I opened a position in New Hope (my first ever direct exposure to a coal company) at $3.80 over the week too, though I have plenty of room to add still. Hopefully prices stay compelling for a while yet - there is certainly asymmetric upside optionality here.

@Bear77 I wonder where we are relatively in terms of sentiment around coal mining. I’m actually feeling it may have peaked a while ago. Around the time there were protests in the Sydney CBD. Perhaps Bitcoin and AI changed our view as much of the world requires more and more coal to power them.

I also think about the fact that, “dirty industries” can have really long tails. And in the end the weight of earnings matter more than anything else. For example, with all the negative sentiment around cigarettes in recent decades, Philip Morris (PM) has continued to make great returns for shareholders. Pretty remarkable when you think about it, especially if you count dividends.

That's a decent example @PhilO of a hated industry for sure, however Philip Morris did manage to pivot their business model into "quit smoking" and "smoke-free" products some years ago, so, for example, as of the second quarter of 2025 (which would be the June quarter for them), Philip Morris International's smoke-free products, such as heated tobacco and e-vapor, generated 41% of its total global net revenue. The company's goal is to have smoke-free products account for over two-thirds of its revenue by 2030. See here: https://www.pmi.com/our-progress/why-is-philip-morris-international-still-selling-cigarettes

I don't think thermal coal companies have that sort of optionality. They can move more into met coal instead of energy/thermal coal, but that is entirely dependent on the type of coal they have in the ground they own - mining companies can't pivot nearly so easily as a company like PM can.

That said, I understand your point about thermal-coal-pessimism peaking, perhaps already. My point though is that while the negativity towards thermal coal might wax and wane (get better or worse) over time, it's not going to completely evaporate - so there's always going to be a certain level of negative sentiment around a commodity where the use case does increase global warming and the associated increase in extreme weather events that flow from that, as well as the environmental harm to ecosystems - flora and fauna. That's just the science of it. The reality is that there's going to be a long tail, sure, but will a company like NHC ever be simply valued on its cashflow and cash returned to shareholders in the same way as a company that does not have that same level of negativity associated with it? I don't think so.

So I agree that there's money to be made in oversold companies much of the time, but I still don't think it's a good idea to value a thermal coal company in the same way that you value a non-thermal coal company that doesn't have that negative sentiment. There could still be significant value today in buying NHC at current prices; I'm just saying that if I was to invest in NHC (and I won't be, but if I was) - I would be demanding a greater discount to intrinsic value because I would not ever expect NHC to trade at intrinsic value in future years, and I am also aware that the "dirty coal" discount could increase - as well as decrease - but it will likely always be there.

I own NHC and WHSP (as it has recently become!).

It’s a great discussion @Bear77 @DrPete @Clio

I have made the comparison to tobacco companies in previous posts and was rightly corrected by @Solvetheriddle that this is superficial at best

NHC remains primarily a Thermal coal company. Met coal is a minor component.

However, it has “cleaner” thermal coal than its peers. That is a relative term, and I’m not defending thermal coal at all. But it MAY have a small moat on the thermal coal market based on that. Currently, not so much, green agendas have definitely become less fashionable.

I agree with @Bear77 that it will always trade at a discount relative to other miners, there is unlikely to be a multiple re-rate

The reason I hold is the a) the projected energy needs of the developing world, and b) the number of recently commissioned coal fired energy plants. These have predictable lives, and the graphs are not going significantly down for demand for thermal coal in the near future. Coal mine production in Indo remains the biggest risk. If government policy swings heavily to this, I would exit. In 5 years things might change but I remain somewhat dubious of the predictions:

So whilst significant capital gains are unlikely, total returns will probably remain robust just due to the cash returns to shareholders.

The big risk is that management decide to do something else with all the cash. This may not be a small risk.

Hi @Bear77. I agree with you that it's unwise to assume a significant upward sentiment trend. I think the PE effectively captures that sentiment. With my valuation, I've assumed an ongoing PE of 7 for each of my bull, bear and base cases. This is a fraction below the current level around 8. 7 is roughly the historical average over the last 10 years. I think there's a small trend that when the coal price and share price spikes, the PE falls a tad below, or conversely tends to be slightly above this average when coal price and share price is low.

