Yancoal (ASX: YAL) established itself as a standout dividend stock between 2022 and 2023, delivering yields of over 20% thanks to its position as a high-volume, low-cost coal producer.
However, the company shook investor confidence during August 2024 reporting season with an unexpected announcement: "The Board has not declared an interim dividend in respect of the six months ended 30 June 2024, with the retained cash providing flexibility for potential corporate initiatives and may be distributed in the future if not."
The market's reaction was severe, with Yancoal shares plunging 14.5% on the day of the result (20-Aug) and down another 11.4% over the next seven trading sessions.
However, recent developments suggest the company might be making a return to its roots.
Yancoal issued its December quarter report after the market closed on Monday. Key highlights for the quarter include:
Average realised coal price of $176 a tonne, up 3.5% quarter-on-quarter but down 10.2% year-on-year
Attributable ROM coal production of 17.3Mt
Attributable coal sales of 10.4Mt
Cash balance up $480 million to $2.46 billion
Achieved 2024 saleable production guidance of 35-39Mt (36.9Mt achieved)
2024 cash operating costs to be around the mid-range of $89-97 a tonne guidance
2024 CAPEX to be in the lower half of the $650-800 million range
More importantly, acting CEO Ning Yue said "We have the financial capacity to pursue corporate initiatives and make distributions to shareholders. We will be in a position to comment further on dividends after the Board meets in February to approve the 2024 Financial Results."
While Mr Yue did not explicitly confirm the resumption of dividends, several signs point to a potential return of shareholder payments.
Yancoal has been eyeing opportunities similar to its successful 2017 acquisition of Rio Tinto's thermal coal mines. This, if executed, would significantly improve its production profile.
But that's easier said than done. Yancoal has failed to acquire a new coal mine since expressing its interest in August 2024. A few key drivers include:
Market conditions: Thermal coal prices have tumbled more than 20% in the past five months to US$115 a tonne, making it difficult to value projects or meet a seller's price expectations.
Competition: Yancoal isn't the only cashed-up miner on the lookout for a new project. Other potential buyers included mining juggernaut Glencore, Stanmore Resources, Indonesia's Widjaja family and an Indian consortium led by AvidSys Group.
Regulatory hurdles: Any significant acquisition by Yancoal would likely require approval from Australia's Foreign Investment Review Board (FIRB). This may prove difficult to obtain given the company's Chinese ownership.
Since August 2024, Yancoal's cash position has soared from $1.55 billion to $2.46 billion. To add some perspective, the company had a market cap of $7.8 billion as of Monday, 20 January 2025. This means its cash position makes up almost a third of its market cap!
With an ever-growing cash position and challenging M&A conditions, surely we'll see a dividend announcement come February reporting season. The market seems to agree. Yancoal shares opened 5.3% higher on Tuesday to $6.26 and rallied as much as 9.6% in early trade.
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