Record prices boost debt-free Whitehaven Coal

Some of Whitehaven’s customers are ‘self-sanctioning’ Russian Coal – raising the prospect of a structural shift in the market.

Whitehaven Coal managing director Paul Flynn. Picture: John Feder/The Australian.

Whitehaven Coal says the chances of a “structural shift” in the coal market are rising due to Russia’s invasion of Ukraine, potentially extending thermal coal’s extraordinary price recovery.

Managing director Paul Flynn told analysts on the company’s quarterly production call on Wednesday that some of Whitehaven’s customers were “self sanctioning” Russian coal.

“We are seeing customers excluding Russian coal from tenders. And that’s without formal sanctions being applied,” he said.

“That tendering behaviour is certainly evident in Korea, excluding Russian coal, and we’re starting to see that in Japan as well now.”

He said buyers in Whitehaven’s markets were largely still honouring existing contracts with Russian suppliers, but said a structural shift in global markets was possible if those customers excluded Russia from bidding on future contracts.

Record coal prices in the March quarter boosted Whitehaven Coal’s bank balance, with the company finishing March debt free with $161m in cash after recording an average coal price of $315 a tonne for the quarter – more than triple its average received price a year ago.

Whitehaven had net debt of $808.5m at the end of last financial year, but coal’s stunning run over the last nine months has allowed Whitehaven to pay off its entire debt and return $147m to shareholders in the March quarter, with the company paying $80m in dividends and buying back $67m of its own shares.

Whitehaven sold 4.4 million tonnes of coal in the March quarter, up 5 per cent on the same period in 2021, with the company’s operations largely unaffected by the heavy rainfall in NSW that flooded large parts of the state.

While the performance of Whitehaven’s operations improved in the March quarter, managing director Paul Flynn said the company still suffered from the impact of the coronavirus pandemic and ongoing skills shortages.

“A tight labour market, Covid-related absenteeism, and wet weather events slowed operations and disrupted rail and port activities. Despite this drag on production and sales, we are on track to deliver FY22 guidance,” he said.

Whitehaven received an average $US229 a tonne for its thermal coal sales, and $US244 a tonne for metallurgical coal, compared to an average thermal coal benchmark price of $US264 a tonne for the quarter.

“Whitehaven achieved an average price of $A315 a tonne for sales of produced coal during the quarter, 212 per cent higher than the prior corresponding period, and a record outcome,” the company said.

“In the June quarter, further upside in realised pricing is expected as the March quarter realised price was at a 13 per cent discount to the gC NEWCprice of $US264/t (15 per cent discount in December quarter) reflecting the rapid escalation of the index and associated lag due to price mechanisms and shipping queues.”

Benchmark thermal coal prices averaged only $US89 a tonne in the first three months of 2021, and metallurgical coal was worth an average of only $US92 a tonne. Whitehaven was paid only $US76 a tonne for its thermal coal shipments in the period, and $US92 – or $A101 a tonne on average for the period.

Whitehaven said its realised pricing was rising as customers for Russian coal were looking elsewhere for new sources of supply after Russia’s invasion of Ukraine.

“While uncertainty remains whether the response to Russia’s actions in Ukraine will see a temporary or sustained shift in the high CV coal market, the potential is growing for structural change to occur,” Whitehaven said.

“Replacement sources for Russian high CV coal supply are not readily identifiable with increasing potential for coal prices to find new highs for longer.”

Whitehaven shares closed up 14c, or 3 per cent, at $4.80 on Wednesday.