Tim Treadgold: Bathurst succeeds (against all odds) as a coal miner in New Zealand
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There is something deliciously unusual about think that one of the best investments in the clean and green environment of New Zealand is an Australian-based coal mining company.
That, however, is the case with Bathurst Resources, a mini version of its bigger relations which do their digging on the Australian side of the Tasman.
Not everyone in New Zealand likes the idea of mining coal, including the country’s Prime Minister, Jacinda Ardern; though, to her credit, she recognises the importance of an industry which supplies a valuable resource for the local economy and generates a handy pot of export dollars.
Government and environmental pressures on Bathurst are unlikely to fade in a country which markets itself as pristine. But so long as Bathurst sticks to the rules, and the government doesn’t change them in the same way Australian governments have been doing with proposed new coal projects, then its future might be brighter than its critics claim.
A glimpse of how well the business is performing came late last month when Bathurst filed its December quarter report at the ASX with production and revenue rising and the full year pre-tax profit forecast was upgraded from $NZ92 million to $NZ105 million.
Anti-coal campaigners will not be amused by Bathurst’s success which comes from operating a number of small mines on both North and South Islands of New Zealand.
Roughly half of the company’s coal is rated as metallurgical grade and sold to the steel-making industry in New Zealand and into the export market at prices which are well above thermal coal which is consumed in electricity production.
Annual output of both types of coal is running around 1.68 million tonnes a year from seven small mines.
In the December quarter the company generated revenue of $NZ73.2 million which, when added to September quarter sales, boosted revenue for the first half of the current financial year to $NZ144 million.
Management comments on the December quarter noted the high prices for exported metallurgical coal with sales volume exceeding the company’s budget.
It isn’t supposed to be like this but that’s one of the surprising and unpromoted features of New Zealand – it’s a country with deep mining roots that include being home to some of the world’s richest alluvial goldfields and the site of a spectacular gold rush in the 19th century.
But once the gold rush, and the diggers, moved across to Australia (and then South Africa), New Zealand embraced farming and mining was left with a bad name because of the environmental damage caused by extraction methods such as dredging which scarred the countryside.
That potted history of gold mining largely explains why modern coal (and gold) mining is viewed suspiciously in New Zealand.
Bathurst, however, is working within the government’s rules and has become a handsomely profitable business. Bell Potter, an Australian stockbroking firm, has the company on its speculative buy list with a share price target over the next 12-months of 20c – up 66% on the stock’s latest price of 12c.
Upgrading its fleet of mining equipment has shrunk Bathurst’s cash position over the past six months but cash is expected to accumulate rapidly in the current half-year.
Bell Potter said that during the latest quarter, the company’s consolidated cash balance fell from $NZ48 million to $NZ31 million with several large capital investments and the cost of investing in a prospective Canadian coal mine.
“We expect Bathurst’s cash balance to substantially improve in the second half of the 2019 financial year with large capital outlays complete,” the broker said.
Apart from its profitable coal business in a country not generally associated with coal there is another aspect of Bathurst which sets it apart from most small mining companies – it’s operating a share buy-back program which supports its share price.
There are quite a few Australian mining companies which could learn a lot from Bathurst even if it is operating in a country not normally associated with mining.