Hard road: Costs are going up.
WESFARMERS' once-powerhouse resources division is barely profitable at current coal prices, managing director Richard Goyder admitted on Wednesday, while defending the longer-term value of its Curragh and Bengalla mines.
Mr Goyder said the wholly owned Curragh metallurgical and thermal coal mine in Queensland's Bowen Basin was highly competitive on the cost curve and ''if we're hurting, there are a lot of others hurting as well''.
Wesfarmers announced cost-cutting measures in October, including a shift from seven-day to five-day rosters and enforced staff leave during a planned shutdown of its Curragh mine, blaming low coal prices and the high Australian dollar.
Finance director Terry Bowen said Wesfarmers was not making money on the lower-grade metallurgical coals at current prices, after state and private royalties were factored in, and in the current environment for many operators ''profitability would be very questionable''.
At the former state-owned Curragh, in addition to state government royalties, Wesfarmers is obliged to pay a substantial trailing royalty to government-owned generator Stanwell Corporation, linked to export coal prices and akin to a profit-sharing arrangement.
The royalty was still being paid on the basis of higher coal prices a year ago, due to the lagging effect.
In a swipe at the Queensland government, which increased coal mining royalties in 2012, Mr Goyder said: ''A lot of costs have been added, state government royalties have increased, there are a lot of fingers in the pie at the moment.''
But Mr Goyder denied coal was a problem division, saying Curragh was a ''very, very good asset''. Producers could not continue to supply coal below cost, he said: ''Ultimately I think there will either be a demand or supply-side response.''
Analysts said there was no doubt coal producers were doing it tough, but one said that while Curragh was efficient, after the Stanwell royalty was factored in, ''we wouldn't consider Curragh a low-cost operator''.
Wesfarmers lowered its production guidance for 2012-13 to 7.5-8 million tonnes, down from 8-8.5 million tonnes, partly due to the Curragh shutdown and partly due to recent high rainfall and localised flooding in the aftermath of ex-tropical cyclone Oswald, which affected mine site production and rail and port availability.
''This revised forecast is subject to no further significant wet weather and the satisfactory recommencement of rail and port operations,'' said Wesfarmers Resources managing director Stewart Butel.
Wesfarmers said it had concluded price negotiations with most export customers for the March quarter for metallurgical coal and the weighted average price across all grades (hard coking, semi-hard coking and PCI) would rise about 2 per cent, after falling 26 per cent in the previous December quarter.
But the price Wesfarmers obtains for its best hard coking coal fell in the quarter, from $US165 a tonne to $US160 a tonne.