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Australian Brokers Call – 29 October 2021

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Coal Prices Still a Tailwind for Whitehaven and Shares Remain Undervalued

Production in the September 2021 quarter was higher than in June, with managed saleable coal production up 22%. Narrabri was the sole driver, adding more than one million tonnes more of saleable coal in September from the woeful June quarter’s 0.3 million tonnes.

Coal prices soared in the last quarter, fuelled by strong demand with coal being sought globally for industrial and energy use by governments in COVID-19 economic stimulus projects. On the supply side, production from Australia has yet to recover from the bout of low prices in 2020. According to the Australian Government’s Resources and Energy Quarterly, thermal coal exports from Australia in fiscal 2021 were down about 7% from fiscal 2019 levels and are not expected to fully recover until fiscal 2023.

Financial Strength:

Whitehaven remains substantially undervalued with the market likely underestimating the near-term cash flow generation from this business given the buoyant coal prices.

Whitehaven went into fiscal 2022 with more than AUD 800 million of debt. However, with the buoyant coal prices, about AUD 100 million of debt a month is being repaid, and the company is expected to have net cash in the third quarter. fiscal 2022. Whitehaven favourably received Federal approval for the Vickery Extension Project in September, with production expected from around 2025.

Company Profile:

Whitehaven Coal is a large Australian independent thermal and semisoft metallurgical coal miner with several mines in the Gunnedah Basin, New South Wales. It also owns the large undeveloped Vickery and Winchester South deposits in New South Wales and Queensland respectively. Coal is railed to the port of Newcastle for export to Asian customers. Equity salable coal production expanded from 10 million tonnes in fiscal 2014 to about 15 million tonnes in fiscal 2021, largely due to Maules Creek. The Maules Creek and Narrabri mines should be the key driver of an expansion in equity coal production to approach 19 million tonnes from fiscal 2023. Development of the Vickery deposit could see approximately 8 million tonnes of additional equity production from around 2025.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.