The rebound in global coal prices either came too late for Queensland and NSW miner, New Hope Group (NHC) in the 2015-16 financial year, or they passed it by because of the way the company prices its sales (linked to an index rather than spot prices).
In fact the financial results, released yesterday reveal higher losses and a clouded future for the company.
Those higher losses didn’t prevent miner New Hope from continuing to pay a dividend of 4 cents a share for 2015-16 (an interim of 2c a share and a similar sized final) against 6.5c for the 2014-15 year, plus a 3.5 cents a share special payout. Nor, as some media outlets observed, did the losses stop the company from boosting the payout to the chief executive.
The chief executive, Shane Stephan, received $1.4 million in annual remuneration for the year to July up from $1.3 million a year earlier, his second year running the company.
But the results for 2015-16 reveal the company’s net loss jumped to $53.4 million from $21.8 million, largely due to acquisition costs and asset impairment charges.
New Hope last year spent $865 million to buy a 40% stake in the Bengalla coal mine in the Hunter Valley, a steaming coal exporter, backing its optimistic view of the outlook for offshore demand. It holds the stake with Wesfarmers.
New Hope’s mines in Queensland and NSW produce steaming type coal (or thermal coal), which is mostly used to generate electricity, rather than coking coal (hard, which is more expensive and better quality, or soft, which is less expensive and lower quality), which is used to produce steel and which has enjoyed steep price rises in the past two months, thanks to supply disruptions and higher demand from Chinese buyers.
Steaming coal exported through Newcastle has risen by around 50% this year to around $US70 a tonne, while hard coking coal prices have surged to $US190 a tonne for good quality Queensland coking coal. These are spot prices which are one off deals.
Many companies like New Hope price their coal sales on the basisof an accepted price index which is set every quarter. Very few companies depend wholly on spot prices for all their sales.
New Hope said the steaming coal price has risen 40%, but that has left its share price unmoved. New Hope shares fell nearly 4% to $1.50 yesterday, despite some encouraging comments from the New Hope CEO. (The shares are now down more than 18% so far in 2016).
By way of contrast, shares of Whitehaven Coal, a largely NSW-based miner with a new operation at Maule’s Creek, have soared 500% to around $2.50 thanks to rising coking coal production coming as prices rose sharply.
“The recent recovery in coal prices is starting to impact results,” Mr Stephan said yesterday.
"The majority of our coal contracts have prices which are index linked and therefore increases in spot prices do start to flow through to the financial results within months."
The decision of the Chinese government to reduce coal production is the sole reason for the price rise, he said.
Earnings before interest, tax,depreciation and amortisation fell to $81.3 million from $132.8 million.
