Coal miners often cop a pasting at fool.com.au owing to what many contributors see as unfavourable economics across all aspects of the business.
I'm a coal naysayer myself, but I've done my best to be objective on today's results; unfortunately, it's not a good day to be a WHITEHAVEN COAL LIMITED (ASX: WHC) shareholder:
- Revenue rose 1% to $763m
- Statutory loss after tax (including significant items) of $342m
- Underlying result (excluding significant items) improved 62% to a loss of $10.7m
- Earnings of negative 33.3 cents per share (i.e., a loss)
- Sales volume rose 9% to 9.5 million tonnes (mt), yet AUD selling price declined 7% leading to the revenue rise of 1%
- Average price realised fell to AU$80 per tonne from AU$86 in 2014
- Total 'Free On Board' (FOB) costs declined 12% to $61 per tonne as a result of higher production, lower oil price and flat admin costs
- Maules Creek coal operation commenced on 1 July, will contribute a full year of production in this financial year
- Net debt increased by $250m to $935m (gearing of 24.6%)
So What?
Lower production costs are a positive, but they fell roughly the same amount as the sale price ($6 per tonne) meaning Whitehaven didn't get any further ahead during the year. A number of factors outside company control like a weaker Australian dollar and lower oil prices made a positive contribution to the equation.
It is important to note that despite the decline in the Australian Dollar (AUD) in the past 12 months (which should lift the sale price, which is in USD), the sale price of coal still managed to fall 7% in AUD terms. This must reflect weaker market conditions since the mix of coal sold (82% thermal, 18% metallurgical) was the same as last year.
Reconciling statutory to underlying results
Similar to AGL Energy Ltd and Estia Health Ltd yesterday, readers might note the stark difference between the statutory and underlying, or 'operating' results that Whitehaven posted.
In this particular case, the underlying result looks to better reflect how the business is performing as the $330m of significant items reflect non-cash (i.e., reflecting a change in value of an asset on the balance sheet) write-downs on a bunch of exploration assets.
Now What?
Well, I would say that an investment in Whitehaven depends entirely on your view of the coal market going forward. Whitehaven has decreased its cost of production and I expect that could fall further as Maules Creek starts to contribute. However, it also looks unlikely that thin profit margins will expand much further unless prices start to rise.
(Readers looking for more information on the coal industry can read The Mining Investor's Handbook Part 5 – Coal and The coal mining myth that could send you broke)
With the company still making a loss, debt rising rapidly and at least part of the fall in costs (low oil prices) outside of the company's control, I feel it is still too risky to consider a punt on this coal miner.
