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

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.

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.