Whitehaven Coal
About the author:
- Author name:
- By Tom Sartor
- Job title:
- Senior Analyst
- Date posted:
- 16 October 2014, 8:51 AM
- Sectors Covered:
- Junior (Emerging) Resources, Bulk Materials
Strong 1Q production confirmed Whitehaven Coal (WHC) continues to work hard to
insulate itself from weak coal markets via strong production, ongoing
cost-reduction and execution at Maules ahead of schedule.
The planned
debt re-financing is a key catalyst to alleviate balance sheet concerns
in 2015 in our view. WHC remains a higher risk counter-cyclical Buy.
Strong 1Q production
1Q production was slightly stronger
than our forecasts driven by new
production records from Narrabri.
WHC is tracking slightly ahead of
FY15 guidance but we note the risk of
increasing disruption via the
upcoming December longwall
changeover and through the
Australian summer.
Operationally
we were more encouraged by
comments that the company is
holding its cash margins steady by
achieving more than the "couple of
dollars" of further cost savings
flagged at the FY14 result.
Catalysts to watch
WHC reiterated its confidence in
bettering both the Maules Creek
schedule and budget, along with its
comfort in consuming some of the
A$58m in project contingency to
incentivise its contractors to deliver
the project further ahead of
schedule.
We expect an update at the
AGM on October 28. We are
confident this will be a net positive,
but look toward completion of the
debt refinancing into the US as the
key trigger to ease investor concerns
around the balance sheet. We think
this process will drag into 2015 as
WHC patiently waits for better
terms, which in turn is an indirect
function of the health of US coal
markets (investor appetite).
Investment view
WHC is still two years away from
generating meaningful profitability
from its A$1.6bn market cap, but is
successfully insulating itself from the
worst of the coal price cycle.
To Buy
WHC here, we are most conscious of:
- the sustainability of strong
production rates and costs (on track
so far)
- timely Maules Creek
commissioning (on track)
- stabilisation in coal markets
(tenuous)
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