Whitehaven Coal suspends share buyback as decision on acquisitions, growth, looms
CEO Paul Flynn has hinted the long-running saga over BHP coal sales could be over soon.
Whitehaven Coal boss Paul Flynn has signalled a swift end to speculation around the company’s acquisition of two of BHP’s Queensland mines, saying a suspension of the company’s buyback program will not be maintained for “too long”.
Mr Flynn declined to confirm whether the company had bid for BHP’s Blackwater and Daunia mines on Thursday, after the company declared a 42c a share final dividend after booking a record net profit of $2.7bn for the full year, a 37 per cent improvement on the previous year.
But he said the company’s suspension of its share buyback scheme, which saw the company buy $948.9m of its shares last financial year, was not likely to last for long as the company considers its growth options.
Whitehaven delivered its full-year accounts on Thursday, saying it was holding $2.65bn in cash at the end of June, after its coal sales generated a record $6.1bn in revenue over the year as the company realised an average $445 a tonne for sales of its coal for the period.
“It’s temporarily on hold, but that’s really as these other processes run their course. And it’s temporary and won’t be too long,” he said.
Mr Flynn said he believed the company had strong support among Whitehaven shareholders to spend money on growth options. But, amid talk of a pushback from London hedge fund Bell Rock Capital Management on buying new assets rather than returning the cash to shareholders, Mr Flynn acknowledged there was a “range of shareholder views” on the subject.
“Some very supportive of cash (returns), some are very supportive of growth – with some very supportive of inorganic growth and some very supportive of our well-established organic pipeline,” he said.
“So there’s a range of views, and will seek to navigate a passage through that mix.”
A spokesman for Bell Rock said the fund believed Whitehaven should be returning cash to shareholders rather than bidding for the BHP assets.
“We are very concerned that the Whitehaven board and management may be entering into a value destructive deal,” he said.
“Given Whitehaven CEO Paul Flynn stated he has shareholder support for the potential Daunia and Blackwater transaction, if he wants to proceed, we ask him to put it to a shareholder vote for approval.”
The two BHP mines are tipped to be fetching bids of $3.5b to $5bn for both assets, but they could be sold separately.
Whitehaven said the 42c dividend, when added to the $948.9m spent in share buybacks through the year, took its total payout to half of the company’s net profit, in line with the company’s capital allocation framework.
The group booked EBITDA of $3.99bn for the year, with its operations generating $4.2bn in cash.
And, while coal prices have since softened from the record pricing that drove the company’s bumper results, Whitehaven said on Thursday it believes strong pricing is likely to remain for some time, with the price of thermal coal likely to rise again ahead of the northern hemisphere winter.
“Whitehaven’s thermal customers are focusing on longer supply contracts as energy security remains a key priority. This is expected to continue through the energy transition due to supply shortfalls, particularly for high-CV thermal coal,” the company said on Thursday.
“While thermal coal prices have retreated from record high levels, the resilience in the (Newcastle) index through this seasonal lower demand period provides positive sentiment for the outlook. As restocking requirements increase in the months leading up to the northern hemisphere winter, upward pricing pressure for thermal coal is expected.”
Mr Flynn told analysts some of Whitehaven’s South Korean customers had recently been taking thermal coal shipments from Russia in preference to Australian thermal coal, but those volumes had instead been sold to Taiwanese clients.
But the company also warned of ongoing labour constraints and cost inflation across its Australian operations, which are expected to again drive Whitehaven’s costs higher in the current fiscal year.
Whitehaven’s unit cash costs came in at $103 a tonne last financial year, the company said, up from $84 the previous year. About $7 of that increase came from rising costs associated with labour rate inflation and the cost of diesel, with another $8 coming as a result of constrained production due to wet weather and flooding, and operational constraints at Whitehaven’s Maules Creek mine.
The company said on Thursday its unit costs could lift another $10 a tonne across the current fiscal year, giving a guidance range of $103 to 4113 a tonne.
Whitehaven says it expects to sell 16 to 17.5 million tonnes of coal this financial year, up from 16 million tonnes last year.
Its shares were down 2.9 per cent to $3.64 in a higher market on Thursday afternoon.