Wa Gas Blast Rocks Miners
The Age
Tuesday June 10, 2008
MINERS are taking desperate measures to secure supplies of gas and diesel fuel in the face of at least two months of interruption to 30% of gas supplies in Western Australia following the explosion at Apache Energy's facility on Varanus Island.
A Citi analyst, Clarke Wilkins, told clients that he had heard reports of spot gas sales in WA at up to $30 a gigajoule, triple recent spot prices and five times the price of contracted gas. The price of diesel has hit a record high of $US145 a tonne due to a global shortage of refinery capacity. "The impact of the gas disruptions in WA will increase earnings risk for a number of stocks going into the reporting season, and we therefore remain cautious on the near-term prospects for the sector," Mr Wilkins said. Newcrest Mining's flagship Telfer mine in the Pilbara is one of the operations most affected by the shortage. Its gas is piped directly from the Varanus facility, as opposed to a grid feed, and the miner has only limited supplies of diesel at the remote site. Credit Suisse said the company might have a week or two of crushed ore stockpiles, but production disruptions were likely if the problem persisted. Goldman Sachs JBWere estimated each five-day loss of production at Telfer would cut Newcrest's earnings by $7 million, assuming no recoveries from insurance. The alumina industry in WA has also been hit hard. BHP Billiton's Worsley refinery is operating with reduced supplies, and the impact on production is yet to be quantified. The refineries operated by the Alcoa World Alumina & Chemicals joint venture received about 25% of their gas from Apache. Alcoa said it was operating at "slightly reduced capacity", partially supported by high-cost diesel.Mr Wilkins downgraded his first-half earnings estimate for Alcoa's joint-venture partner, Alumina, by $20 million to $130 million due to the gas outage and higher prices for caustic soda. A spokesman for Minara Resources said the nickel miner had secured some alternative gas supplies for its Murrin Murrin plant, but not enough for full capacity. Oxiana has bought gas for its Golden Grove mine on the pricey spot market. BHP said production at its Nickel West business would not be affected since it had access to supplies from the North-West Shelf, which it will receive as long as other users comply with curtailment notices. If not, BHP plans to switch to diesel. Iluka Resources has shut down its mineral sands operations in WA.
© 2008 The Age
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