Weak market cutting a swathe at Whitehaven

WHITEHAVEN COAL has cut its earnings forecasts again, indicating it may only make $20 million in 2012-13 if weak market conditions persist - less than half previous estimates.

Whitehaven shares fell 5.5 per cent to $3.28 on Thursday after the release of the company's second-quarter production report, providing a headache for major shareholder Nathan Tinkler.

While the miner did not give firm profit guidance, it said that if current prices for semi-soft coking coal and thermal coal were assumed along with consensus estimates of production, its full-year earnings before interest, tax depreciation and amortisation would be $50 million. This is well below the prevailing analyst consensus forecast of $185 million.

Whitehaven said pre-tax earnings for the first half would be as low as $10 million, and if soft coal prices and the high dollar continued the result in the second would be similar.

Whitehaven said its first-half result, due this month, would be affected by an unspecified write-down - which could be of the order of $20 million - of low-value coal inventory, asset adjustments associated with the Sunnyside mine being placed on care and maintenance, and a derailment at Boggabri disrupting the Narrabri mine operations in December.

The PhillipCapital analyst Lawrence Grech said the earnings downgrade was disappointing, particularly as the product quality and contractual issues were not expected to drag into the second half.

"We always knew if was going to be a tough result", he said, adding Whitehaven's production of 2.4 million tonnes for the quarter was in line with expectations.

Whitehaven said the price of its metallurgical product, Newcastle semi-soft coking coal, had remained stable around $US113.50 ($109) a tonne free on board (FOB) in the December quarter, and this was expected to continue in the March quarter, while the price of standard thermal coal had risen from about $US89 a tonne in September to more than $US93 a tonne in January.

Nevertheless, after allowing for NSW royalties of about 8 per cent and exchange rate losses - with the company effectively hedged at US97c - "the net revenue for spot thermal coal still remains at or below the FOB cash cost a tonne of many producers".

Whitehaven is considered a potential takeover target and in December confirmed reports of talks with China's Shenhua, which is developing the Watermark project in the Gunnedah Basin, although it said these did not result in an offer for the company.

There has also been uncertainty about the future of the 19.4 per cent stake held by Whitehaven's largest shareholder, Nathan Tinkler, who last year mounted an unsuccessful privatisation bid and later attempted to spill the board. A six-month standstill agreement, which prevented Mr Tinkler from launching another takeover bid, expired in January.