BHP opens coal mine in Queensland despite market challenges

BHP Billiton (ASX, LON, NYSE: BHP) and joint venture partner Mitsubishi officially opened Wednesday their new $1.4 billion Daunia coking coal mine in central Queensland, defying the challenging conditions that currently affect the market for steel making coal.

Prices for the fuel used to make steel have been hurting because of low demand and oversupply from rivals, but BHP Coal President, Dean Dalla Valle, seemed optimist, as he said the BHP Billiton Mitsubishi Alliance (BMA) produces “the world’s premium quality metallurgical coal.”

The opening of Daunia mine, which is expected to produce 4.5 million mt/year of metallurgical coal, is considered a step forward for the BHP Mitsubishi alliance in its quest to improve profitability across the division.

The partners have committed $7.7 billion for major projects in Queensland over the past three years, including the new Caval Ridge mine and the Hay Point Coal Terminal’s expansion, currently underway.

BHP Mitsubishi Alliance's coal mines in AustraliaBHP is also working on completing the Broadmeadow mine extension before year-end and, in July, it cancelled the sale of its Gregory Crinum mine after making operational improvements.

Australia’s coal sector has been struggling under lower commodity prices, high costs, union disputes and even flooding in recent years. All factors that cost the alliance important market share.

However, CEO Andrew Mackenzie said last month that the metallurgical coal business has returned to profitability, thanks to several cost cutting measures.  A big part of them was achieved by dismissing mining contractors, applying efficiency measures and reducing in the number of days lost to strikes.

BHP’s combined coal business, headquartered in Brisbane, includes 20 operations around the world and a workforce of approximately 30,000 people.

Image: First coal at Daunia via Vimeo