments from the northeastern state of Queensland due to recent heavy rain, which other Australian producers said were hampering recovery in their operations this week.

A spokesman from Xstrata's coal unit said the force majeure will affect all immediate shipments from the Newlands thermal coal mine, which has a production capacity of about 8 million tonnes a year, and from the 4.9 million-tonne-a-year Collinsville mine, which produces both coking and thermal coal.

Force majeure is a term in a contract allowing firms to default on sales commitments to customers.

Xstrata, the world's largest exporter of thermal coal, holds a 55 percent stake in a joint venture, which includes the Newlands and Collinsville mines and the nearby Abbot Point coal terminal. Itochu Corp (8001.T) holds a 35 percent stake while Sumitomo Corp (5457.T) holds the rest.

The latest supply woes from Xstrata mines in Queensland state, which produce mostly thermal coal that are sold to utilities and cement makers in Asia, Europe and South America, are expected to drive steam coal prices to a new high.

Thermal coal prices in Asia jumped 37 percent this year to a record peak of $130 a tonne earlier this month, boosted by China's temporary export halt and supply disruptions from Australia.

"Needless to say, this is going to drive spot prices much, much higher, which will in turn push up long-term contract prices for 2008. There has really been a series of bad news for buyers," said Mark Pervan, a senior resource analyst at Australia & New Zealand (ANZ) Bank.

Prices for coking coal, used in steel making, will get a boost from the news, Pervan said. Traders said prices of coking coal for immediate delivery have surged to more than $220 a tonne, compared with about $150 a tonne in December before the rains arrived.

Australia accounts for 65 percent of the world's coking coal exports, data from the International Energy Agency showed.

Xstrata said intense rains over central Queensland had damaged some roads and interrupted its rail system, forcing it to declare force majeure.

"We have started to inform our customers about the delays but don't have a timeframe on how long the force majeure will hold out," James Rickards, a spokesman for Xstrata Coal in Australia.

Production at the two mines, in the northern state of Queensland, had been falling since January due to the rains, but Xstrata said it had been able to use stockpiles at the two mines to avoid declaring force majeure.

But more rain fell, and production problems were further exacerbated by a derailment that closed part of the railway transport system at Newlands, preventing the movement of coal to the export terminal, Rickards said.

EXTREME WEATHER

Xstrata is the fifth miner in Australia to default on coal sales contracts from Queensland after recent extreme weather.

BHP Billiton Mitsubishi Alliance (BMA), the world's largest exporter of coking coal, thermal coal miner Ensham Resources Pty, Macarthur Coal MCC.AX and Wesfarmers (WES.AX) are other miners which have declared force majeure on coal shipments.

Producers said a downpour throughout central Queensland over the weekend had delayed efforts to resume mine operations.

"While recovery efforts are well under way, operations were hampered again this week by more heavy rain over the weekend which has further submerged parts of mine access road," said David Petrikas, a spokesman for Ensham, which is 85 percent owned by Indemitsu Kosan Co (5019.T).

Industry sources said efforts by Peabody (BTU.N) to return to full production at its coking coal mines have also been delayed.

BHP Billiton (BHP.AX)(BLT.L) said on January 24 that it would lose about two weeks of production, or 2.3 million tonnes of coal output, after recent floods at Queensland forced the closure of a number of coal operations.

Resource-rich Queensland has been pounded by heavy rains since January, with the mining town of Emerald hardest hit by flooding caused by heavy summer rains said to be a one-in-100-year event.

The deluge has damaged mine equipment and cut access to roads and rail lines, while some companies have had to use helicopters to evacuate workers stranded at mines.

(Editing by Ben Tan)