Tag: Iron

Investment Thesis 

• Improving sales mix towards higher grade products should continue to narrow the price discount FMG achieves to the market benchmark Platts 62% CFR Index. 
•  Global stimulus measures – fiscal and monetary policies – are positive for global growth and FMG’s products. 
•  Capital management initiatives – increasing dividends, potential share buybacks given the strength of the balance sheet. 
•  Strong cash flow generation. 
• Quality management team. 
•  Continues to be on the lower end of the cost curve relative to peers; with ongoing focus on C1 cost reductions should be supportive of earnings.

Key Risks

• Decline in iron ore prices
•   Cost blowouts/ production disruptions. 
• Cost out strategy fails to yield results. 
• Company fails to deliver on adequate capital management initiatives. 
•  Potential for regulatory changes. 
• Vale SA supply comes back on market sooner than expected. 
• Growth projects delayed.

FY21 Results Highlights : Relative to the pcp: 

• Underlying EBITDA of US$16.4bn, was up +96% as Underlying EBITDA margin increased to 73% (from 65% in the pcp). 
•  NPAT of US$10.3bn, was up +117% and represents a return on equity of 66%. EPS was US$3.35 (A$4.48). 
• FMG achieved net cashflow from operating activities of US$12.6bn and free cashflow of US$9.0bn after investing US$3.6bn in capex. 
• Fully franked final dividend of A$2.11 per share, increasing total dividends declared in FY21 to A$3.58 per share, equating to A$11.0bn and an 80% payout of NPAT. 
•  FMG had cash on hand of US$6.9bn and net cash of US$2.7bn at year-end. Balance sheet remains strong with 19% gross gearing (below 30 to 40% target). Gross debt to EBITDA of 0.3x, was lower than 0.6x in FY20 and remains below target of 1-2x. 
•  FMG revised its target to achieve carbon neutrality by 2030 (ten years earlier than previous target).

Operational performance highlights. Relative to pcp: 

• Ore mined of 226.9m tonnes, was up +11%. 
• FMG shipped a record 182.2m tonnes, up +2%; and sold 181.1mt, up 2%. 
•  Average revenue of US$135.32/dmt, was up +72%. 
•  FMG saw C1 cost of US$13.93/wmt, increase +8% but remains industry leading.

Company Profile

Fortescue Metals Group Ltd (FMG) engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. It owns and operates the Chichester Hub that consists of the Cloudbreak and Christmas Creek mines located in the Chichester Ranges in the Pilbara, Western Australia; and the Solomon Hub comprising the Firetail and Kings Valley mines located in the Hamersley Ranges in the Pilbara, Western Australia. The Company was founded in 2003 and is based in East Perth, Australia.

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.

Business Strategy and Outlook

Rio Tinto is one of the world’s biggest miners, along with BHP Billiton, Brazil’s Vale, and U.K.-based Anglo American. Most revenue comes from operations located in the relatively safe havens of Australia, North America, and Europe, though the company has operations spanning six continents.

Rio Tinto has a large portfolio of long-lived assets with low operating costs.The invested capital base was inflated by substantial procyclical investment during the height of the China boom, the rot setting in by overpaying for Alcan, and subsequent iron ore expansion; the combination of these factors means midcycle returns are likely to remain below the cost of capital.

The recent focus has been to run a strong balance sheet, tightly control investments, and return cash to shareholders. The company’s major expansion projects are Amrun bauxite, the Oyu Tolgoi underground mine, and the expansion of the Pilbara iron ore system’s capacity from 330 million tonnes in 2019 to 360 million tonnes. Those projects are expected to complete in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs.

As a commodity producer, Rio Tinto is a price-taker. The lack of pricing power reflects in cyclical commodity prices. Rio Tinto lacks a moat, given that the bloated invested capital base doesn’t permit returns in excess of the cost of capital. The firm’s assets are large, however, and despite being overcapitalised, generally have low operating costs.

Morningstar analyst have lowered the fair value estimate for Rio Tinto to USD 66.00 per ADR from USD 69.00 per ADR previously. The cut mainly reflects lower near-term iron ore price forecasts, with higher copper and aluminium prices prices a partial offset.

Financial Strength

Rio Tinto’s balance sheet is strong with net debt standing of less than USD 2 billion at end 2020. Net debt/adjusted EBITDA for 2021 is very comfortable at 0.1. The strong balance sheet may allow the company to make targeted investments or acquisitions through the downturn, important flexibility. But it appears management is favouring distributions to shareholders. The progressive dividend policy was canned in 2016, providing important flexibility to increase or reduce dividends as free cash flow allows. 

