Thermal Coal Collapse Wipes Out Whitehaven Profit

By Glenn Dyer | More Articles by Glenn Dyer

The COVID-19 driven collapse in coal prices globally in 2020, especially for thermal coal, has slashed Whitehaven Coal’s net profit for the year to June by 95%.

And with production costs at $A75 a tonne (without shipping costs) and above market prices around $A70 a tonne, (or $US51 a tonne), Whitehaven faces a tough 2020-21 so it is now looking to slash costs with a company-wide review of operations.

Investors took a view on the company yesterday – it was a thumbs down and Whitehaven shares fell 18% to $1.02 a share, the lowest they have been since June, 2016.

Whitehaven on Wednesday said earnings collapsed from $564.9 million to $30 million in the year to June 30.

Despite that slump shareholders will be paid a final dividend – though it has been slashed as well to just 1.5 cents a share from a final of 30 cents a share in 2019. The final this year is the same as the interim in March.

The three cents a share total for 2019-20 is down sharply from the 50 cents share total for 2018-19.

The benchmark price for top-quality New South Wales thermal coal (the Newcastle Coal Index price) has fallen from $US68 a tonne to $US55 in the June quarter (and now to around $US51 a tonne), well below the yearly average of nearly $US100 a tonne in the 2019 financial year.

Production costs leapt from $A67 a tonne to $75 a tonne, hitting Whitehaven with the double whammy of falling prices and rising costs.

Whitehaven said its full-year result had also been hit by disruptions from summer bushfires, drought, and staffing problems at its flagship Maules Creek mine in NSW.

Revenue fell 31% to just over $1.7 billion in the year to June.

Whitehaven said its underlying net profit after tax of $30.0 million was down 95% on a year earlier while its earnings before interest tax depreciation and amortisation (EBITDA) fell 71% to $306 million.

Despite Whitehaven’s optimism long term for coal – thermal and soft to medium coking coal of the type it produces, the is looking for cost cuts to try and reduce the imbalance with thew weak selling price.

CEO Paul Flynn said the major miner was undertaking an efficiency overhaul in an attempt to reduce costs, while reduced global demand further contracts commodity prices.

“Our immediate focus is on achieving greater efficiency and more consistent operational performance in anticipation of markets rebalancing and price improvements beginning to flow through.”

The cost savings will no doubt involve job losses, just as we are seeing in Queensland.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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