Whitehaven earnings blow
Whitehaven shares dropped 19¢ or 5.5 per cent to $3.28 on Thursday on release of the company's second-quarter production report, providing a financial headache for major shareholder Nathan Tinkler.
While Whitehaven did not give firm profit guidance, it said three months ago that if current prices for semi-soft coking coal and thermal coal were assumed along with consensus analyst 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. On Thursday Whitehaven said its pre-tax earnings for the first half would be as little as $10 million and if soft coal prices and the high dollar continued, the second-half result would be similar.
Whitehaven said the realised value for its thermal coal in the first half was affected adversely by two factors: relatively high moisture/lower energy of Narrabri thermal coal, and underperformance under two thermal coal off-take contracts.
Whitehaven also said its bottom-line result for the first half, to be delivered in February, would be affected by an unspecified write-down - which could be of the order of $20 million, according to some estimates - of low-value coal inventory, asset adjustments associated with the Sunnyside Mine being placed on care and maintenance, and the derailment at Boggabri disrupting the Narrabri mine operations during December 2012.
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 it was going to be a tough result," he said, adding that 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 at around $US113.50 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 Newcastle thermal coal had risen from around $US89 a tonne in September to over $US93 a tonne in January.
Nevertheless, Whitehaven said, after allowing for New South Wales royalties of about 8 per cent and losses on the exchange rate - with the company effectively hedged at 97¢ - "the net revenue for spot thermal coal still remains at or below the FOB cash cost per tonne of many producers".
Whitehaven is considered a potential takeover target and last month confirmed it had held 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 Mr Tinkler, who last year made an unsuccessful privatisation bid and later attempted to spill the board. A six-month standstill agreement, preventing him from launching another takeover bid, expired this month.
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Whitehaven cut its earnings forecast because weak market conditions, lower realised values for thermal coal and contractual underperformance hurt revenue. The company cited high moisture/low energy content of Narrabri thermal coal, underperformance under two off-take contracts, a derailment at Boggabri and other asset issues that together reduced expected earnings.
Whitehaven shares fell sharply after the downgrade: the stock dropped 19¢ (about 5.5%) to $3.28 on the day the second‑quarter production report was released, reflecting investor concern about the weaker earnings outlook.
Whitehaven produced about 2.4 million tonnes in the quarter, which the company said was in line with expectations. It said full‑year EBITDA could be as low as US$50 million under recent price assumptions and consensus production estimates, well below the analyst consensus of $185 million. The company also said first‑half pre‑tax earnings could be as little as $10 million, with a similar second half if weak coal prices and a high dollar persist.
Metallurgical Newcastle semi‑soft coking coal was stable around US$113.50/tonne FOB in the December quarter, while standard Newcastle thermal coal rose from about US$89/tonne in September to over US$93/tonne in January. However, after New South Wales royalties (about 8%) and Whitehaven’s effective hedge at 97c, the net revenue for spot thermal coal remained at or below FOB cash cost per tonne for many producers, limiting profitability.
Whitehaven pointed to relatively high moisture and lower energy in Narrabri thermal coal and underperformance under two thermal coal off‑take contracts. It also flagged a derailment at Boggabri that disrupted Narrabri mine operations in December 2012 and the Sunnyside mine being placed on care and maintenance, which led to asset adjustments.
Whitehaven said its bottom‑line first‑half result, to be reported in February, would be affected by an unspecified write‑down of low‑value coal inventory and asset adjustments related to Sunnyside and the Boggabri derailment. Some estimates put the write‑down at around $20 million, though the company did not specify an exact amount.
Whitehaven is regarded as a potential takeover target. The company confirmed it held talks with China’s Shenhua, which is developing the Watermark project in the Gunnedah Basin, but said those talks did not result in an offer for the company.
Nathan Tinkler holds a 19.4% stake in Whitehaven. There has been uncertainty about the future of that stake after he made an unsuccessful privatisation bid and later tried to spill the board. A six‑month standstill agreement that prevented him from launching another takeover bid expired this month, renewing questions about his intentions.
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