NHC: Heads I Win, Tails I Don't Lose Much

Every fund manager in the country is arguing about AI multiples, budget deficits, and whether the RBA cuts in August. Meanwhile, a coal stock with an 80% asymmetric setup is sitting there in plain sight, ignored because it doesn't fit anyone's narrative. New Hope's Q3 just confirmed the earnings trough is behind it: EBITDA up 22% to $130.1m, Bengalla costs down 12% to $74/t, sales up 10%, sustaining capex cut 21%. Nobody noticed because it wasn't an AI semiconductor.

Start with the downside. NHC's FOR cash cost is $60.6/t, bottom quartile globally. At even a terrible coal price of US$100/t, the company generates positive operating cash flow. Available cash is $572m, the converts have been refinanced out to 2032, and production is ramping not declining. A reverse DCF says the current $5.35 share price already assumes coal reverts to US$107-110/t and stays there forever. That's the pre-Hormuz price. So tails: you own a low-cost producer at roughly fair value for a world where nothing good happens. Downside is maybe 10-15% to $4.50. You clip a fully franked dividend while you wait.

Now the upside nobody's paying attention to. The Hormuz disruption has removed roughly 20% of global LNG supply. The IEA estimates Qatari infrastructure damage delays the LNG supply wave by two years. This isn't an oil story. It's a gas-to-coal switching story. JKM is up 51%. Japan, Korea, and Taiwan are buying more thermal coal because LNG is too expensive for baseload power. The gC NEWC 6000 averaged US$127.6/t in Q3, up 16.5%, and spot keeps climbing. If coal sustains US$130/t, fair value is north of $7. At US$150/t it's $9.50+. NHC is simultaneously ramping from 10.5Mt to 13Mt by FY28, so you're growing volumes into higher prices. Heads, you win big.

This setup exists precisely because the market is looking elsewhere. The ASX is consumed by the AI capex cycle, the federal budget fallout, rate expectations, and whether CBA deserves 25x earnings. ESG mandates mean most institutional capital physically cannot buy a thermal coal producer. The analyst community has thinned out coverage. So you have a company trading at trough multiples, with a clear catalyst (LNG supply disruption already in motion), volume growth already underway, and a balance sheet that survives any scenario, and it's invisible to the majority of the market. That's not a risk. That's the edge.

Neither scenario requires heroic assumptions. Tails is "the world goes back to normal." You bought a cheap producer and you're roughly flat. Heads is "LNG stays tight for 12-24 months," which is what the actual supply data supports. You double-dip on price and volume, and the franked yield re-rates to 6-7% grossed up.

So what: the market is pricing NHC as if Hormuz never happened, while simultaneously obsessing over whether Xero is worth 80x earnings. I like setups where the base case is "get my money back" and the bull case is meaningful capital gain plus income. That's NHC right now. Watching Q4 realised prices and the Manning Vale West timeline.

Valuation 25 Feb 2026, fair price $5.00, price at time of writing $4.90

Notes from Quarterly & Prelim 1H Report on 16 Feb 2026

• Overall my forecasts have dropped a little given output in 1H has be constrained and executives described the coal market as "well supplied" and don't see a catalyst for price change.
• This was officially a quarterly update report, although they also provided preliminary 1H results.
• Historically the official 1H report and dividend decision comes out mid Mar; New Hope has an unusual financial year ending in Jul, so half ends Jan, with 1H reporting required before end of Mar.
• Saleable coal production was 2.8mt up 3% on prev quarter and 1H was 5.5mt 0% change on pcp
• Average realised sale price of $139/t compared to $137/t in prev quarter, suggesting the recent downward decline in coal price over last few years has now stabilised.
• High qual coal price (NEWC 6000) was US$110 during Q, 3% increase on prev Q, a 14% decrease on pcp
• Low qual coal price (API-5) was US$78, 9% up on prev Q, 8% down on pcp
• Underlying EBITDA of $107m for quarter (in-line with prev quarter) and $215m for 1H.
• Sig weather events in 4Q25 (May-Jul 25) slowed Bengalla mine in 1HFY26 but expected to return to normal production during 2H26.
• Available cash balance of $617m end of quarter.
• 1H cash flow was $185m, down from $317m in pcp, driven by lower benchmark coal pricing
• About A$33/t
• About 22c cash flow per share; with 80% payout ratio that’s 17c, so perhaps see a repeat of last 15c half year dividend, about 6% annualised dividend fully franked.
• Strengthening of the A$ will be a revenue headwind given only partial hedging.
• FY26 guidance for production and cash cost unchanged, capital expenditure likely $30m less.
• Midpoint of guidance of 10.8mt sales x current $139/t realised price = $1.5b FY26 rev; this is below analyst consensus of $1.6b+; I’m not clear why analysts are thinking either volume or price will come in above guidance given by the company.
• Output guidance from New Hope late CY25 is around 14m ton in FY28 (9% pa), “long term” 15m.
• Pete's additional notes:
• 10-yr avg 2016-2025 NPAT margin 23%, high of 39%, low of -15%; New Hope unlikely to return to a loss, but equally unlikely to reap margins seen during the early Ukraine invasion; if excluding top 2 and bottom 2 years, avg is 18%
• FY26 NPAT margin perhaps 16%; margin should improve with expected increased output even if price stable

