Bad weather, covid and higher costs rain on Whitehaven's parade
Whitehaven Coal expects lower production at higher costs thanks to bad weather, covid and infla
Mentioned
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.
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.
