Release: Straits Asia on track to deliver 4MT coal sales in 2007

15 May 2007--Straits Asia Resources Limited’s March 2007 Quarterly Results reflect a continuance of strong production from its Sebuku mine in accordance with its mine plan, which is set for another record year in 2007.

 

The mine plan for 2007 is to reach 4 million tonnes of coal sales (up from 3.5 million tonnes in 2006) and involves preparing the pit for higher rates of production by exposing seams at different depths and further along strike. The benefits of the work, in the form of higher production and sales, will materialise in the second half of the year and well beyond.

Sebuku Coal Operation	Q1 2007	Q1 2006
Product Coal mt ‘000	834	850
Coal Sales mt ‘000	851	880
Profit after tax (Straits Asia) US$ ‘000	8,431	14,816

In comparing the above figures it is important to note that the Group had a unique first quarter in 2006 as a result of elevated pricing, and exceptionally high production driven by very low rainfall during that period of time. The same unusually favourable conditions were less apparent in the first quarter of 2007 leading to a performance level in line with expectations and forecasts.

 

All Straits Asia’s coal sales are made under long-term contracts with prices that are typically agreed 6 to 12 months before delivery. Coal prices in Q1 2007 were lower than Q1 2006 because of the effect of these pricing agreements. Prices for Q1 2006 were fixed (in 2005) at what transpired to be a peak, but prices for Q1 2007 sales (fixed in 2006) were at a weaker point.

 

Given that coal prices improved significantly through 2006 (when Straits Asia was fixing prices for deliveries later in 2007), Straits Asia’s average 2007 prices are set to outperform average 2006 prices for the rest of this year.

 

The combined effect of lower coal prices and sales was the main reason for a quarter-on-quarter fall in gross profit margin to 20% for 2007 (Q1 2006: 31%). But, at 20%, the Q1 2007 gross margin compares well with the 23% gross margin for the whole of 2006 given the mine expansion activity in Q1 2007 and after Q1 2006’s special factors are taken into account.

 

Revenue from Commodities Marketing increased as the Group sold higher volumes with higher spot prices for gold and silver also driving sales.

 

Expenses increased to US$4.87 million (Q1 2006: US$1.9 million) as a result of additional overheads relating to Straits Asia’s operation as a public listed organisation, increased technical support costs to support the Group’s growth plans and its entry into the oil and gas sector, and one-off payments associated with the establishment of the business in Singapore.

 

The Group’s consolidated net profit for the period was US$8.4 million (Q1 2006: US$14.8 million). Straits Asia is pleased with the progress on Sebuku mine’s planning and development and the fact it has kept up a robust performance as we begin to execute our expansion plans for 6 million tonnes production per year. All Straits Asia’s key performance indicators are in line with expectations. On this basis comparative quarterly improvements are expected to be very noticeable in the second half of 2007. (end of release)