Financial Markets - Investor Desk

Business Strategy & Outlook

New Hope’s strategy seeks to create value for shareholders by remaining a pure-play coal miner and developing thermal coal assets at a time when major miners–including Rio Tinto and BHP–head for the exits. The strategy is entirely reliant on thermal coal demand remaining robust for decades. The purchase of a further 40% interest in the Bengalla coal mine in fiscal 2019 sees New Hope double down on thermal coal. While demand for coal has waned in Europe and North America, Asia will remain the relative bright spot for coal demand over the coming decades, according to the International Energy Agency. The IEA sees the possibility that coal demand in absolute tonnage terms could remain steady out to 2040 in Asia, as economic development supports demand. Nonetheless, the potential for greater action on climate change brings the distinct risk that demand could falter earlier.

On the operational front, the realization of value from New Hope’s assets, given thermal coals has an uncertain future. Bengalla has approval to produce up to 13.4 million run-of-mine, or ROM, metric tons annually, greater than the approximate 12.4 million ROM metric tons mined in fiscal 2020. Capital expenditures required to de-bottleneck the mine and expedite the mining of Bengalla’s reserves are currently being explored. Mining leases were approved in fiscal 2023 for New Acland Stage 3, but water licenses are required before the mine can operate. An approximate 9.2 million metric tons of ROM production is planned in Stage 3. While less successful at New Acland, New Hope’s operational strategies at both assets have sought to expedite value creation. Nonetheless, these actions need to be taken in context. With Bengalla and New Acland reserves supporting multi decade mine lives and with a further 40% stake in Bengalla taken in fiscal 2019, said operational developments work only at the margins to expedite value creation for New Hope’s shareholders. The firm acquired a 15% stake in the Malabar-Maxwell underground mine in fiscal 2022. The mine has probable reserves of 144 million tons and a mine life of greater than 25 years.

Financial Strengths

New Hope’s balance sheet remains well positioned. New Hope’s bias toward a conservative balance sheet as appropriate. The volatile nature of coal prices makes the use of significant debt problematic. The balance sheet currently sits in a net cash position of approximately AUD 182 million at the end of fiscal 2022.

Bulls Say

Asia’s growth will see demand for coal in the region remain steady for decades to come.
New Hope’s operating assets enjoy decent positioning on the global thermal coal cost curve.
The ramp-up of production at Bengalla toward 13.4 million ROM metric tons per year could provide better unit costs.

Company Description

New Hope Corporation is an Australian pure-play thermal coal miner. Its two operating assets–the 100%-owned New Acland coal mine and its 80% interest in the Bengalla coal mine–produce more than 12 million metric tons of saleable thermal coal annually. The vast majority of New Hope’s production is sold into seaborne thermal coal export markets. Reserves at New Acland and Bengalla are sufficient to support multi-decade mine lives. New Hope’s undeveloped coal resources are extensive and include exploration status coal resources in excess of 1 billion metric tons in Queensland’s Surat basin.

(Source: Morningstar)

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