WHC Whitehaven Coal

[donnie]

Whitehaven Coal could prove to be a very good long term hold, with some good directors on board according to this news article. Its price has risen over a dollar since listing.

Gunnedah coal float draws the big names

Jamie Freed
May 23, 2007

SOME of the biggest names in the Australian coal industry have teamed up to float ambitious Gunnedah Basin miner Whitehaven Coal.

Although the oversubscribed prospectus sought only $1.9 million, high-profile coalminers such as former Excel Coal managing director Tony Haggarty and AMCI founder Hans Mende had already poured in millions of their own money. Whitehaven recently raised another $24 million from institutions ahead of the expected float.

The board, which also includes Toll Holdings chief financial officer Neil Chatfield, EnergyAustralia chairman John Conde and former Excel executive director Andy Plummer, hardly lacks access to funding.

Mr Haggarty received more than $95 million last year from selling his Excel holding after US coalminer Peabody Energy bought the company for $2.04 billion. In March, AMCI sold some of its Australian mines to Brazil's CVRD for $835 million.

Mr Haggarty and Mr Plummer invested $15 million in Whitehaven earlier this year, and have 44 million options exercisable at $1 if the company's share price surpasses hurdles ranging between $2.50 and $5.

Whitehaven managing director Keith Ross, the former head of AMCI Australia, said the decision to go public was for strategic reasons rather than concerns over financing in the near-term.

"We have a fairly active growth plan," he said. "We want the flexibility which comes with being a public company."

Based on its $1 offering price, Whitehaven would have a market value of $323 million upon listing.

It expects to sell 1.6 million tonnes of coal from its three operating mines this year, but its expansion plans could see it selling 10 million tonnes a year by 2011. It has been profitable every year since it started production in 2001.

Directors and management will control 86 per cent of the shares

[AMR]

Having more than doubled since September, I'm surprised no one here is interested.

Would anyone be able to give a link to future financial projections? I can't find anything past 2009.

[mark100]

WHC is my pick of the listed coal producers. The further sell down of Narraibri last week reduced some of the development risk as well.

Would be interested to hear any other views

[Huang Chung]

Hi Mark

I had a look at Whitehaven briefly a couple of months back. I seem to recall they have some hedging positions that are doing them no favours. Slowly unwinding, with the emphasis on 'slowly'.

H.C.

[mark100]

HC did you see the annoucement this week where they have reduced some of the near term fixed price contracts in exchange for offering a discount to market on pricing post 2012?

This has a significant positive impact on WHC's near term earnings and longer term when the Narrabri mine is bought on line the negative impact is reduced because the portion of overall coal production that is being sold at a fixed price is greatly reduced (if you can get what I'm trying top say here)

Going on Wilson HTM's numbers the affect in 2009 and 2010 of the pricing restructure increases EPS in 2009 from 44c to 56c and in 2010 from 40c to 56c. They haven't provided 2011 numbers but that year will see a big jump because that is the first full year of Narrabri production.

Also last week WHC sold a further 15% of the Narrabri project for $245m, implying a value for Narrabri of $1633m. They now own 77.5% of Narrabri which imples a value to WHC of $1265m. Adding on the $245m WHC will receive gives a 'value' of $1510m.

As a comparison, WHC's market cap is currently $1510m with net debt of around $30m, giving an Enterprise value of $1540m. In other words, the market is only valuing all of WHC's other assets at $30m despite the fact that WHC is forecast to earn $214m next year from these assets!

The Wilson HTM analyst (who I rate quite highly) has an unrisked valuation of $7.30 for WHC and a risked valuation of $6.40. It is harder to initially see this value in WHC compared with some other coal miners because most of the WHC value is in Narrabri which doesn't fully come on line until 2011.

[Huang Chung]

HC did you see the annoucement this week where they have reduced some of the near term fixed price contracts in exchange for offering a discount to market on pricing post 2012?

