Commodities | 10:00 AM
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).
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