Whitehaven seeks lending relief amid coal slump
Whitehaven Coal says it’s negotiating with lenders for ‘headroom’ amid tough times for Australian coal producers.
Whitehaven Coal says it is negotiating relief from lending covenants with its bankers to give it additional “headroom” amid a market slump and tough times for Australian coal producers.
Whitehaven released its quarterly production report on Thursday, saying demand from its Asian customers had remained strong despite a slump in the price of both its metallurgical and thermal coal products.
The coal miner is not heavily exposed to Chinese markets, and sells no thermal coal to China’s power stations. The company said it had no confirmation of reports China could have put in place bans on Australian coal products.
“There has not been any official confirmation by the Chinese authorities on these newly reported coal import restrictions nor have there been any announcements of changes to the annual coal import quotas. Chinese steel production and steel pricing has risen strongly since the end of Golden Week,” Whitehaven said.
“Despite the ongoing Chinese coal import uncertainties, coal demand from India is strong and hot metal production in the country is higher year on year which is expected to support metallurgical coal demand, industrial activity and coal prices across Asia.”
But the coal price slump still hit the company hard in the September quarter, with average prices for both its energy coal and metallurgical coal products well down on the previous period.
Whitehaven received an average $US52 a tonne for its thermal coal sales for the period, down from $US59 a tonne in the June quarter, with metallurgical coal prices down an average $US3 a tonne to $US73 a tonne.
The company said it is seeking relief from financial covenants in its lending arrangements to ensure it has the headroom to get through the worst of the coal price slump.
“Whitehaven is finalising an agreement with its finance providers to amend its net interest expense and financing costs (ICR) financial covenant ratio test for the December 31, 2020 and 30 June 2021 testing dates,” the company said.
“The amended financial covenant ratio will provide Whitehaven with additional flexibility to navigate through calendar years 2020 and 2021.
“Other than this covenant support and a distribution restriction, there are no material changes to margins or terms of the existing facilities. Whitehaven is pleased with the support that its finance providers continue to give to the company.”
Whitehaven boss Paul Flynn said the company’s cost savings measures were helping the company despite the price slump, with the company booking strong production and sales for the period.
“Notwithstanding COVID-19 headwinds, the September quarter saw strong sales in response to demand for our product from customers in Asia,” he said.
“Operationally, we have continued the June quarters’ momentum by delivering on-plan mining performance of coal and overburden across all operations laying a solid foundation to much improved operational results.”
Whitehaven sold five million tonnes of coal in the September quarter, with 4.6 million tonnes coming from its own mines. That is up from 4.76 million tonnes sold in the June period.
In a client note on Thursday, RBC Capital Markets analysts said talk of fresh Chinese restrictions on metallurgical coal imports had immediately hit the price of the commodity, with benchmark coking coal prices down 10.5 per cent over the last week, to $US123/y.
“BHP appears to have confirmed these restrictions, noting that the company has received deferment requests from Chinese coal customers. Restrictions on imported coal into China have been a major theme in the coal market this year and one of the main reasons for 2020s depressed prices. However, these were more blanket restrictions on seaborne imports aimed at helping China’s higher-cost domestic coal industry, rather than targeted at Australia, the world’s largest exporter of seaborne met coal,” RBC analysts said.
“As a result, China’s domestic met coal price has risen to $US185 a tonne, its highest price since March, and the spread between domestic and imported coal has widened to $US51 a tonne, from $US32 a tonne at the end of September. As well, some Chinese customers are now looking to re-sell and defer their cargoes, which could weigh on the spot market in the near-term as this coal tries to find customers elsewhere.”
Whitehaven shares closed Wednesday at 95c.
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