This has a significant positive impact on WHC's near term earnings and longer term when the Narrabri mine is bought on line the negative impact is reduced because the portion of overall coal production that is being sold at a fixed price is greatly reduced (if you can get what I'm trying top say here)

Going on Wilson HTM's numbers the affect in 2009 and 2010 of the pricing restructure increases EPS in 2009 from 44c to 56c and in 2010 from 40c to 56c. They haven't provided 2011 numbers but that year will see a big jump because that is the first full year of Narrabri production.

Also last week WHC sold a further 15% of the Narrabri project for $245m, implying a value for Narrabri of $1633m. They now own 77.5% of Narrabri which imples a value to WHC of $1265m. Adding on the $245m WHC will receive gives a 'value' of $1510m.

As a comparison, WHC's market cap is currently $1510m with net debt of around $30m, giving an Enterprise value of $1540m. In other words, the market is only valuing all of WHC's other assets at $30m despite the fact that WHC is forecast to earn $214m next year from these assets!

The Wilson HTM analyst (who I rate quite highly) has an unrisked valuation of $7.30 for WHC and a risked valuation of $6.40. It is harder to initially see this value in WHC compared with some other coal miners because most of the WHC value is in Narrabri which doesn't fully come on line until 2011.

No, I didn't see this news, (and, by the way, a very nice summary Mark).

Sounds like it's worth another look.

Cheers mate.

[SEC]

I remain surprised how WHC seems to demand a price premium wrt its peers. Prior to the hedge book restructure WHC was trading at 09PE of 12 based on consensus eps estimates (ie *not* an estimate based on one broker who may have an overly optimistic or pessimistic views on a co's performance). This compares with 10 for FLX (which has a speculation premium built into its price) and 6 - 8 for the likes of CEY, MCC and GCL.

If Wilson HTM are accurate in its eps revaluation it adds 12cps to estimates and brings consensus 09PE down to 9, still a premium to its peers.

Yes I know WHC is planning to bring a large amount of extra production online by 2012 that may justify its premium, but based on history I argue otherwise.
1. WHC is about 80% owned by directors - very tightly held, low liquidity. Such companies usually trade at a discount to the market, not a premium.
2. Large coal mine expansion plans are fraught with risk. Almost all listed co's that are bringing coal mines online in Australia in the past few years have reported production delays and cost blowouts. WHC has extra risk in that rail and port infrastructure are constrained and they are assuming all this will be fixed on time by 2012.
3. When EXL was listed it had a similar profile to WHC - tightly held, similar coal grades and similar expansion plans. It never traded at a premium to its peers.
4. I suspect WHC is a high cost producer along the lines of GCL; WHC do not provide any information on mine production costs. WHC struggled to generate any operating cashflow in the past 18 months.

Conclusion - WHC definitely has good potential but this potential does not warrant its price premium. Fair value wrt its peers would see WHC trading nearer $3 than $4 at the moment.

SEC

[mark100]

Fair enough comments SEC. On the EPS numbers from Wilsons I was simply pointing out the effect that the hedge book restructure had. Most of the other brokers haven't incorporated this information yet into their forecasts.

Your right about the risks of Narrabri coming on stream on time and budget. I am under the impression that WHC will look to further de-risk by selling down their interest further as time progresses. They have already moved from 100% to 77.5% over the past 9 months or so and you can't argue that the price they received for the last 15% was very impressive and implies a value to WHC very close to WHC's current market cap. I also note much of FLX's value is in Moolarben which hasn't even started construction yet.

EXL might not have traded at a premium but Peabody liked the look of it and some of the EXL guys are backing WHC. History has shown that foreign predators have been more than willing to value future expansion plans more highly than Australian investors.

I don't hold WHC at this stage and I take your comments on board SEC. I'm actually looking for a sub $3.50 price for an entry.