Bulls Say 

• Rio Tinto is one of the direct beneficiaries of China’s strong appetite for natural resources. 
• The company’s operations are generally well run, large-scale, low-operating-cost assets. Mine life is generally long, and some assets, such as iron ore, have incremental expansion options. 
• Capital allocation is has improved following the missteps of the China boom with management generally preferring to return cash to shareholders than to make material expansions or acquisitions.

Company Profile

Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Iron ore is the dominant commodity, with significantly lesser contributions from aluminium, copper, diamonds, gold, and industrial minerals. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights.

(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.

Business Strategy and Outlook

Fortescue Metals is the world’s fourth-largest iron ore exporter. Margins are well below industry leaders. Lower margins primarily result from discounts from mining a lower-grade (57%- to 58%-grade) product compared with the benchmark, which is for 62%-grade iron ore. The lower grade is effectively a cost for customers, which results in a lower realised price versus the benchmark. 

Fortescue has grown rapidly due to highly favourable iron ore prices, aggressive management, and historically low corporate interest rates. Fortescue has expanded its capacity unprecedented and built two thirds of its capacity at the peak of the capital cycle baked in a higher capital base than peers. This means returns are likely to lag those of the industry leaders, which benefit from building capacity at times when the capital cost per unit of output was, on average, much lower.

Fortescue has done an admirable job of reducing cash costs materially versus peers. However, product discounts remain a competitive disadvantage. To this end, the company will add about 22 million tonnes a year of iron ore production from the 61%-owned Iron Bridge joint venture. Iron Bridge grades are much higher, around 67%, which should allow Fortescue to meet its goal to have most of its iron ore above 60%, assuming the company chooses to blend it with the existing products.

Morningstar analyst lowered fair value estimate for Fortescue Metals to AUD 13 per share from AUD 15.10 per share previously. The shares have gone ex-entitlement to the final dividend, an unusually large AUD 2.11 per share or 14% of the previous fair value estimate. 

Financial Strength

Fortescue Metals Group’s balance sheet is strong, due to the elevated iron ore price and accelerated debt repayments. Net debt peaked near USD 10 billion in mid-2013, roughly coinciding with the start of expanded production. By the end of 2020, net debt had declined to USD 0.1 billion. Net debt/EBITDA is comfortable and likely to remain so for the foreseeable future. It is expected that given the operating leverage in Fortescue, and the cyclical capital requirements, there is a reasonable argument that Fortescue should run with minimal or no debt on average through the cycle.

Bulls Say 

• Fortescue provides strong leverage to the Chinese economy. If growth in steel consumption remains strong, it’s also likely iron ore prices and volumes will too. 
• Fortescue is the largest pure-play iron ore counter in the world and offers strong leverage to emerging world growth. O
• Fortescue has rapidly cut costs and significantly narrowed the cost disadvantage relative to industry leaders BHP, Vale, and Rio Tinto. If steel industry margins fall in future, it’s likely product discounts will narrow significantly relative to historical averages.

Company Profile

Fortescue Metals Group is an Australia-based iron ore miner. It has grown from obscurity at the start of 2008 to become the world’s fourth-largest producer. Growth was fuelled by debt, now repaid. Expansion from 55 million tonnes in fiscal 2012 to about 180 million tonnes in 2020 means Fortescue supplies nearly 10% of global seaborne iron ore. However, with longer-term demand likely to decline, as China’s economy matures, we expect Fortescue’s future margins to be below historical averages.

(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.

Alcoa owns 60% and is the manager of the joint venture. Alumina is effectively a forwarding office for AWAC profits. Its profits stem from its equity share in AWAC, less local head office and interest expenses. While AWAC enjoys a low operating cost position relative to its competitors, the cost curve is relatively flat, and competitive pressures exist via supply from China. 

Alumina was the result of a demerger of WMC’s aluminium assets in 2003. AWAC has substantial global bauxite reserves and alumina refining operations, many of which are in the lowest quartile of the cost curve. AWAC primarily operates across the first two stages in the aluminium production chain: bauxite mining and alumina refining. AWAC’s refineries are, on average, just inside the lowest quartile of the cost curve. Alumina’s cost-efficient refining operations stem from proximity to bauxite mines and access to cheap power. 

