There was a certain amount of grim realism in yesterday’s annual results of Queensland coal miner and exporter, New Hope (NHC), which is part of the Soul Patts (SOL)/Brickworks (BKW) group of companies.
The slump in the thermal coal market has badly damaged the company’s revenue, earnings and outlook, with directors hoping for a recovery to emerge sometime in the next 18 months or so.
But in the meantime the company has battened down the hatches, will continue mining and exporting coal through Brisbane from its mines in the southeast of the state, and all of this will be backed by the $1.1 billion cash pile it is still sitting on for selling a major coal prospect back to BHP Billiton (BHP) several years ago at the top of the coal market.
The realism was also evident in the sharemarket – the actual after tax result was down more than 20%, but the company is still paying a final dividend by using up some of its cash reserves.
Despite that ‘good’ news, the shares dipped 0.7% to $2.61 yesterday, even after the rebound following the release of a positive report on the Chinese manufacturing sector.
NHC YTD – Coal slump hurts New Hope
That $1.1 billion cash pile could be used if buying opportunities emerge. But judging by the comments accompanying yesterday’s results, there’s not too much optimism.
As well, China’s ban on high ash, high sulphur coal will have to be surmounted as well, not only by New Hope, but by other exporters in Australia and other countries.
The company’s possible areas of interest for expansion are limited – it has ruled out Africa, Indonesia or Mongolia, according to chief executive Shane Stephan.
"We’ll look at North America – as well as Australia," he said, while also assessing prospects in the coking coal market, where the group has no existing mine.
"Our board wants growth and M&A is all about timing – and the times are becoming much better for M&A.
“There are a number of opportunities coming available, and the time is coming when they are looking at their operations and price expectations more realistically,” he told the media.
He says New Hope is optimistic that the changes underway in China which will squeeze out supplies of dirtier coal will be to the advantage of exporters, since it reckons the new regulations will force out unwanted domestic supplies.
Mr Stephan said in yesterday’s statement: “The cyclical downturn in market conditions for Australian coal producers continued throughout FY2014.
"Significant falls in export coal prices, combined with a stubbornly high AUD:USD exchange rate, meant New Hope’s focus remained on the tight control of costs, whilst also steadily advancing Project approvals, to position the Group for growth when market conditions improve.
“New Hope’s strong balance sheet provides the financial strength to not only weather the current downturn, but also to take advantage of these conditions by exploring asset acquisition opportunities at a time when valuations are becoming more compelling," he added.
Revenue fell 15.8% in the year to $548.9 million, and net profit fell to $58.4 million from $74.1 million. The final dividend has been cut to 5.5c (2c final plus a 3.5c special dividend) down from 10c paid a year earlier taking the full year payout to 11.5c, down from 16c paid last year.
New Hope produced 5.6 million tonnes of clean coal during FY2014, lower than the 5.8 million tonnes produced in FY2013 due to the planned cessation of mining at New Oakleigh following the recovery of all economic coal reserves. Combined FY2014 production at New Acland and Jeebropilly was 1.5% higher than in FY2013.
Export sales for the year were 6 million tonnes, which included trade coal sales of 0.3 million tonnes and was equal to the total sales figure for FY2013.
The weakening Aussie dollar could give New Hope (and its peers) a small bonus if it continues to drop, after yesterday’s bounce.
