Whitehaven earnings blow

TROUBLED 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.

TROUBLED 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 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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