WHC Acquired Assets.pdf

WHC Q1 FY24.pdf

Taken a 1% position of portfolio Friday 25th August in Whitehaven following release of results last week and pull back in share price on Thursday 24th and Friday 25th August .

This is not where i normally invest and have NO interest in coal playing a role in my long term portfolio but would like to tease out the rational .

In the coming 14months the dividend yield for Whitehaven looks to read as follows :

• 2nd Half 2023 = 0.42c per share . Confirmed but goes ex-dividend on the 31st August.
• Assuming 2024 dividends remain the same ie 32c per share in 1st Half and 42c in 2nd Half
• Total dividends on offer equate to $1.16 per share.

• Closing share price is $6.5 = 17.8% FF.
• Grossed up we are talking 20% plus.

I recognise the risks in light to the tightening monetary environment that's playing out but aren't we in the midst of energy demand being greater than supply and if the monetary tightening does drive spending to be lower and thus thermal coal prices lower isn't the next move for RBA going to reduce rates and thus stimulate economy drive commodity prices higher again.

Please get me to see what i am missing ???

Risk reward seems favourable.

Whitehaven Coal announced their quarterly production report yesterday and despite noting a decrease in its production numbers, the premium of their coal prices received resulted in a net cash position to approximately 1.8 billion which still was resoundingly positive to the market.

Say what you will about coal but the fact is that coal miners are absolutely creaming it at the moment. Whitehaven's quarterly update showed $1.4 billion cash made in the quarter...the QUARTER! It's only got a $5.4b market cap, meaning it's on less than 1x. Talk about inconvenient truths.

Listened to the investor call. Summary:

• We know we will eventually be replaced by technology
• We have a high-quality product
• In the interim, we will be helping emerging Asian economies continue to expand
• We don’t think proposed emission reduction tariffs will be achievable (and therefore there will still be demand for coal)
• We think there is a future for coal for a decade or more
• And what a way to finish -> Hopefully not too many listeners were offended

Apparently, the Queen thinks Scomo is somewhat of a dill*. It appears HRH is not the only one if you look at some of the Twitter hash tags associated with our current Prime Minister. Everyone is entitled to their opinion, form your own.

Morrison in his former role as Treasurer did famously (or possible infamously) bring a lump of coal into the House of Representatives stating, “this is coal, don’t be afraid, don’t be scared”. He is correct coal is beautiful, it is inexpensive, relatively inert, it has a low transportation risk, and it largely powered the industrial revolution. Problem is, coal, along with other fossil fuels are the primary source of climate change**. Again, everyone is entitled to their opinion, form your own. 

Well, that was a major digression. On to Whitehaven. I was asked about this by a colleague around Christmas in 2015. He reminded me about it the next Christmas. Glad he left so I didn’t have to hear about “how much I cost him” again in 2018. Meh, DYOR and everyone is entitled to their opinion, form your own. 

For those still reading, how did we get here and why is this even being written. Well, there was an auzbiz report from Daviet Huynh, Equities Analyst at Shares in Value. He claims that the coal price rally isn’t ending anytime soon, and Whitehaven Coal is Australia’s leading producer of premium thermal and metallurgical coal and has five mines throughout New South Wales. No dispute from me on the latter point. 

Huynh*** then goes on to state Whitehaven’s major export markets are Japan, Taiwan, Korea, and India. This is also not disputed with a BIG caveat. Japan is currently Australia’s largest coal market and now the caveat, the Japanese government have stated they will consume zero coal from 2030. That is only 9 years away, and they are not going to continue to consume the same volume until 2030, coal is going away in Japan, and soon.

Back to Scomo, despite what he is telling us, coal under duress in Australia too. Aside from one small generator in WA, the two youngest power stations in Australia are in Queensland and these, along with all coal power stations are now or will be soon beyond their design life. Renewables (and natural gas) are taking over the generation mix.

Stating the obvious, coal miners are price takers. The Whitehaven share price is reasonably representative of the price of coal, although somewhat behind in the current coal price rally. 

Not one for my book, however, everyone is entitled to their opinion, form your own. 

*not factual, extrapolation of comments made regarding attendees at Glasgow Climate Summit

**For this one, I’m siding with science. 

***Not dissing the fella, just difference of opinion