BHP Billiton, the world's biggest miner, reported a faster-than-expected recovery in production of steel-making coal from its flood-hit collieries in eastern Australia but warned it will take the rest of 2011 to return to full production.
Output of iron ore and most of BHP's other commodities in the June quarter was in line or ahead of analyst expectations, setting the stage for a record annual profit of around $21 billion. BHP shares rose in line with the wider market.
Floods in Queensland between November and March crippled coal output from Australia, which provides two-thirds of global exports of steel-making coal, and contributed to the economy's biggest decline in two decades.
Coal miners had hoped operations would be back to normal by now, but flooding of coal pits and damage to rail lines and ports proved worse than originally feared.
"It seems to be the case that BHP is moving quicker than expected on the coal front," said Colin Whitehead, a mining analyst for Fat Prophets in Sydney.
"Perhaps, they are adopting an under-promise, over-delivery strategy. I would think the market will take a more optimistic view on the back of this," Whitehead said.
BHP said in a quarterly production report that output of steel-making or coking coal jumped 19% to 7.9 million tonnes in April to June from the previous quarter, above expectations for 7 million tonnes.
Output was 28% below year-ago levels as mines continued to operate below peak capacity.
"While production did improve in the June 2011 quarter ... we continue to expect production, sales and unit costs to be impacted, to some extent, for the remainder of the 2011 calendar year," BHP said in the report covering its fiscal fourth quarter.
The recovery hinges on eastern Australia's next wet season, which is typically from November to March.
Meteorologists say the La Nina climate phenomenon that produced last season's deluge of rain is unlikely to be repeated this year. But they can not rule it out, they say.
Miners such as Rio Tinto and BHP should continue to benefit from strong coal prices that resulted from the lost Queensland production through the September quarter before increased coal capacity starts to weigh on prices, coal traders said.
Anglo American has struck a benchmark-setting third-quarter sales price with Asian steel mills at $315 a tonne, which is just beneath the second quarter's record high of $330, UBS says.
Unlike close rival Rio Tinto, BHP does not issue production guidance to financial markets for its 10 product divisions, leaving analysts to estimate its performance each quarter.
Merrill Lynch, which is "neutral" on BHP, said production in the June quarter was 32% ahead of its forecast. BHP shares rose 1.7%, matching the wider market .
The recovery in coal exports was taking "significantly longer than earlier expected" and full output might not be achieved until early 2012, Australia's central bank warned on Tuesday.
The slower recovery would weigh on growth and keep economic expansion below forecasts, it said. First-quarter GDP fell 1.2%, the biggest drop in 20 years, data showed on June 1.
BHP's iron ore output jumped 7% on the quarter to 35.5 million tonnes, in line with expectations. That left full-year production at 134.4 million tonnes, reflecting a rapid expansion programme underway to meet strong demand from Asian steel mills.
The company said its mines produced at an annualised run rate of 155 million tonnes in the latest quarter.
BHP, the no.3 iron ore producer behind Vale of Brazil and Rio Tinto, mines its iron ore from the deserts of west Australia, which were unaffected by the floods.
Although iron ore is BHP's biggest business, analysts have focused mostly on coal because of the uncertainty of how quickly miners will be able to restore full production.
In Australia, coal is the nation's second-biggest export earner after iron ore and is forecast by the government to generate A$60 billion in exports in fiscal 2012.
Rio Tinto's Australian coal operations are still recovering from floods. Rio has already lowered its hard-coking coal output guidance for full-year 2011 to 8 million tonnes from 9.3 million tonnes previously.
Heavy rains and cyclones took the greatest toll early this year on Queensland's Bowen Basin, where BHP mines most of its steel-making coal in partnership with Mitsubishi Corp .
Rolling work stoppages are also impacting production at six of the BHP Billiton-Mitsubishi alliance's seven mines, as union workers press for greater job security.
These six mines have combined production capacity of more than 58 million tonnes per year of steel-making coal and account for about a fifth of global trade. Analysts have estimated the industrial action has resulted in lost production of between 500,000 tonnes and 1 million tonnes.