Bad weather, covid and higher costs rain on Whitehaven's parade

Fri 21 Jan 22, 12:20pm (AEDT)

Key Points

  • Covid's impact on workforce availability also weighs on production output
  • Coal prices remain bullish, heading towards October record highs of US$270/t
  • Heavy rains & flooding forced Whitehaven to slash FY22 production by around 5%

Weather events, covid and higher costs has put a cap on Whitehaven Coal (ASX: WHC) production and ability to capture bullish coal prices. The company’s stock fell as much as -10% as the market opened. 

Whitehaven expects managed ROM (run of mine) coal production for FY22 to be between 19m to 20.5m tonnes, down around -5% from its previous guidance of 20m to 21.5m tonnes. 

Cost of production is on the rise, slated to be between $79-84/t, from $72-76/t.

Covid related absenteeism contributed to a $1-2/t  rise in costs, flooding impacts in the first half added $2/t, increased demurrage costs $2/t and higher diesel prices $3/t. 

Pricing tailwinds 

Whitehaven reported Newcastle coal prices of US$184/t for the December quarter, up 274% compared to a year ago. 

Whitehaven achieved an average price of $211/t during the quarter, up 144% against the previous period.

Encouragingly, current Newcastle coal prices have continued to march north, trading around US$266/t.

2022-01-21 11 27 21-Coal 2022 Data 2023 Forecast 2008-2021 Historical Price Quote Chart

Newcastle coal futures, TradingEconomics

Prices have been buoyed by strong global demand and tight coal supply in Asia. Earlier this year, Indonesia, the world’s largest exporter of thermal coal, introduced a ban on coal shipments after local power companies reported low coal stocks at domestic power plants. 

Commenting on the pricing environment, Managing Director and CEO Paul Flynn said: 

“Coal prices continued at attractive levels through the December quarter and remain well supported for the near future given strong underlying demand and persistent supply-side disruptions.”

Flynn also expects the business to repay its senior debt facility in February, with the business to be in a net cash position by March. 

The company had $688m in drawn senior debt facilities as at 30 June 2021.

What brokers think 

Seven major brokers cover Whitehaven Coal. 

The consensus is a Strong Buy rating with a $3.85 price target. 

The highest and lowest price targets were: 

  • Credit Suisse - Outperform rating with a $4.50 price target 

  • Citi - Buy rating with a $3.20 price target 

Brokers held a positive view on coal prices heading into 2022, backed by a recovery in global power demand and supply side issues.

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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