Whitehaven Coal writes down value of mines by $650m as it high-grades Narrabri mine
Thermal coal producers will need to leave low quality coal in the ground to meet demands for high energy value products, says Whitehaven boss Paul Flynn.
Australian thermal coal producers will need to leave low quality thermal coal in the ground to meet customer demands for high energy value products, according to Whitehaven Coal boss Paul Flynn.
Whitehaven Coal released its annual financial figures on Thursday, plunging to a $543.9m statutory net loss after wiping $650m from the value of its Australian coal mines, with the company flagging a move to high-grade its Narrabri coal mine.
The coal miner said it would not pay a final dividend for the year after declaring a net after-tax loss of $87.3m after excluding the impairments to its assets.
Whitehaven’s massive statutory loss was driven by a $548.7m impairment to the value of its Narrabri coal mine, with the company cutting reserves at its Narrabri North and Narrabri South mining areas by a combined 24 per cent, or 70 million tonnes of coal, as the result of a change to its mining plan.
“This charge reflects the reduction in the JORC coal reserves for the current Narrabri mining lease, arising out of an optimisation plan which has been developed to focus on the production of higher quality coal over the balance of mine life,” the company said.
Mr Flynn told reporters Whitehaven had shifted its mine plan at Narrabri to take the “sweet spot” of high value coal from its seams at Narrabri, and had cut areas with lower energy values and high ash content from the mining plan.
The move is similar to the approach taken by BHP at its Mt Arthur mine over the last two years, as China’s reluctance to take Australian coal forced the mining giant to seek to place its output into markets that demanded higher quality coal, with BHP reducing output from Mt Arthur as it rejigged mining plans.
Mr Flynn said other Australian thermal coal miners would likely need to adopt similar strategies as older coal generators built to burn lower quality coal dropped out of international grids, and regulators insisted on lower-emission coal-fired power stations.
Prices for high quality coal were at record levels, Mr Flynn said, but there was a vast gulf between the value of the best coal and lower quality products.
“If you look at today’s pricing, there’s probably a $US60 a tonne spread between our best quality, and our lowest quality,” he said.
“As regulation focuses more on the emissions reduction capability of higher quality coal, I think producers like us will tend to want to gravitate more to that section of their mine deposit that delivers the best outcome in that regard.”
Mr Flynn said Whitehaven would also wash more of its coal in future, to remove as much ash content as it could.
The coal miner booked earnings before interest, tax, depreciation and amortisation of $204.5m, with Mr Flynn saying the financial year had been one of “highs and lows”.
“In the reporting period cyclical lows in coal price were replaced with record highs, with the gC NEWC index currently trading around $US170 per tonne,” he said.
Whitehaven finished June with net debt of $808.5m, but Mr Flynn said recent coal prices had allowed the company to rapidly pay down some of that debt.
“We’re obviously in a market in this new year which is quite dramatically different from that which we entered into last year. That has contributed to significant deleveraging of our balance sheet, post June 30, to the tune of $178 million already across the nearly two months that we’ve experienced in this financial year,” he said
“So we will be resetting the balance sheet very quickly, and returns to shareholders are going to reflect that strong cash generation opportunity delivered by this robust market.”
Whitehaven said it believed the value of high quality thermal coal would remain strong through at least the next two years.
Whitehaven shares closed up 11c, or 5 per cent, at $2.33.
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