The Russian-driven price boom continues to be enjoyed by Whitehaven Coal, the country’s biggest locally owned coalminer, which on Wednesday saw its shares hit new multi-year highs off the back of an upbeat March quarterly production and sales report.
The shares started at $4.94, the highest they have been since 2018 but instead of going on, then fell back to bottom out at $4.63 before another bounce of 3% to close at $4.80.
It was a rather tortuous market reaction to what was a very solid quarterly update.
The opening price was a 6% jump on Tuesday’s closing price of $4.66 and the sudden turnabout was a bit perplexing since the company had good news on production, sales and pricing – especially the latter.
Whitehaven revealed a record average coal price for the quarter at $US315 a tonne, up from $US101 in the prior corresponding period of the March, 2021 quarter and $US204 over the first half of 2021-22.
The company said that in the present quarter “further upside in realised pricing is expected as the March quarter realised price was at a 13% discount to the Newcastle index price of US$264 a tonne (it was a 15% discount in the December quarter) reflecting the rapid escalation of the index and associated lag due to the index price mechanisms and shipping queues.”
Whitehaven said metallurgical coal prices are also rising with the Japanese soft coking benchmark price for Australian coal jumping to $US275 a tonne for the March quarter from $US218 a tonne in the December quarter.
The company revealed that even after paying out $80 million in dividends and spending $67 million on its current buyback during the March quarter, the coal producer had a net cash position of $161 million as of Tuesday, April 19.
Despite being hit to a degree by wet weather, labour shortages (because of Covid) and logistics problems in the Hunter Valley, the company says it is on track to deliver its 2021-22 production guidance. Whitehaven noted that rising case numbers during the quarter meant more workers had to self-isolate.
Whitehaven said its run-of-mine production of 5.2 million tonnes was up 62% from the December quarter but down 5% on the March quarter of 2021.
Saleable coal production was 4.5 million tonnes, up 50% on the December quarter and up 5% on a year ago while managed coal stocks of 2.1 million tonnes at the end of March were steady from the end of December.
For the current 4th quarter, Whitehaven said it expected to increase its run of mine production to between 5.4 and 6.9 million tonnes (relative to 5.4 million tonnes in the final quarter of 2020-21 and the 5.2 million tonnes produced in the just completed quarter.
It said the Maules Creek and Narrabri mines should contribute significantly to the lift in ROM production.
“Confidence in delivering a strong Q4 production result is underpinned by an expected strong final quarter from Maules Creek (in line with previous June quarters) and the improving production rate being achieved at Narrabri (which we have seen during February, March and April),” Whitehaven said in the report.
But the company like so many other businesses, especially miners (such as Rio Tinto in its report yesterday) warned of rising cost pressures.
“Due to the impacts of higher diesel prices, higher labour costs including COVID related absenteeism, and increased demurrage costs as a result of weather impacts at the Port of Newcastle and coal supply disruptions, we expect the cost of coal to be toward the upper end of the unit cost guidance range,” Whitehaven said.
“For Whitehaven, the Gunnedah Basin was spared the extensive rainfall experienced in coastal areas during February and March, however, rain did cause intermittent production disruptions at the open cut mines.
“The impacts of the coastal rainfall events on Whitehaven was limited to short periods of rail disruption and some disruption to planned shipping movements at the Port of Newcastle due to high seas and ‘freshwater’ conditions in the harbour.
“As COVID cases rose in the quarter throughout NSW there was an increase in the number of Whitehaven workers self- isolating. Previous COVID-related border restrictions, combined with workers self-isolating, continued to contribute to labour shortages,” the company said.
CEO Paul Flynn was upbeat about the outlook for prices in the report “Coal prices increased to record levels during the March quarter and remain very well supported in an environment of strong demand and constrained supply.
Whitehaven also revealed that there is more coal at its Winchester South prospect in Queensland’s Bowen Basin than originally thought, with JORC Reserves upgraded from 350 million to 380 million and JORC Proved Reserves upgraded from 140 million to 270 million (which is what the company will base its development plan on, if it can get the finance).
The open cut mine is expected to have 20 years or more of life. The company has a raw coal production target of 15 million tonnes a year.
It is 100% owned by Whitehaven which says the mine “continues to progress through the Queensland Government’s Coordinated Project approval process”.