Great discussion from all, thanks.

NHC is my largest investment but now my 4th largest holding. Ie I bought for dividend yield not growth and other holdings have overtaken it in size.

I note The Intelligent Investor is currently looking for questions for an upcoming Podcast where John Addis will grill Gaurav on NHC. Should be a cracker.. I’m sure a few SM members will be watching when that comes out.

I’m a huge fan of Gaurav’s.. never met the bloke but I have a Custom GPT which just tracks when Gaurav talks in the media. You could do much worse than just follow what Gaurav does.

Cheers

JM

Nice chart @Chagsy . The red supply line is interesting. I wonder how cost effectively that new supply will actually come on. With coal prices swinging around, a competitor would have to be confident they could stay profitable even at the low points in the cycle, especially if new infrastructure is needed to move it.

New Hope’s low-cost setup and flexible operations give them a good buffer. They can scale up or down without too much friction. Whitehaven perhaps shares some of those advantages but with more locked-in, less flexible fixed costs.

I was just looking at how dependent the Australian economy still is on coal exports; something I hadn’t really appreciated. Between Glencore, BHP, Whitehaven, Yancoal and a handful of others (including New Hope, which is relatively small in the scheme of things), coal remains Australia’s second largest export, generating close to $100 billion a year. Of that, thermal coal alone accounts for about $40 billion, roughly comparable to our entire defence budget. It’s easy to see why both state and federal governments tread carefully when it comes to imposing new constraints on the industry, which had been my main concern around policy risk. Perhaps the biggest risk is that state governments tax super profits like they did when Newcastle Futures were around $400 US per tonne, reducing the possible upside potential a little. And its obvious new mines are likely off the table given what New Hope had to go through to get its New Ackland expansion off the ground.

I just finished listening to TII's Deep Dive on New Hope Coal (NHC) and it’s very good. I asked Chatty to summarise it but try be as funny as me..

The deep dive is part investing wisdom, part stand-up comedy for anyone who’s ever thought a spreadsheet could predict the future.

The big takeaway? Never, ever build your investment case around a commodity price. Gaurav reckons that’s not investing — that’s fortune-telling with macros. He admits he used to do it himself: massive spreadsheets, four tabs, dozens of inputs, all beautifully wrong.

Instead, his focus these days is on businesses that can survive the cycle, not guess it. That’s why he loves New Hope — it’s cheap to run, well managed, and has a history of doing the smart thing when everyone else is losing their head. Remember when they sat on $2 billion in cash for six years before buying Bengalla? That patience alone deserves a medal (or at least a dividend).

And here’s the kicker — New Hope basically pays royalties to itself. Because its Queensland assets sit on freehold land bought before 1920, they actually own the coal in the ground. So under the QLD royalty system, instead of sending big cheques to the government like everyone else, they’re effectively cutting a cheque from one pocket to the other. Only in Australia could a miner dig up coal, sell it, and then pay themselves the tax bill.

The funniest part of the deep dive is where Gaurav compares mining royalty system to basically taxing retailers at Christmas — miners slog through years of dull Decembers, and the minute Santa shows up, Treasury takes the presents.

As for predicting coal prices? Forget it. Gaurav’s rule of thumb: “Anyone who claims to know where coal’s going next should be selling tickets at the circus, not running money.”

All up, it’s a great listen and a good reminder that in resources, it’s not about guessing the cycle — it’s about surviving it.

Cheers

JM & Chatty

I benefited from that discussion. I think II’s logic is more about predicting where coal prices are not likely to go rather than where they’re going. For instance if current share price makes sense at around today’s coal price and friction exists against the coal price going too much lower, along with the possibility (not certainty) it can go up a lot, we’re in a good place.

Regarding the tax on super profit, yes the retail example is a great one. Unfortunately I don’t think this is something that will be broadly understood by the public and by extension considered by politicians trying to win favour with voters who just want corporates to pay up. It’s almost more favourable for the coal price to remain within reasonable bounds than for it to shoot up and draw the attention it did at $400 USD a tonne.