Alumina Price Finally Catches Up to Soaring Aluminium Price; No Change to AUD 1.80 FVE

Our fair value estimate for no-moat Alumina is unchanged at AUD 1.80 per share. 

AWAC mined 11.1 million tonnes of bauxite and refined 3.1 million tonnes of alumina, both slightly lower than the June 2021 quarter. However, the gross margin on the alumina side rose 8% to USD 55 per tonne as realised pricing strengthened 4% to USD 292 per tonne. But this strengthening is only a prelude to what can be expected in the fourth quarter, with the average alumina price for the first two weeks of October at USD 410 per tonne. This is broadly as we’d expected given alumina has been wildly out of step with its usual synchronisation to the aluminium price. The latter is soaring at around AUD 1.40 per pound, nearly double the fiscal 2020 average. 

Our mid cycle alumina price forecast is unchanged at USD 315 per tonne and considered to be a healthy price. The global alumina cost curve is a flat one. We think rising energy costs, increasingly capturing the cost of carbon, and favourable demand trends via light-weighting vehicles and via battery market growth, support a healthy mid cycle alumina price. 

Financial Strength 

At end 2020, AWAC had USD 361 million in net cash, marginally improved on 2019’s USD 340 million. At the end June 2021, Alumina had just a position of USD 5.7 million in net debt, also marginally improved. Historically, AWAC reinvested heavily in its operations at the expense of dividend growth. We expect the company to remain largely in maintenance mode, with no major projects planned over the foreseeable future. Therefore, AWAC should pay out most if not all of its operating cash flows in the form of a dividend to Alumina Ltd. and Alcoa. This will help to maintain Alumina Ltd.’s strong financial health. We expect AWAC to remain unleveraged and Alumina to remain modestly leveraged at worst.

Bulls Say 

• Alumina is a beneficiary of continued global economic growth and increased demand for aluminium via electrification of transport. 
• AWAC is a low-cost alumina producer. It has improved its position on the cost curve relative to peers through expansion of low-cost refineries and closure of high cost operations. 
• The amended AWAC agreement ensures that Alumina will be able to maximise value for shareholders and makes it a more attractive acquisition target.

Company Profile

Alumina Ltd. is a forwarding office for Alcoa World Alumina and Chemicals’ distributions. Its profit is a 40% equity share of AWAC profit, less head office and interest expenses. Its cash flow consists of AWAC distributions. AWAC investments include substantial global bauxite reserves and alumina refining operations. Declining capital and operating costs and a lack of supply discipline from China are likely to result in competitive pressures, but Alumina’s position in the lowest quartile of the industry cost curve is defensive.

(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.

While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is trumped by the majors, Bureau Veritas, SGS, and Intertek in nondestructive testing and inspection. Services include laboratory testing for the mineral, coal, environmental, food, and pharmaceutical segments.

Excellent reputation, technical capabilities, a global network, and established relationships with global clients are key advantages over often fragmented competitors.ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base: 37% Asia-Pacific, 36% Americas, 24% EMENA, and the balance Africa. This global network reduces region reliance and gives it the capability to leverage experience across borders and serve an international client base.

Financial Strength

ALS is in only reasonable financial health. At the end of fiscal 2015, acquisitions and capital expenditure had pushed net debt to AUD 776 million and gearing (net debt/equity) to 63%. A subsequent AUD 325 million capital raising meant gearing fell to near 40% and net debt/EBITDA from 2.6 times to a manageable 2.0 times. Incremental acquisitions in the life sciences segment’s EBITDA had been accompanied by a sharp rise in group net debt. This has since been paid down to AUD 675 million at end-March 2021. Somewhat elevated leverage (ND/ND+E) of 36% reflects ongoing incremental acquisitions in the life sciences segment, albeit within the limits of ALS’ sub-45% target ratio. Fiscal 2021 net debt/EBITDA of 1.6 is reasonable.

Bulls Say’s

• ALS has diversified the earnings base to mitigate exposure to highly cyclical commodity markets. Expansion into food and pharma testing, as well as inspection and certification markets, should provide growth despite a significant slowdown in minerals testing.
• Large clients are unlikely to move away on price alone, with quality and skills essential requirements.
• Exposure to mineral and coal testing could once again provide earnings growth if the global economy’s appetite for commodities increases.