[SEC]

Fair enough comments SEC. On the EPS numbers from Wilsons I was simply pointing out the effect that the hedge book restructure had. Most of the other brokers haven't incorporated this information yet into their forecasts.

Your right about the risks of Narrabri coming on stream on time and budget. I am under the impression that WHC will look to further de-risk by selling down their interest further as time progresses. They have already moved from 100% to 77.5% over the past 9 months or so and you can't argue that the price they received for the last 15% was very impressive and implies a value to WHC very close to WHC's current market cap. I also note much of FLX's value is in Moolarben which hasn't even started construction yet.

EXL might not have traded at a premium but Peabody liked the look of it and some of the EXL guys are backing WHC. History has shown that foreign predators have been more than willing to value future expansion plans more highly than Australian investors.

I don't hold WHC at this stage and I take your comments on board SEC. I'm actually looking for a sub $3.50 price for an entry.

Looks as if WHC got a very good price for the 15% selldown since they got less than quarter the amount for a 7.5% selldown just 5 months prior, when WHC's price was similar to what it is now.

I have no problem in a miner selling down its stake in a development (to fund working capital etc), but having multiple stakeholders may reduce the company's appeal to predators. In this regard EXL was the opposite to WHC, it kept upping its stakes in mine developments to the point it got too appealing and the EXL dierectors sold out too cheap. The ex EXL directors may be wanting to avoid that mistake again...

As for Moolarben, it ain't starting for a while yet!

SEC

[mark100]

Well I got my sub $3.50 entry, it was $2.20 today. Looking for a bounce from here but will kill it off if the slide continues next week

[soulman]

Well I got my sub $3.50 entry, it was $2.20 today. Looking for a bounce from here but will kill it off if the slide continues next week

Tough one Mark. If there is a bounce, it will only go to about the early $3's. Commodity prices will have to improve too. I might punt on FLX in the short term but sure glad I pulled the plug on MCC at $13 after they announce an awful result in August. FLX got T/O potential but MCC seems to be a killer for POSCO and ArcelorMittel.

[Huang Chung]

Interestingly, New Hope was appreciably higher today.

[SEC]

Tough one Mark. If there is a bounce, it will only go to about the early $3's. Commodity prices will have to improve too. I might punt on FLX in the short term but sure glad I pulled the plug on MCC at $13 after they announce an awful result in August. FLX got T/O potential but MCC seems to be a killer for POSCO and ArcelorMittel.


Despite WHC's fall it is still trading at a premium to its peers, 09PE of 6 compared to peer group 4 - 5. Agree WHC is now cheap but the lack of liquidity sh*ts me, trying to trade $100K would definitely move the market unless you drip feed it in/out over 2 - 3 days, a risky proposition in the current extreme volatility.

Soulman I would be very wary of trading FLX, there is a 80 - 100% takeover premium already loaded into its price, if takeover talks fall over (quite possible in this current environment) FLX will plummet to as low as $8.

SEC

[mark100]

Soulman, I agree with SEC re FLX. There is a big takeover premium in FLX. I'm not looking for the WHC share price to reach $3 in the short term, just a small bounce trade thats all.

HC, I picked up a few NHC early in the week and sold into the bounce. Not sure why it was so strong yesterday although it certainly is the lowest risk coal play right now with all its cash sloshing around

SEC I remain less than 6% invested at the moment. I'm certainly not punting $100k on any one stock in the current environment and am only scalping at present. Maybe late this year/early next year I will start loading up. While WHC is at a premium based on FY09 PE looking at the multiples on a EV/Reserve basis, WHC trades at just 28-58% the multiples of FLX, MCC and GCL and that is before I take into account WHC's larger relative fall yesterday. Obviously WHC has more development risk than the others

[mark100]

The attached file gives a good summary of the coal players and their reserves/resources, see back pages

[soulman]

Alrighty, thanks for the advice boys. I think I will stayed out of the resources .

