TerraCom puts a 10% dividend on the table, coal prices to remain buoyant

TerraCom (ASX: TER) declared a 10 cents per share, fully franked dividend on Thursday, reflecting a massive uplift in FY22 earnings and buoyant coal prices.

"This is an excellent return for shareholders and represents a dividend yield in excess of 25% for the half year, based on the current share price," said Non-Executive Chairman Graeme Campbell.

TerraCom shares opened at 92.5 cents on Thursday, which means the dividend will yield approximately 10.8%. The stock will trade ex-dividend on Thursday, 24 November.

TerraCom at a glance

TerraCom posted $147.4m in profits for FY22 compared to a -$59.5m loss in FY21. An unsurprising turnaround given the sharp increase in thermal coal prices.

TerraCom operates five coal assets across Australia and South Africa.

Australian assets produced 2,781 tonnes of coal or 22% of Group production. While South African assets produced 9,812 tonnes or 78%.

With production weighted towards South Africa, it means that TerraCom not been as hard hit by adverse weather conditions across the east coast. Unlike household ASX-listed like Whitehaven Coal (ASX: WHC) and New Hope (ASX: NHC).

Coal outlook

"Whilst export thermal coal prices have recently softened from the record highs experienced during Q4 FY22 and Q1 FY23, the demand for thermal coal continues to increase globally, which is driving Calendar Year 2023 average pricing to levels in excess of US$275 per tonne," TerraCom said in a statement.

Newcastle coal futures (Source: TradingView)

Separately, Macquarie said they expect coal prices to move 'towards a lower range over the course of next year' but still high compared to historical levels.

"However, looking into the next year, we see plenty of reasons to be cyclically constructive on thermal coal," the analysts said in a note last week, point to factors such as the looming important ban for Russian coal and gas imports, constrained seaborne supply and potential restocking demand for the next cycle.

TerraCom share price chart