There currently is a significant disparity in thermal coal prices, as indicated below:
- Newcastle Thermal coal, 6000kCal price per Tonne: $421 USD (Sept. 30 2022)
- API5, 5500kCal price per Tonne: $195 USD (Sept. 30 2022)
The 2021 YAL Annual report stated the majority of YAL thermal coal is sold on contracts linked to the API5 5500 kCal index..
However, in 2021, Yancoal implemented a "hard wash" strategy to reduce the ash content of its API5 coal in order to upgrade a portion of it to Newcastle Thermal coal 6000kCal grade. The hard wash strategy added $2 / Tonne production cost to the API5 coal in question (reported in 2021 AR), and is generating a remarkable return in the process.
Despite the Q3 2022 quarterly report stating that the majority of thermal coal is sold under the API5 5500 kCal index, the actual prices achieved reveal 62% of thermal coal was sold under the Newcastle Thermal coal, 6000kCal index price in Q3 2022.
I believe the market is misunderstanding the value of Yancoal's reserves, and its ability to generate higher returns through its "hard wash" strategy.
DISC - HELD.