Company Profile 

Founded in the 1880s and listing on the ASX in 1952, ALS operates three divisions: commodities, life sciences, and industrial. ALS commodities traditionally generated the majority of underlying earnings, providing geochemistry, metallurgy, inspection and mine site services for the global mining industry. Expansion into environmental, pharmaceutical and food testing areas and commodity price weakness have lessened earnings exposure to commodities.

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.

Investment Thesis

• One of the largest miners in the world with a competitive cost structure.
• Tier 1 assets globally, which are difficult to replicate. 
• Highly cash generative assets with attractive free cash flow profile. 
• Shareholder return focused – ongoing capital management initiatives.  
• Commodities price surprises on the upside (potential China stimulus to combat Coronavirus impact). 
• Strong balance sheet position.
• Electrification and light-weighting trends in automobile industry provide long-term growth runway for aluminium demand.

Key Risks

We see the following key risks to our investment thesis:

• Further deterioration in global macro-economic conditions.
• Deterioration in global iron ore/aluminium supply & demand equation.
• Production delay or unscheduled site shutdown.
• Natural disasters such as Tropical Cyclone Veronica.
• Unfavourable movements in AUD/USD.
• Company not achieving its productivity gain targets. 

1H21 results summary

Relative to the pcp (1H20), and in US$: 

• Net cash generated from operating activities of $13.7bn was +143% higher on higher pricing for iron ore, aluminium, and copper. 
• $10.2bn free cash flow reflected stronger operating cash flows partially offset by a +24% rise in Capex of $3.3bn (driven by higher replacement and development capital as the Company ramp up its projects).
• $21.0bn underlying EBITDA was 118% higher (on 61% margin). 
• $12.2bn underlying earnings (reflecting underlying EPS of 751.9cps) was +156% (with underlying effective tax rate of 29%). 
• The Board declared cash return of 561cps, broken into interim dividend of 376cps and special dividend of 185cps. Payout is 75% of underlying earnings. (6) Balance sheet was stronger with net cash of $3.1bn versus net debt of $0.7bn in the pcp.

Company Description  

Rio Tinto Limited (RIO) is an international mining company with operations in Australia, Africa, the Americas, Europe and Asia. RIO has interests in mining for aluminium, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock and diamonds.  

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.

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.

Growth in Aurizon bulk business to offset stagnant coal. Coal prices have recovered but downward pressure is likely to remain on haulage rates and volumes due to intense competition. The coal-haulage market is highly concentrated, with few competitors and a few large customers. Commercial contracts, which are typically five to 12 years in length, underpin defensive revenue with customer commitment to take-or-pay (around 70%), pass-through of rail network access fees, and annual consumer price index increases. These contracts have helped insulate the firm from volatility in coal demand and supply factors to date.

 Aurizon’s non-coal bulk-haulage operations are typically low-margin and extremely variable, with customers based in the volatile agricultural, manufacturing and mining sectors. Aurizon’s iron ore customers are typically higher-cost juniors. The long-term outlook remains challenging for these firms, despite recent iron ore strength, as low-cost majors continue to bring on new supply, despite China slowing. Aurizon’s earnings from iron ore haulage could disappear over the medium term.

Aurizon’s Central Queensland Coal Network, or CQCN, provides essential transport infrastructure for the main metallurgical-coal-mining region in Australia. The CQCN is leased from the Queensland government until June 2109, with competitor access and access charges strictly regulated by the Queensland Competition Authority. Despite being highly regulated and needing large capital investment, the CQCN is a monopolistic rail system that provides Aurizon with highly predictable long-term revenue. Typically, regulated tariffs are the main source of Aurizon’s revenue from the CQCN, with the access undertaking set every three to five years. However, until 2027 network tariffs are set under an agreement with customers.

Financial Strength

Aurizon’s financial health is sound. As of June 2021, gearing stood at 45.6%, up from 37% in 2016 and 30% in 2015.Net debt/EBITDA of 2.4 times in fiscal 2021 is reasonable, and should fall modestly in the medium term in the absence of acquisitions or share buybacks. The firm pays out up to 100% of underlying NPAT as dividends. Further share buybacks are also possible, funded by proceeds from asset sales and debt. Cash flows are relatively reliable thanks to long-term take-or-pay coal-haulage contracts and the regulated rail network business. Capital expenditure has been fairly flat since fiscal 2017 at roughly AUD 500 million each year, mainly comprising stay-in-business capital expenditure. Aurizon has completed large-scale rail network extensions and is focused on cost-cutting. Investment in the bulk division is increasing but free cash flows should remain strong.

