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BHP coal output tops forecasts

Sydney - BHP Billiton [JSE:BIL], 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 with or ahead of analyst expectations, setting the stage for a record annual profit of around $21b. 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 [JSE:AGL] 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 .
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