Whitehaven Coal probably has six more months (ie two more quarters) of earnings outperformance left before it is brought back to reality by time and the sliding price of high quality Newcastle type thermal coal exports.
Whitehaven met market expectations in its December quarter report as it provided ample evidence it had, at last, managed to avoid another period of being waylaid by La Niña and its wet weather and flooding.
The big news from Whitehaven’s quarterly report is the forecast for a record half-year result on the back of an average coal price of $A552 per tonne across the six months to December 31.
Whitehaven said it expects to post record half year EBITDA of $2.6 billion for the six months to December. This will be more than quadruple the $0.6 billion reported in the December 2021 half year.
Whitehaven’s run-of-mine (ROM) production of 4.8 million tonnes for the December quarter was up 21% from the three months prior and 50% from the December quarter of 2021.
That saw the company report managed sales of produced coal of 4.3 million tonnes, up 16% on the September quarter and 21% on the prior corresponding period.
Prices softened for an average of $A527 a tonne for the quarter, down from $A581 tonne in the September quarter.
But the December quarter figure was still more than double what it was commanding a year earlier.
As a result, the company delivered a record average first half coal price of $A552 tonne and that’s why its interim profit next month will be a record, as probably will be the current June half year, even though world prices continue to soften.
Total managed sales came in at 8 million tonnes for the December half.
Although the La Niña weather events affected production at the company’s open-cut mines, this was offset by the strong performance of the Narrabri underground mine in NSW.
“During the December quarter, we maintained strong operational performance at our Narrabri underground mine which helped offset the impact of continued wet weather on volumes from our open-cut mines,” Whitehaven Coal managing director and chief executive officer Paul Flynn said.
“Strong ongoing demand for high CV (calorific value) coal, coupled with supply constraints, underpinned high prices, a solid December quarter and an exceptional first-half result.
“We generated $2.5 billion of cash from operations in the half year, including $1 billion in the December quarter. At the end of December, we held a net cash position of $2.5 billion.
“The company is performing well and delivering strong returns for our shareholders including buying back $593 million of shares in the December half.
Looking to the rest of the year the company says it remains on track to deliver within the range of its overall production, sales, and cost guidance for the year to June 30. This includes managed ROM coal production of 19 to 20.4 million tonnes, managed coal sales of 16.5 to 18 million tonnes and unit costs of $A95 to $A102 per tonne.
But prices for its core thermal coal product of 6,00 CV (Calorific Value) is easing to be around $US303 a tonne last Friday. That was down more than 9% for last week (and is around $A430 a tonne, nearly $A90 a tonne under the average value Whitehaven received for the December half year,
Futures prices for delivery post June 30 are lower – well under $US300 a tonne (the all-time peak was last year at $US444 a tonne).
The December 2023 price of around $US276 a tonne at the moment is around $A392 a tonne, suggesting that Whitehaven and its rivals face price pressures in the 2023-24 financial year.
Some analysts reckon prices are being held up by the possibility of Chinese purchases, but if and when that happens it will be for thermal coal with a 5,500-energy value which is trading less than $US140 a tonne.
Judging by Whitehaven’s pricing it has stayed away from that market and ships to northern Asia and other markets that are willing to pay a premium for the higher quality thermal coal it prices (which can be washed and turned into soft coking coal suitable for pulverised injection or blending slightly higher quality coal from Queensland in coke making.
Whitehaven shares ended the day down 1.3% at $9.35. That’s more than 10% lower than the December 21peak of $10.74.