Bull case

• Plateaues at 15mt sales, as guided by New Hope, by FY30
• Avg realised price increases 5%/year to hit $170/t
• Gives $2.6b rev
• 30% NPAT/FCF = $800m
• FY30 PE of 8, market cap of $6.3b, share price of $7.50
• With an average dividend yield of 8% along the way, and discounting 10% pa, get a current fair price ~$6.90 and an ROI of 18% with current price at $4.90.

Bear case

• New Hope falls short of guidance and hits only 13mt in FY30
• Avg realised price remains unchanged around $140/t
• Gives ~$1.8b rev
• Margin drifts lower static sale price and increasing operating costs: 15% NPAT/FCF = ~$270m
• FY30 PE of 8, market cap of $2.2b, share price ~$2.50
• With an average dividend yield of 5% along the way, and discounting 10% pa, get a current fair price ~$2.10 and an ROI of -9% with current price at $4.90.

Base case

• Weighing evenly across the bull and bear cases, I estimate a current fair price (using 10% discount rate) around $4.30.
• If I add another 70c per share for their huge cash pile, that gives a fair price around $5.00, not far off the current price of $4.90.
• At current price, looking at around 10% pa ROI. A buy price, if wanting 15% pa, is $4.20.
• I expect a 1H dividend of 15c, matching the last half, giving a running annualised dividend yield around 6% pa (about 8.5% with franking).
• The current forecast doesn’t meet my threshold of 15% pa ROI. However, with current price momentum, and sitting on large unrealised undiscounted CGT, I don’t see a need to rush for the exit. I need to dig into my other under-invested opportunities (in particular, Austco, AI Media, Motio) after recent reporting. If those opportunities look particularly strong I’ll move some of my New Hope funds over.

***ARCHIVED PREVIOUS VALUATIONS***

Valuation 22 Oct 2025, fair price $5.90, price at time of writing $3.80

TLDR

• I’ve dug into New Hope as a result of Gaurav Sodhi at Intelligent Investor putting a Buy on the company, as well as recent supporting posts on Strawman by @Rocket6 and @PhilO.
• I agree with @Bear77’s recent caution about assuming the large dividends will continue to flow from New Hope. But I still see the possible upside being much larger than the risks for New Hope.
• Weighing equally across bull, bear and base cases, I get a current fair price around $5.90 and estimate a 5-year ROI of 19% pa. To achieve a required rate of return of 15% I get a buy price of $4.70 or less.
• At the current price around $3.80, New Hope is a buy for me.

Bull case

• New Hope is widely regarded as a well run company with respected management, a cost base in the lowest quartile of miners, producing high quality coal.
• Two new mines have only recently started contributing revenue, with output expected grow roughly 40% over the next 5 years.
• Expenses and capex are expected to decline in the coming years.
• Coal prices have dropped substantially over the last 3 years, impacting the profitability and viability of many competitors, potentially reducing competition and helping create a floor around coal prices.
• The dividend of 15c in the last half year annualises to a fully franked yield of 7.5%.
• Soul Patts is the major owner with almost 40% of shares. And the Millner family (Robert Millner is Chair of Soul Patts, Robert and Thomas Millner are Directors of New Hope) own another $60m (2%), with ownership increasing in the last year.
• Although forecasting that the percentage contribution of coal to total global energy supply will decline, the International Energy Agency expects that absolute demand for coal in total tonnes will remain relatively stable over the next 20 years. In particular, Asia has a fleet of relatively young low emission coal-fired power stations requiring good quality coal.
• The coal industry has come through a trough of sentiment associated with heightened concerns about ESG and climate change. However, many are predicting that the energy transition will be slower than the market is currently pricing, and negative ESG sentiment is softening.
• The 2022 spike coal price and share price (as a result of a perfect storm of post-Covid recovery and shortages, weather impacts on mines, and the Ukraine war commencing) show the possible extreme upside for coal miners and shareholders.
• Despite a recent drop in coal prices, FY25 was tremendously profitable for New Hope with 24% statutory NPAT.
• New Hope has an exceptional balance sheet with only 11% debt:equity.
• Shares outstanding have changed little, increasing roughly 10% over the last 15 years.
• The PE of 8 is low compared to other industries, and only slightly above a longer-term average around 7 for New Hope.
• Bull case valuation:
• Note: prices in this post are in A$ unless specifically stated as US$.
• Let’s assume New Hope hit their output targets of 14m tonne in FY28 and 15mt in FY30 (40% growth over FY25).
• Say during that time coal prices get back to a recent peak around US$150 ($225) /tonne (25% growth over FY25, and $45/t higher than FY25; this is still way below the Covid/Ukraine peak above $600/t).
• That would be revenue around $1.8b x 1.4 x 1.25 = $3.15b.
• Say costs stay flat with efficiencies offsetting inflation. Earnings could be $64/t (FY25 earnings) + $45/t = ~$110/t (50% net margin) and FCF could be $27/t (FY25 FCF) + $45/t = ~$70/t (30% FCF yield).
• With revenue of $3.1b, NPAT $1.5b, 10% dividend, PE of 7, and 0% dilution, the FY30 market cap will be around $11b with a FY30 share price around $13. Discounting 10% we get a current fair price of $11.80, and a 5-year ROI of 36% pa.