Bulls Say

• Restructuring initiatives should substantially decrease operating costs. 
• Improving efficiency, essential transport infrastructure, and reasonable level of debt should ensure steady earnings, except in the most difficult circumstances. 
• Aurizon is reducing overhead costs and improving network efficiency to generate economic returns.
• The bulk division has good growth prospects, though it is dwarfed by coal-exposed divisions.

Company Profile

Aurizon operates rail haulage of coal, iron ore, and freight, and owns a regulated rail network in Queensland. Bulk export coal haulage from mine to port contributes 40% of earnings. The freight and iron ore segment contributes 10% of earnings and undertakes the rail haulage of bulk agricultural, mining, and industrial products. The rail network, composed of 2,670 kilometres of coal rail network under a 99-year lease from the Queensland government, contributes around half of earnings.

 (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.

Investment Thesis

• FMG’s price discount to the market benchmark Platts 62 percent CFR Index should continue to narrow as its sales mix shifts toward higher grade products.
• Global stimulus policies, both fiscal and monetary, are beneficial to global growth and FMG’s products.
• Capital management initiatives include increased dividends and potential share buybacks given the balance sheet’s strength.
• Exceptional cash flow generation.
• Management team for quality.
• Continues to be on the lower end of the cost curve in comparison to peers; with a continued focus on C1 cost reductions, earnings should be supported.

Key Risks

• Iron ore prices are falling.
• Cost overruns/production disruptions
• The cost-cutting strategy is ineffective.
• The company does not carry out adequate capital management initiatives.
• There is the possibility of regulatory changes.
• Vale SA supply returns to the market sooner than expected.
• Growth initiatives are being postponed.

Operational Performance Highlights 

• Ore Mined of 226.9m tones, was up by 11 percent.
• FMG shipped a record 182.2m tones, up +2 percent and sold 181.1m tones up by 2 percent.
• The average revenue of US$135.32/dmt was increased by +72 percent.
• FMG saw C1 cost of US$13.93/wmt, increase by 8 percent but remains industry leading.
• Iron ore Shipment is 180 to 185m tone.
• C1 cost of US$15.00 to US$15.50/wmt.
• Capex (excluding FFI) of US$2.8 – US$3.2 billion (down from US$3,633 billion in FY21), including: US$1.1 billion in sustaining capital; US$200 million in hub development; US$250 – US$300 million in operational development; US$180 million in exploration and studies; and US$1.1 – US$1.4 billion in major projects (Iron Bridge and PEC). 

Company Profile 

Fortescue Metals Group Ltd (FMG) engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. It owns and operates the Chichester Hub that consists of the Cloudbreak and Christmas Creek mines located in the Chichester Ranges in the Pilbara, Western Australia; and the Solomon Hub comprising the Firetail and Kings Valley mines located in the Hamersley Ranges in the Pilbara, Western Australia. The Company was founded in 2003 and is based in East Perth, Australia.

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.

The near-term outlook for New Hope is bright, with the global economic recovery and tight supply conditions providing support to the spot price for seaborne thermal coal (ex-Newcastle). The full-year fiscal 2022 EBITDA was expected to be AUD 676 million despite the ramp-down of production at the New Acland mine. With approval of Stage 3 of the New Acland mine yet to be secured, minimal contribution to coal sales is expected from New Acland in fiscal 2022 as Stage 2 production ramps down. Necessary Stage 3 approvals from the Queensland Government remain delayed by a legal challenge mounted by the Oakey Coal Action Alliance (OCAA) who oppose the ongoing mining at the site.

Financial Strength:

The last traded price of New Hope was 1.92 AUD. The PE ratio of New Hope during 2020 was 13.1, which makes it an undervalued stock. Moreover, it is trading 28% lower than its expected fair value (2.70 AUD). During 2020, EV/ EBITDA of 4.9 shows that the company is in good financial health. 

With realised coal prices exceeding the market expectations in New Hope’s final quarter of fiscal 2021, New Hope’s full-year fiscal 2021 result announcement eclipsed the analyst’s forecast by 6%. The late fiscal 2021 rally in thermal coal price witnessed the full-year fiscal 2021 EBITDA of New Hope rise 26% year on year to AUD 372 million.

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.