New Hope Corporation

When New Hope Corporation put itself up for sale last year, expectations were for a speedy transaction. Unlike many of its peers, New Hope boasts plenty of easily expandable, high quality coal in Queensland. Most crucially, it has access to transport infrastructure at its wholly owned Port of Brisbane coal loading terminal. These factors make it among the most desirable coal miners in the country. In a booming coal market, a buyer would surely be found.

That hope now lies in ruins. The share price has fallen back to pre-sale levels as the company has taken down the ‘For Sale’ sign. Its most important production asset—the New Acland coal mine in Queensland’s Darling Downs—has a question mark over its future.

The Queensland opposition had long threatened to block a vital expansion of New Acland and, with the landslide election victory over the weekend, will have every opportunity to pursue that threat. The potential value of New Acland has been the main obstacle in finding a buyer for the business. Management have high expectations, which no buyer has yet met.

With the sale process now closed, it’s back to business-as-usual for New Hope. The miner is skilled at accessing thin coal seams at very low cost and, with almost $1.5bn of net cash on hand, can easily fund new developments. But the regulatory threat is real. It’s impossible to say how the dispute between New Hope and the new Queensland government will be resolved but a decision against the company could see the share price fall sharply. With New Hope’s resources, infrastructure, management and balance sheet all in good shape, a decline from here could earn the stock an upgrade. The share price is down 11% since 05 Oct 11 (Hold - $6.09) and we’re sticking with HOLD.