Newcastle thermal coal futures rallied past US$400 a tonne, with flooding in parts of NSW further exacerbating tight supply side conditions.
The key rail line that connects coal miners to the Port of Newcastle - the world’s biggest coal export port - was shut last Tuesday, and will remain closed until further assessment, according to Argus Media.
Affected miners include Yancoal’s (ASX: YAL) Moolarben mine and the four Whitehaven owned mines in the Gunnedah Basin.
Coal is one of few commodities left standing after the recent recession-inspired selloff.
A player like Whitehaven achieved average coal prices of A$202 a tonne at margins of 55% in the first-half of FY22.
In the 9 months to March 2022, the company generated $1.28bn cash or approximately 26% of its current market cap.
It wouldn't be surprising to see industry wide headwinds such as weather, labour shortages and cost inflation impact second-half performance, but its difficult to argue that such factors will outweigh the benefit of surging coal prices.
Still, coal miners have historically traded at a relative discount to other miners such as iron ore and copper.
It's difficult to say why that's the case, especially when a name like Whitehaven handily generated almost 30% free cashflow in just 9 months, on top of structural benefits such as European countries returning to coal for power generation.
Perhaps the market and funds are just averse to 'dirty' coal.
New Hope reported $913m in earnings for the 9 months ended April 2022, almost a third of its current $3bn market cap.
Earnings aside, the April quarter was deemed a "challenging" one due to unseasonal rainfall and covid-related staffing issues.
The operational shortcomings outweighed the earnings result, with New Hope shares down -7.8% on the day of the announcement.
It will be interesting to see which narrative - potential operational headwinds or earnings power - triumphs as we head into August reporting season.
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