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. Total coal production to reach 21.2 million metric tons of run-of-mine, or ROM, thermal coal by fiscal 2023, up from 14.8 million metric tons in fiscal 2018.

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, we’re encouraged by efforts to expedite the realisation of value from New Hope’s assets, given thermal coal’s uncertain future. Bengalla has approval to produce up to 15 million 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. 

Financial Strength

 New Hope’s balance sheet remains well positioned. We view 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 modest net debt position of AUD 73 million at the end of fiscal 2021. Gearing and leverage remain conservative. We forecast net debt/equity of 2% and net debt/EBITDA of approximately 0.07 times at fiscal 2022 year-end. As such, substantial headroom exists relative to New Hope’s leverage covenant–calibrated at 2.75 times net debt/EBITDA. Our base case factors a long-term coal price of USD 69 per metric ton and the first AUD 200 million of New Acland stage 3 development capital expenditure in 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 15 million ROM metric tons per year could provide better unit costs.

Company Profile

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 a cumulative 12 million metric tons of salable 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)

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.