Are coal miners a defensive, high yield play fit for a volatile market?

Thu 28 Apr 22, 12:18pm (AEDT)
A close up photo of coal fragments heaped together
Source: iStock

Key Points

  • Coal prices are hovering around record levels amid constrained supply
  • ASX-listed coal majors will handily generate more than 30% free cashflow yield in FY22
  • Will a special dividend be on the cards? More buybacks?

Coal miners are printing cash amid a sustained period of record spot prices.

Coal majors like Yancoal (ASX: YAL), Whitehaven (ASX: WHC) and New Hope Corp (ASX: NHC) are among the few stocks continuing to push higher amid a volatile and fragile market.

What's the appeal?

Bullish coal prices

Coal prices advanced to record levels in the March quarter and remain elevated in an environment of strong demand and constrained supply.

2022-04-28 11 25 58-Coal - 2022 Data - 2008-2021 Historical - 2023 Forecast - Price - Quote - Chart
Coal prices 10-years (Source: TradingEconomics)

In the context of coal miners:

  • Yancoal

    • Average realised coal price was $258/t in the March quarter, up 23% compared to the December quarter 

  • Whitehaven

    • Average coal price of $315/t in the March quarter, up 54% compared to first-half FY22 and up 212% compared to last year

  • New Hope

    • Average sales price was $192.4/t at 31 January 2022, up 147% compared to last year

Whitehaven expects both thermal and metallurgical coal prices to be "well supported" over the next 12-24 months, reflective of significant global supply constraints and limited new production coming to market.

Notable drivers include wet weather in Australia and Canada, logistical supply disruptions in South Africa, reduced production in Colombia and an export ban in Indonesia.

Russian coal supply could also potentially be excluded from international markets, which total roughly 110m tonnes of high calorific value (CV) seaborne coal (29% of global high CV supply).

Massive cashflow and dividends, potential buybacks

Whitehaven and New Hope have undergone a massive swing from a respective $823m and $265m debt a year ago, to being completely debt free.

These businesses will handily generate more than 30% free cashflow yield in FY22. In the last three quarters alone, Whitehaven generated $1.28bn cash, or approximately 27% of its market cap.

Recent dividend payments:

  • Yancoal

    • 70.4 cent final dividend in March (13.5% yield based off closing price the day before going ex-dividend)

  • Whitehaven

    • 8 cent interim dividend in February (2.5% yield)

    • Plus a $67m share buyback

  • New Hope

    • 30 cent interim dividend in April (8.04% yield)

Sitting at historically high levels of cash, what will the companies do to return value back to shareholders? A special dividend? More buybacks?

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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