Whitehaven Coal (WHC)
HOLD

Coal hard cash

 20 Jan 2023
Sector: Energy

2Q23 PRODUCTION

Need To Know

  • 1H23 EBITDA ~$2.6bn on average coal price of A$552/t. Market estimate was $2.5bn.
  • 143m shares re-purchased for ~$1bn, one-third of the away through the buy-back program
  • 1H23f net cash from operations ~$2.5bn
  • Net cash position ~$2.5bn at 31 Dec 2022

Despite the heavy rain throughout the last 6 months, Whitehaven Coal has banked a trainload of cash thanks to high coal prices and a determined operational effort.

Wet weather affected production, again. The September and December quarters endured very heavy rainfall at the Maules Creek open cut mine which restricted production by 24 days through 1H23. This was partly offset by stronger operational performance at the Narrabri underground mine. Year-to-date group ROM (run of mine) coal production at 8.8mt is +5.5% on last year.

Prices starting to come off the boil. WHC achieved another excellent average quarterly price of A$527/t for its 2Q23 coal sales, although this was 9% lower than 1Q23. The benchmark gC NEWC (6000CV) index averaged US$379/t for the quarter, down 10% from the September quarter.

Investment view

WHC’s earnings have been running hot on the back of very high thermal coal prices which may now have peaked. The potential return of China as a buyer of Australian coal is a positive factor, but the outlook for coal prices is likely to be lower.

The NSW Government’s intended domestic coal reservation scheme is under discussion and includes WHC. Details are yet to be worked out, but we think it will have little impact on WHC’s outlook. Political interference such as this, however, is disturbing and places some uncertainty on future earnings. WHC paid $368m in state royalties in FY22 and the concern is that the NSW Government might look to increase the royalty rate as the Queensland Government did last year.

WHC has certainly turned its good fortune to the benefit of shareholders. By the time the current buyback is complete, the company will have repurchased around one third of its shares on issue. With a net cash position of about $2.5bn as at 31 December 2022, the Board has a strong hand to play. It’s a shame that the State and Federal Governments are meddling with price caps and production reservation schemes.

Figure 1: Quarterly Production

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Stock overview

Share Price

Company overview

WHC produces high quality thermal coal and metallurgical coal for export to Asia. Its mines are mainly located in the Gunnedah Coal Basin in NSW with product railed to the Port of Newcastle.

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