BHP Billiton , the world's biggest mining house, warned on Wednesday that persistent rains in Australia were delaying a recovery in its coal operations after a devastating March quarter cut production by nearly a fifth.

BHP Billiton is the latest miner to caution investors to brace for a dramatic fall in Australian coal exports this year, as the full impact of floods at the start of the year in Australia's eastern Queensland state becomes clearer.

The company's iron ore mines in Western Australia, which were also hit by torrential rains between January and March, recorded a modest 7 percent year-on-year rise in March quarter output, setting the division on course for a record year, BHP Billiton said.

Iron ore is BHP Billiton's top revenue earner, followed by coal.

The company has already earmarked nearly $10 billion of a planned $80 billion capital-spending spree over the next five years to expand iron ore and coal mining.

Analysts believe this demonstrates the challenges that the industry is having satisfying rising demand for industrial raw materials as industrialization in China spreads to India and other Asian countries.

BHP Billiton's production of steel-making coal is mostly centered on the Bowen Basin, which bore the brunt of the flooding.

BHP Billiton said its output of metallurgical coal in the March quarter dropped 18 percent year-on-year to 6.67 million tons.

Queensland lost up to 30 million tons of coal production when monsoon rains and a cyclone battered the eastern seaboard, exacting a costly economic toll on one of the most resilient economies, recent government and private figures show.


Coal is Australia's top export earner and the drop, equivalent to 15 percent of annual output, threatens to curb economic growth and exacerbate a worldwide shortfall of coal as miners struggle to restart their flooded mines.

The problem lies with water-logged pits at some mines that were taking much longer to drain, BHP Billiton said, adding it would probably be the end of 2011 before operations returned to normal.

Water pumping equipment suppliers said they had been stretched by persistent rainfall beyond the typical March end to the wet season.

We allowed six months and it looks more like nine, said UBS head of resources research Glyn Lawcock.

Lawcock predicted the delays would support metallurgical coal prices, which stand at around $300 a ton and had been expected to fall over the rest of the year as production bounced back.

They may drift a bit slower than we had anticipated given volumes are going to be slow to come back, he said.

Fellow miners Rio Tinto RIO.L> and Wesfarmers reported falls of 12 percent and 34 percent, respectively, in March quarter metallurgical coal output due to floods.

There are still quite a lot of pits across the Bowen Basin with a lot of water in them, said Dave Walker, who manages water pumping for Total Water Management, which specializes in draining mines.

There's no equipment available right now, it's all out, Walker said. And that's contributing to delays in the recovery.


BHP flagged in January that the Queensland floods would hit sales and production of coal through at least the first half.

Force majeure remains in place for the majority of our Bowen Basin products with production, sales and unit costs likely to be impacted, to some extent, for the remainder of the 2011 calendar year, the miner said in a statement on Wednesday.

The Queensland Resources Council industry group anticipates that total Queensland coal production for fiscal 2010/11 will be reduced to 170 million tons from a previous estimate of 200 million tons, based on its feedback from coal-handling terminals.

The council's board of directors includes executives from some of the biggest coal mining companies, including BHP Billiton, Xstrata , Rio Tinto and AngloAmerican .

BHP's Sydney shares closed up 1.2 percent at A$47.23, in line with Rio Tinto and the wider market <.AXJO>.

BHP Billiton's production of iron ore, its biggest single commodity, jumped to 33.2 million tons in the March quarter, up 7 percent from a year earlier, but eased 1 percent on the previous quarter because of Australia's wet summer.

The north Australian floods sent steel-making coal output tumbling 18 percent from a year earlier.

Australian oil and gas producer Santos also reported a big drop in March quarter output, cut its full-year production forecast because of adverse weather, and warned it would take months to return operations to normal after the disruptions caused by rains.

BHP Billiton is the world's largest supplier of traded hard coking coal, via a joint venture with Japan's Mitsubishi Corp <8058.T>, and is also the third-largest iron ore producer -- positions that have enabled it to reap record profits from surging demand from Asian steelmakers.

In iron ore production, BHP ranks behind Brazil's Vale and Britain-based Rio Tinto.

Strong demand from China, the world's top steel producer and iron ore consumer, and tight supplies, have pushed iron ore prices to record highs this year, with spot prices <.IO62-CNI=SI> now standing around $180 a ton, just below their February all-time high of around $200.

This should help drive a swift recovery in iron ore production in the current quarter.

In copper, another commodity in strong demand from China and other rapidly industrializing nations of Asia, BHP Billiton reported a 19 percent jump in March quarter output, from a year earlier when production had been disrupted by a mine accident.

The recovery in copper production was in line with BHP Billiton's previous forecast.

(Editing by Clarence Fernandez and Muralikumar Anantharaman)