Don't be afraid of it

3Q23 PRODUCTION

Need To Know

• Average coal price achieved A$400/t, down from A$527/t in Dec qtr
• March qtr production 3.4mt -2% on Dec qtr
• Buyback still has ~186m shares to go

Weather and labour issues crimped third quarter production compared to the December quarter, while coal prices continued to ease. Whitehaven’s monster share buyback will kick back into gear with the balance sheet sitting on $2.7bn net cash. Regulatory issues are on the fringe but should not badly affect WHC’s growth prospects.

Production. WHC sold 3.365mt of (mostly) thermal coal in the March quarter at an average achieved price of A$400/t. This was 13% above the Newcastle index price due to the higher calorific value (CV) produced by WHC. The achieved price was 24% lower than the A$527 achieved in the December quarter. Softer northern hemisphere gas prices is reducing demand for thermal coal, but WHC anticipates thermal coal prices will be supported for the balance of CY23 partly due to tight stock levels and the sanctions imposed on Russian coal to Europe and Japan.

Expansion. The WHC Board has approved the commencement of mining at the Vickery coal deposit near Gunnedah. It is close to existing facilities and first production in mid-CY24 will ramp up to full production of 1.2-1.3mtpa in FY25f. Vickery will produce very high CV coal (>6400 CV) with low ash content making it ideal for blending with other WHC coal. Capex of A$150m has been allocated to the project. Based on its JORC resource, Vickery could eventually produce ~10mtpa.

Regulatory issues. The Domestic Coal Reservation Scheme has been finalised and will have a minor impact on WHC production and revenue. The volumes are capped at the lower of 200kt per quarter or 5% of each mine’s saleable thermal coal production. Prices are capped at A$125/t (for 5500 CV equivalent coal). The Safeguard Mechanism proposed by the Federal Government will affect the Narrabri underground mine (WHC 77.5%) and the Maules Creek open cut mine (WHC 75%). The impacts are not yet known but the Scheme is scheduled to begin 1 July 2023.

Buyback. WHC’s second on-market share buyback will restart on 24 April with approximately 186m shares still to be purchased of the 240m targeted. Including the first share buyback, WHC has purchased 157.1m shares for $1.056bn at an average price of $6.72 per share.

Investment View

Lower coal prices have caused the share price to ebb, but demand remains robust. Subject to normal operational issues, as seen in recent quarters, WHC can continue to benefit from historically good coal prices.

The regulatory interference in WHC’s business are borne of government policymaking and are simply an on-going industry risk factor. 

The buyback and new development provide investors with confidence that WHC can continue to generate shareholder value.

As former PM Scott Morrison said when he brandished a lump of coal in the Parliament: “It’s coal, don’t be afraid of it, don’t be scared!”. 

Figure 1: WHC QUARTERLY PRODUCTION