Whitehaven Coal flags record $3bn profit on the back of soaring coal prices, but tyre costs soar
Boomtime profits come with boomtime costs as Whitehaven flags $3bn profit, but boss points to 26 per cent spike in tyre bills as inflation rips.
Whitehaven Coal says it expects to book a $3bn annual profit on the back of coal’s stunning run over the last year, with the coal major receiving a record average coal price of $514 a tonne in the June quarter.
Whitehaven shrugged off a poor March quarter to produce 6.4 million tonnes of coal in the June period, on a run of mine basis, up 21 per cent on the previous quarter, closing the year having produced 20 million tonnes of coal.
But the soaring coal price will dominate the thoughts of investors hopping for a bumper dividend season, with the company saying it expects to report earnings before interest, tax depreciation and amortisation of $3bn for the full financial year.
“A net cash position of $1bn at 30 June, with ongoing strong cashflows, gives Whitehaven a continuing strong balance sheet with cash reserves to fund future growth and also return capital to shareholders through franked dividends and share buybacks,” managing director Paul Flynn said in a statement.
Whitehaven booked EBITDA of $204.5m last financial year, and a net loss of $543.9m on the back of substantial asset writedowns. The company’s total revenue of $1.56bn was about half of its expected earnings for the current year.
But, speaking to analysts after the release of Whitehaven’s quarterly production report, Mr Flynn joined mining executives from across the industry in sounding a warning on rapidly rising costs, saying supply chain constraints were lifting the cost of parts and equipment and that fierce competition for skilled labour was pushing up the industry’s wages bill.
“We have been paying voluntarily retention bonuses for people – in our instance, we‘re paying on a quarterly basis – just to make sure people stay put because the market is very, very tight,” he said.
“All the miners are running hard. And then the government obviously is competing for the same labour with all the infrastructure building they got going around the country – so the government‘s contributing to a lot of the inflationary pressure by their own actions here.”
Mr Flynn said supply chain constraints were also manifesting in higher prices amid boomtime conditions in the mining sector, pointing to a dramatic rise in the cost of some parts and equipment.
“There’s a few other notable examples where we see these supply chain constraints from Covid manifesting itself – I know that one of our tyre suppliers wanted a 26 per cent increase in the cost of tires,” he said.
“Obviously, we spend a bunch of money on tires every year, but I mean that‘s not the end of the world to see that. But that’s indicative of the supply constraints that we see in some of the materials that we use.”
Mr Flynn said Whitehaven was now paying about $1.50 a litre for diesel, up from an average of around 50c in the 2020 to 2021 financial year, with the costs of getting the company’s coal to the port, and then to customers, also rising.
Whitehaven said its annual production costs were likely to sit at the upper end of its $79 to $84 a tonne guidance, but Mr Flynn said he hoped softening markets for other commodities – most notably iron ore and base metals – would also deliver some relief from cost inflation in Whitehaven’s business.
Whitehaven’s received price still lagged the rapidly rising benchmarks in the period, with the company receiving an average $US370 a tonne for its thermal coal, 2 per cent below the average benchmark price, and $US334 a tonne for coking coal – 9 per cent below average benchmark prices.
But its average $A514 a tonne price across its product suite was up 63 per cent on the March period, and an astonishing 321 per cent above the average for the same period last year.
Whitehaven said it expects coal prices to remain strong through at least the remainder of the year, as European buyers scramble for supplies needed in the face of Russian threats to cut off gas supplies ahead of the northern winter.
“Buying interest has continued from our customers in Northeast Asia who are focused on replenishment of stocks for the northern hemisphere summer period,” Whitehaven said.
“Interest from non-traditional buyers of Australian thermal coal also continued to progress including from European end users. The European coal import embargo from Russia is due to commence in August which is expected to tighten further the supply of high quality thermal coal.”
“We continue to view thermal coal prices as well supported for 2022 and into 2023, even more so with the heavy rainfall in the Hunter Valleyin early July. In metallurgical markets, while pricing is relatively strong compared to historical levels, we expect to see further volatility due to global economic pressures.”
Whitehaven sold 4.5 million tonnes of coal in the June quarter, up from 3.5 million tonnes in the March period. The company said 84 per cent of its coal was sold into thermal markets, up from 76 per cent in the previous quarter.
Whitehaven shares were up 5.7 per cent to $5.93 in a higher market at 1300 AEST.
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