Bear case

• Coal is a dying industry at the frontline in the battle against climate change. There are significant risks that governments and investors impose tightening constraints and costs on the activities of coal miners.
• At current coal prices, having already dropped roughly 10% from FY25 levels, the recent dividend yield of 7.5% is unsustainable.
• With any further drops in coal prices, the impact on earnings, and especially FCF, is proportionally much higher. Assuming other costs remain unchanged, a further drop in coal prices of $10 (only a 6% decline) could wipe out all FCF.
• Global coal prices are traded in US$, so any further decline in US$:A$ will impact revenues and have an outsized impact on margins (but of course the opposite is true if the US$ strengthens).
• Coal prices are commoditised. Other than a low cost base, New Hope has no moat.
• Bear case valuation:
• Perhaps New Hope misses its own targets and instead achieves a more conservative output of 13mt in FY30 as suggested by Morningstar (about 20% overall growth or 4% pa).
• Say coal prices continue to drop 2% a year to around US$95 ($145) /t (a little above the average of 2016-2021 pre-Covid/Ukraine spike; 20% and $35/t below FY25). It is unlikely that prices could fall much below this amount given it would mean a large majority of miners (maybe 3/4) would be operating at a loss.
• That would be roughly a no-growth scenario, so FY30 revenue remains around $1.8b same as FY25.
• Say costs stay flat with efficiencies offsetting inflation. Earnings could be $30/t (~20% net margin) and FCF could be $0. Dividend will be driven by FCF so could be postponed.
• With revenue of $1.8b, NPAT $360m, no dividend, PE of 7, and 10% dilution, the FY30 market cap will be around $2.5b with a FY30 share price around $2.7. Discounting 10% we get a current fair price around $1.85, and a 5-year ROI of -5% pa.

Base case

• My base case sits between the above bull and bear cases, with a FY30 revenue around $2.4b, 35% NPAT of around $830m, and a sustainable dividend around 5%.
• Weighing equally across these bull, bear and base cases, I estimate a FY23 market cap around $6.4b, and a FY30 share price around $7.50. Discounting 10% pa I get a current fair price around $5.90 and a 5-year ROI of 19% pa. To achieve a required rate of return of 15% I get a buy price of $4.70 or less.
• There are significant risks, but a bull case upside of achieving 4x outweighs the bear case risks of capital shrinking 50%. 
• At the current price around $3.80, New Hope is a buy for me.

I ran various DCF scenarios to provide some awareness of share price movement based on modifications to the model. Most of these consistently returned a share price in excess of $7.00, but noting the nature of the industry (unpopular, out of favour and slowly dying) I have modified the model to ensure a margin of safety, which I will include below.

Within my DCF I forecast out three years, with shares outstanding recorded as 850m and terminal growth rate of 2%. I have used an aggressive discount rate for safety (15%) and dialled back the growth a little (8% p/a -- conservative noting their output of 10.7m should reach close to or exceed 15m in a few years time). This gives me a current share price of $5.50.

New Hope Corporation Limited (NHC) is involved in the exploration, development, production and processing of coal, oil and gas, as well as marketing and logistics.  With an Average Daily Trade of $7,293,000 it's a large cap stock. 

• Price/Operating Cash is very low at 4.20
• growth/PE > 1.5
• Yield>Bank Debt
• Financial health is consistent     

21/09/22: Next Pay the Divi 56cps Ex- divi 25/10/22

Near term trade price $6.50 ( bear case )

1/ Guess Q4 2023 Bear Trend Case Trade Multiple of 5 x

So Calculated Price ~ $8

2/ Q4 2023 on this trend with a tail wind with Macro instability Trade multiple accelerates to 10 x

Calculated Price ~ $17

See Straw for reasoning