Whitehaven Coal: Sales Up, Prices Down

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Whitehaven Coal’s December quarter production was solid and sales surprised to the upside, but on weaker pricing.

-Whitehaven Coal’s production on track with guidance
-Sales exceed forecasts
-Queensland realised prices disappoint
-Positive views on longer term coal prices

By Greg Peel

Whitehaven Coal’s ((WHC)) December quarter production was in line with or ahead of broker forecasts, while sales were a clear beat of consensus. Managed run-of-mine production of 9.7mt for the quarter was in line with the September quarter, while total sales of produced coal of 7.8mt for the quarter were up 22% on September.

Despite operational challenges across the first half in Queensland (weather), Whitehaven is tracking well to achieve FY25 guidance across Queensland and NSW, Macquarie notes, with each division having produced 53% and 51% of their run-of-mine guidance range mid-points respectively. Managed coal sales are also tracking ahead of the guidance range mid-points, achieving 54% and 56% respectively. FY25 consensus managed sales are now 2% above guidance range mid-point.

In Queensland, Daunia sales were strong, up 34% quarter-on-quarter, offsetting unplanned lightning-induced downtime at Blackwater. In NSW, Narrabri run-of-mine inventories were drawn following a longwall chain failure; the chain was replaced and further engineering works will be undertaken at a scheduled longwall move in February 2025.

Whitehaven looks on track to achieve the upper end of volume guidance and the lower end on costs, Morgans suggests. The flagged removal of -$100m of annualised costs by end-FY25 is also on track. Very pleasing momentum all round, the broker declares, matching consensus expectations and recent management tone.

Weak Pricing

Whitehaven’s coal price realisations disappointed in the quarter. The miner has missed guided Queensland metallurgical price realisation ranges by an average -900 basis points in two out of the three quarters of Queensland asset ownership. Product mix and volatility in prevailing spreads across the met coal suite (currently impacted by discounted Russian product) play into this, and Morgans agrees normalised metrics across a longer period matter far more.

However, this is likely to be a lingering focus, Morgans suggests, especially while some abnormal weakness plays out in global steel. Solid customer interest and uptake offer comfort, but the broker thinks it’s prudent to temper long-term realisation assumptions slightly which has trimmed some value from Morgans’ net present value estimation.

In Queensland, realised prices fell to US$152/t from US$176/t despite flattish quarter-on-quarter index pricing, Macquarie notes. This meant realisations fell to 75% from 84%. While lagged pricing is able to explain some differences, Macquarie estimates Queensland hard and semi-hard coking coal was sold at an additional -10% discount to what the company disclosed at the time of the acquisition of the Queensland assets.

Management believes Queensland met coal realisations should improve in the second half to around 80%, mostly due to an expected improvement in hard coking coal production at Daunia and an increase in Vickery thermal coal in NSW.

Citi notes coal prices have become more volatile over the past five years as the historically bulk-traded market has moved to a more terminal market approach.

Balance Sheet

Unit costs continue to track towards the bottom of the guidance range of $140-155/t, Goldman Sachs points out, and net debt at end of December declined to $1bn, noting this is before the $360mn stamp duty payment to the Queensland government, and proceeds from the US$1bn post tax sale of -30% of the Blackwater mine, which is expected to close in the March quarter.

At a high level, Bell Potter estimates Whitehaven could hold around $0.2bn net debt at FY25-end, with significant second half cash flows, including receipt of the Blackwater selldown proceeds and the first -US$500m deferred acquisition payment to the BHP Group ((BHP))/Mitsubishi Development JV from which Daunia and Blackwater were acquired.

The coal miner intends to review its capital allocation framework at the end of FY25. Whitehaven’s significantly de-risked balance sheet should provide increased capacity for shareholder returns, Bell Potter suggests. This broker believes Whitehaven holds capacity to deliver above its targeted dividend payout of 20-50% of profit from its NSW operations.

Surplus cash (perhaps some $500m) should provide flexibility for Whitehaven to deliver, or potentially exceed, Ord Minnett’s dividend forecast of 32cps (5% yield), subject to its liquidity needs and growth priorities (eg Vickery).

Steel Demand

Morgans maintains a bullish medium-term structural view, suggesting investors should buy the current dip in the steel cycle. Near term catalysts look elusive nonetheless, and Morgans looks to better clarity on the reality of Trump’s trade agenda, momentum in global rate cuts and possible China stimulus as possible catalysts.

Citi remains constructive on met coal pricing, noting Indian steel production was up 9.5% year-on-year in December, and with the prospects of steel tariffs plus expanded infrastructure spend to come.

Bell Potter holds a positive long-term met coal outlook and sees upside risks given a constrained and increasingly consolidated supply base.

Targets Trimmed

Of the six brokers monitored daily by FNArena covering Whitehaven Coal (UBS, the seventh, is currently on research restriction), all maintain Buy or equivalent ratings following the December quarter release.

Macquarie has cut its price target by -6% to $8.50 on a lower earnings outlook. While sales volumes were healthy, the broker has revised product mix and discount assumptions taking a more conservative stance. Macquarie nevertheless remains constructive on Whitehaven despite the cut, with met coal prices at cost-curve support levels.

Morgans adjusts forecasts for the December quarter results, lower short-term hard coking coal forecasts, a significantly lower short-term AUD, and re-shaped costs. This leads to a target cut to $9.50 from $9.65.

Morgan Stanley sticks with its target price of $8.95, Bell Potter is happy with $9.00, and Citi is unchanged on $8.30 as is Ord Minnett on $9.60. This leaves a consensus target among daily-monitored brokers of $9.06, suggesting a significant 47% upside to the last traded price.

Goldman Sachs has adjusted its earnings forecasts driven by a decrease in near-term realised pricing, changes to product mix and one-off costs associated with the cost reduction program at the Queensland assets. This broker’s net asset value estimate rises 5% to $9.50 from $9.00 mostly on a -30% decrease in net debt (timing of one-off payments).

Additionally, Goldman has decreased its enterprise value to earnings multiple to 3.5x from 4.0x to be in line with the median average for the global coal sector. Overall, this results in the broker’s target falling -2% to $8.90 from $9.10.

On FNArena’s consensus forecasts, derived from the daily monitored brokers, the shares offer dividend yields of respectively 3.4% and 3.8% for FY25 (running, halfway through) and FY26.

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