Whitehaven Coal Limited (WHC) Outlook White Cold

Whitehaven Coal Limited (WHC) mines and sells metallurgical and thermal coal to the global steel power generation and metallurgical industries.

The company is a coal producer in the Gunnedah Basin and has an interest in tenements covering the Gunnedah, Werris and Ashford Coal Basins of New South Wales.

Earlier this year WHC completed a merger with Aston Resources and Boardwalk Resources, which made it Australia’s largest independent coal company. The group has been in the headlines as of late, after largest shareholder Nathan Tinkler failed to have company directors ousted.

FY12 results

WHC’s FY12 results were not good, but not exactly a surprise given the well publicised weakness in the coal industry. Revenue over the year slipped 1% to $618.1 million, whilst NPAT before significant items dropped 21.1% to 57.8 million.

The most worrying part of the results was the significant increase in average cash cost of sales, which rose 15.6% to $69.93 per ton. This saw EBITDA margin contract from 41% to 33%, which is obviously not a good sign as the company attempts to ramp up production.

Coal prices

Coal prices have endured a dramatic fall since the start of the year. The price has fallen from a little under $120 a ton to now be trading around the $85 mark. This represented a 36.3% decline.

If the trend continues WHC could face continued pressure and the possibility of some of their planned ramp-ups becoming economically unviable.

The International Energy Agency (IEA) this week said in its World Energy Outlook that although coal would remain the world’s leading fuel for power generation in the next two decades, its share would drop.

The IEA also outlined another scenario which could see coal’s share of global energy crash to 16%, from its current 30%. This scenario could occur in the next 10 years if the demands by current climate change scientists are met that there be no more than 450 parts per million of carbon dioxide in the atmosphere.


WHC FY12 results were disappointing, but besides form the fall in profit it was the increase in the average cash cost of sales that was the most alarming factor.

The report by IEA this week did not provide a good outlook for the coal market especially if the more unlikely climate change scenario comes into play. Overall we see further declines in the coal price and we see this translating into further share price deterioration for WHC.

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