possible takeover target

CENTENNIAL Coal has delivered its third profit downgrade in six months, ensuring this year will be remembered as the NSW miner's annus horribilis and heightening speculation it is a takeover target.

As the number of independent coal producers continues to shrink, Centennial warned yesterday that full-year profit could be as low as $16 million - less than half of last year's profit - because of production delays at two of its NSW mines.

The country's No.2 independent coalminer has been plagued by problems at its large Newstan mine, west of Lake Macquarie, which have sliced 2 million tonnes from total production this year.

The revised forecast of between $16 million and $17.5 million profit for the year includes a pre-tax loss at Newstan of about $48 million, marking a major turnaround in fortunes from just nine months ago, when Centennial predicted earnings would be significantly better than last year's $35.9 million.

"We suspected there was more pain to come," ABN Amro Morgans analyst Roger Leaning said. "Newstan, as you would expect, continues to cause them some problems."

As well as a longer than expected changeover in the longwall at Newstan, Centennial suffered from slower production and higher costs at its Tahmoor mine in the Southern Highlands because of an unstable mine roof.

But the chief financial officer, Robert Dougall, said the worst of the production problems were over and the earnings outlook for next year remained strong.

"It was a pretty tough year for us because the zone we went through at Newstan was quite extreme," he said.

Coal production for the quarter fell 6 per cent to 5.2 million tonnes but was up 6 per cent to 17.7 million tonnes for the year.

Amid increasing industry rationalisation, Mr Dougall conceded interest in Centennial had risen after Excel Coal's directors this month gave their blessing to a $1.83 billion offer from US coal group Peabody Energy.

"We are always a potential target for a large company," he said. "There is no activity in that regard, but we talk to lots of companies all the time."

ABN's Mr Leaning said further consolidation in the coal industry was expected and Centennial could be on the radar of Asian companies or customers. "Every coal producer in the small to mid-tier is a target," he said.

As for the immediate production problem, he said: "I would like to think it is [at an end]".

Centennial has also short-listed parties interested in buying Newstan and four nearby mines. A final decision is expected in the September quarter.

Despite the downgrade, shares in the biggest supplier of coal to NSW power stations rose 5c to $3.58 - more than 38 per cent below the record highs of last August.

http://www.smh.com.au/articles/2006/07/26/1153816252579.html