Whitehaven Coal asx earnings

Ground Breakers: Whitehaven’s earnings are…simply…amazing – Stockhead

  • Whitehaven Coal posted a whopping $514/t coal sales for the June quarter
  • Due to high energy prices, Whitehaven’s unaudited EBITDA increased to $3 billion in FY22 from $200 million in FY21
  • Coal prices are expected to remain high as energy security becomes a bigger concern than at any time since the 1970s oil crisis

Whitehaven Coal (ASX:WHC), the ASX’s most-watched pure-play coal stock, is poised to post a 15-fold earnings increase for FY22 to $3 billion as coal prices skyrocketed in the June quarter.

Whitehaven was in full swing for the June quarter, growing ROM coal production by 21% to 6.36 Mt, salable coal production by 12% to 5.066 Mt and managed coal sales by 19% to 5.543 Mt and 17.6 Mt managed coal sales at unit cost of US$84/t.

But it’s the prices that Whitehaven has pulled that really made its quarterly results stand out today, sending shares of the New South Wales thermal coal producer soaring.

Whitehaven has earned an average of $514/t for the three months ended June 30, $370/t for thermal coal, 84% of its sales mix, and $334/t for metallurgical coal.

That’s just 63% up sequentially and 321% up from June 2021. As Rove McManus would say, “What The?!”

(Say hello to your mother for me too, less applicable to this place.)

More than 90% consisted of premium high-energy thermal coal with an output of 5850 kcal or more, which is in strong demand from markets such as Japan and Korea.

Pending a final review, WHC expects to draw $3 billion in EBITDA and $1 billion in net cash after earning $1.4 billion in the June quarter alone and spending $326.6 million on the 7 % of its share capital issued by investors. Franked dividends and more buybacks are due for final results in August.

How long can these prices go on, especially with thermal coal prices at an unusual US$150/t premium over coking coal prices?

How long is a piece of string really?

With very little energy coal currently available on the open market, Whitehaven expects prices to remain high in 2022 and 2023.

CFO Kevin Ball told analysts in a conference call that following Russia’s invasion of Ukraine, the world is facing an energy security crisis not seen since the 1970s.

That has taken around five years to ease, with gas, oil and coal shortages raising alarms for high energy prices for the foreseeable future.

“It’s hard to imagine alternative forms of energy entering the market without certainty of purchase and price,” he said.

One move that could change the dynamics of the coal market could be the resumption of trade between Australia and China amid reports that China is trying to unfreeze ties between the two countries and accept cargo from Australia’s east coast.

This is expected to provide some support to falling coking coal prices as Chinese steel mills are likely keen to get their hands on quality mead coal, which is currently trading at around US$250/t, a large discount to the Chinese and US Russian prices.

Whitehaven chief executive Paul Flynn said the resumption of trading links would have little impact on the $5.7 billion miner ASX 200.

“In general, that restriction didn’t bother us at all, it’s really the 5,500 people (lower-energy coal) who took the brunt of it,” he said.

“I think everyone looks at what’s going on with Russia and says, well, China will help them — well, Russia has decent quality coal, so not really all of China’s needs are being met.

“China needs to have more of those 5500, so I suspect it might have an advantage for them and probably Indonesia would be the loser, if you will.

“But the world lacks energy, as Kevin just pointed out to you and as you all knew. So I don’t expect too many challenges from it.”

Queensland royalties hurt investment case

With a large cash buildup, Whitehaven is taking a close look at a number of mine expansions and developments that have been thwarted by legal and environmental challenges, and what has been a rather dismal coal market for the past 12 months.

These include the highly competitive Narrabri Stage 3 expansion project and Vickery expansion in New South Wales, and the Winchester South metallurgical coal mine near Moranbah in the Bowen Basin, which could produce 15 Mtpa over 30 years.

According to Flynn, recent changes to Queensland’s royalty system, which include a cap of 40% on revenue from coal sales above $300/t, could hurt investment in the state’s mining industry.

“It’s pretty dramatic, like I said, it’s not about advice. And (it’s) not just a small adjustment, but a material adjustment,” he said.

“Well, if you come back and look at it, we didn’t use a price deck that takes into account the higher ends of the scale, which they’re now taxing.

“So in that sense it’s not a material impact on our offering as far as Winchester South is concerned, but … in this industry you need those spikes to get a lot of value in a cyclical business.

“And if the Queensland government participates from that top side away from you, obviously people will take a different view of how they view this region as potential for further investment.”

While ESG pressure from investors, banks’ carbon blacklists and government-imposed emissions reductions have put pressure on funding for large-scale projects in recent years, concerns about energy security may soften sentiment in support of the industry, Flynn says.

“The mood has certainly changed. I have to say now that no one forgets the commitments that each country has made,” he said.

“But I think everyone looks at this and says, well… in other words, when you have changes in the market, you see how fragile our energy system is.

“Obviously nobody expected that Russia would start a war with Ukraine. This is a terrible thing, but it has obviously made waves around the world in relation to the delicately balanced nature of our energy systems in general, be it gas, oil, coal, you name it.

“At the same time, the world has naturally incentivized intermittent sources of energy into the system in hopes that they will do the same thing as baseload infrastructure, which it doesn’t. And everyone sees it like, well, what do we do about it?

“So I suspect that energy security will be reassessed as a priority, (in) certainly necessary jurisdictions like Europe, and it will just be something that people knew beforehand was important but reassessed in terms of priorities Need to become.”

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