Glad I didn't took the bait for MGX or FLX last week and today. Resources shares now, producer or non-producer are being hammered. Interesting times ahead. And RIO boss still not happy with the T/O from BHP. I supposed if you said no when your share price is $150 then you must defend yourself and said no again when they are now $85.

[mark100]

I sold WHC on open. Another big down day although I think the coalers have become good value, particularly the thermal coal producers

[winner69]

That Tinkler fellow seems a bit off a rogue if the carry on with his horses is anything to go by

Seems his only mate at the moment is Gerry Harvey

[winner69]

Tinkler fails to front up and shareprice tumbles

Any speculators out there willing to punt this one

[Stranger_Danger]

No.

No interest in going anywhere near Tinkler.

[macduffy]

Tinkler fails to front up and shareprice tumbles

Any speculators out there willing to punt this one

Must admit I'm tempted. WHC at 3 year lows and although coal is down it's still in demand and being sold. Leaving Tinkler out of the equation WHC starts to look attractive in its own right?

[mark100]

Tinkler has used his WHC stake as security against margin loans and we know he must be a bit short of liquid funds at present. The hedge funds might short WHC to see if Tinkler loses his stake. That would be a great pay day for the shorters and a good time to buy!

[nztx]

It looks like WHC are going to pull a Big one out of the bag

https://stockhead.com.au/resources/ground-breakers-whitehaven-earnings-are-just-staggering


High energy prices have seen Whitehaven’s unaudited EBITDA climb from $200 million in FY21 to $3 billion in FY22



The ASX’s most watched pure play coal stockWhitehaven Coal (ASX:WHC) is poised to bag a 15 times rise in earnings for FY22 to $3 billion as coal prices exploded in the June quarter.

Whitehaven charged through the June quarter, upping ROM coal production by 21% to 6.36Mt, saleable coal production by 12% to 5.066Mt and managed coal sales by 19% to 5.543Mt quarter on quarter to hit financial year guidance with 20Mt of ROM production and 17.6Mt of managed coal sales at unit costs of US$84/t.

But it is the prices Whitehaven pulled that really made its quarterly results stand out today, sending the New South Wales thermal coal producer’s shares soaring.

Whitehaven raked in $514/t on average in the three months to June 30, US$370/t for thermal coal, 84% of its sales mix, and US$334/t for metallurgical coal.

[pedro.nz]

14199
:t_up:

[nztx]

14199
:t_up:


New Hope Corporation (NHC) shows a similar trend :)

Another 3 weeks before the Au 56c div goes Ex

Not bad on $6.29 Fri SP close, with no end in sight for coal demand

[pedro.nz]

New Hope Corporation (NHC) shows a similar trend :)

Another 3 weeks before the Au 56c div goes Ex

Not bad on $6.29 Fri SP close, with no end in sight for coal demand


Another good week for both WHC and NHC :)

[JBmurc]

Another good week for both WHC and NHC :)

And horror for AHQ (my coal holding av. 11.8c) sold 664k for 48% realised loss at 6.2c friday purchased 250k rights and i see today I got another 1.049mill free rights .. will exercise 5c rights and then get 1 free option per 2 shares held early NOV will give me more than twice my old holding with free opts... hope to make back those losses and some if the new MD can turn around AHQ USA Coal operations 2023>>>>

[JBmurc]

https://www.mining.com/coal-price-renaissance-how-long-can-it-last/
Over the last year and a half, the renaissance of coal – both kinds – has been gobsmacking.


No one saw coal prices of $400 to $600 per tonne coming, including those in the coal industry.

SIGN UP FOR THE ENERGY DIGEST

“If, a year ago, fifteen months ago, you had said to people thermal coal could be $440, and coking coal could be $600, they’d call the ambulance and recommend a nice doctor,” Neil Bristow, managing director of H&W worldwide Consulting, said Thursday at a recent Coal Association of Canada conference.

“Who would believe it?”