Whitehaven boosts coal output

Production and sales increases may be offset by lower prices.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 31, 2013 7:05 am AEST

Whitehaven Coal (ASX: WHC) revealed on Monday that the recent drop in coal prices may have offset much of the benefit from sharply improved coal production. Whitehaven reported quarterly production of 2.25 million tonnes, up 53% from the corresponding period a year earlier, and 2012-13 annual production of 8.2 million tonnes, an increase of 67% on the 2011-12 financial year.

Additionally, the company reported coal sales of 2.58 million tonnes and 7.4 million tonnes in the past quarter and financial year, representing increases of 80% and 34% on the previous corresponding periods respectively.

The sharp increase in sales is not expected to be fully realised when the profit results are released later this year, due to the impact of the lower coal prices in the first half of 2013. Whitehaven produces two types of coal, metallurgical, used in steel making, and thermal, used in power generation. The company reported that the metallurgical coal price has fallen to $US113.50 and is expected to fall to around US $102 by September, while the thermal coal price has dropped from US $93 to US $77 in the previous six months, resulting in a received price of US $80 per tonne for the latest quarter.

Finally, the company warned that cash costs per tonne will increase by around $4 in 2013-14 as a result of underutilised port and rail infrastructure due to the slow ramp up of projects. Whitehaven blamed the delayed start at its Narrabri site last year and the slow approval process for its Maules Creek site had resulted in surplus capacity which the company would have to compensate for out of existing cashflow.

Foolish takeaway

Whitehaven is a relatively high cost coal producer with a history of cost overruns and delays to key projects. The company recently refinanced the majority of its debt and is in a relatively good position assuming there are no medium-sized problems in coming years. Major issues such as further delays to the company's Maules Creek flagship mine may spell disaster for the company. Investors looking for exposure to coal and willing to take on significant risk may want to consider Whitehaven as part of a well-diversified portfolio.

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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned in this article.

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