Anglo’s coal mine fire may delay reshuffle: BMO

A gas fire at Anglo American’s (LSE: AAL) Grosvenor metallurgical coal mine in northeast Australia could see operations suspended for more than one year and affect the company’s restructuring plans, BMO says.

Anglo halted production at the mine after the underground coal gas ignition incident on Saturday, and workers were safely evacuated with no injuries, the company reported. Grosvenor is about 1,000 km northwest of Brisbane in Queensland.

After working with specialists from the state’s mine rescue service and other authorities to extinguish the fire, the mine team was to start assessing how to safely re-enter the mine, a process that could take months.

21-month halt

“While the time to restart is unknown at this stage, the last incident at Grosvenor took (about) 21 months before resumption of the long-wall,” BMO Capital Markets analyst Colin Hamilton said in a note on Monday, referring to an incident in 2020 that injured five workers. “We could see something similar (or potentially longer) this time, which could also see some upward pressure to near-term met coal prices.”

Following the underground gas explosion at Grosvenor in May 2020, it took eight months to re-enter the mine and then a year before long-wall production could re-start, Hamilton said.

The accident at the mine comes just over six weeks after the London-based Anglo American announced restructuring plans, including the sale of its diamond business De Beers and its steelmaking coal assets, amid an unsuccessful takeover bid by BHP (ASX: BHP).

But the Grosvenor accident could delay those plans, Hamilton said.

Guidance forecast lowered

Anglo has targeted 3.5 million tonnes of coal output from Grosvenor this year, including 2.3 million tonnes in the first half of the year and a long-wall move in the second half, Hamilton said. Due to some of the ramp-up challenges at the mine, BMO forecasts production of 2.5 million tonnes this year and 2.4 million next year, giving Anglo total coal production of 16 million tonnes this year and 17 million tonnes next year. That contrasts with the company’s guidance of 15 to 17 million tonnes this year and 17 to 19 million tonnes next year.

BMO further forecasts total coal earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$900 million this year and US$700 million next year for Anglo. That amounts to about 10% and 8%, respectively, of its underlying EBITDA.

Anglo shares fell 1.6% on Tuesday in London to £23.92 (US$30.31), valuing the company at £31.7 billion. Its shares traded in a 52-week range of £16.30 and £28.13.