Global coal glut hits New Hope earnings
The days of super-profits are rapidly receding for shareholders of coal miner New Hope Corp, as the company signalled a further decline in earnings this financial year.
In the year to July, net profit fell to $74.1 million from $167.1 million a year earlier, on revenue down from $767.5 million at $652.1 million.
This is a far cry from the $500-million-plus profit of as little as two years ago, as it prospered thanks to strong coal prices.
In the latest year, earnings were hit by low coal prices and declines in volume, with the focus to remain on reducing costs.
Earnings a share slid to 8.9¢ from 20.1¢, which also reflected $51.4 million of write-downs in the value of investments in Westside Corp, Dart Energy and the Quantex group of companies.
Despite the lower earnings, a steady 5¢ a share final dividend has been declared along with a special dividend of a further 5¢ a share. A year earlier it paid a special dividend of 20¢.
Coal production fell to 5.8 million tonnes in the year, down from 6.3 million tonnes a year earlier.
The market for thermal coal, which is mainly used in the power sector, remains oversupplied, which would continue for "a considerable period of time". Additionally, "market and regulatory uncertainties are likely to delay project development".
Outgoing New Hope chief executive Robert Neale said he did not expect any recovery in the industry "in the next 12 months". Recovery would depend on competitors removing excess production and "increasing global growth which will absorb some of the supply".
As a result, New Hope continues to reduce costs through "an accumulation" of measures such as more efficient scheduling of operations, changing mine designs where appropriate, reducing diesel consumption and the like.
"Management can't control the [coal] price, but they can control costs and they're doing well on that front," Ord Minnett analyst David Brennan said. But given that electricity, rail freight and diesel oil costs form a large part of its cost base, it may find it difficult to trim costs much further, he said.
Analysts were hoping for an update on acquisition plans, given the cash on the balance sheet, however, nothing was disclosed.
Mr Brennan said resource companies should take a leaf out of Woodside Petroleum's book, and if they can't use cash reserves, then give them to shareholders. "If they have nothing to buy, the new paradigm is to give it back", he said.
New Hope shares fell 29¢ to $4, with brokers speculating the weakness reflected the cut to the payout along with the lack of news on plans for cash sitting on the balance sheet.