• A London hedge fund is escalating activism to halt Whitehaven Coal’s bid for BHP’s Daunia and Blackwater coal mines
  • Bell Rock’s Mike O’Mara wants shareholders to vote down its remuneration report, saying KPIs that “incentivise M&A” do not align management with shareholder interests
  • It wants Whitehaven to continue prioritising returns to shareholders after it paused a near $1 billion share buyback amid BHP sale process

An angry shareholder who has spent weeks protesting Whitehaven Coal’s (ASX:WHC) decision to table what is believed to be a multi-billion dollar bid for two BHP (ASX:BHP) coal mines has turned up the dial launching an official campaign against its directors.

Bell Rock Capital says it will urge shareholders to vote against the normally procedural adoption of its remuneration report and incentives for longstanding managing director Paul Flynn.

The remuneration report lays out wages, long term and short term incentives paid to directors and management of listed companies and is a key vote at any AGM.

Even if it is passed with a no vote of over 25% a strike is recorded against the firm. A second strike a year later would prompt a board spill.

Bell Rock chief investment officer Mike O’Mara criticised Whitehaven for removing Total Shareholder Returns from its package of criteria for at-risk performance pay for MD Paul Flynn and other key executives.

Starting from last year’s annual report Whitehaven removed TSR from its at-risk incentive deliberations, citing ESG pressures on investors which it said created a distortion that meant valuations for coal companies did not reflect their financial metrics, along with the cyclicity of coal markets.

That was in full display last year as prices ran as high as US$450/t for the thermal coal peddled largely to Japan, Korea and Taiwan by WHC, which generated a record $2.7 billion in NPAT and returned $1.6b of capital to investors through dividends and buybacks.

According to its annual report, WHC delivered 52% TSR for FY23, ranked ninth in the ASX 100. In FY22 its 154% TSR ratio was ranked 1st in the ASX 100, WHC says.

But Bell Rock is concerned that lucrative income stream could run dry if Whitehaven pursues a rumoured US$3.5 billion bid to buy BHP (ASX:BHP) and Mitsubishi’s Daunia and Blackwater met coal mines in Queensland.


Buyback paused

Whitehaven already paused its buyback, which returned almost $950 million to shareholders, at its financial results announcement in August.

“Bell Rock fears it is unlikely the buy-back program will return, with future dividends potentially put on the chopping block if WHC proceeds with the BHP acquisition,” O’Mara said.

He says dropping TSR from Whitehaven’s KPIs was “introducing a misalignment between the interests of management and shareholders”.

“Under WHC’s current plan, the Company could destroy the share price, cancel or reduce dividends, stop the share buy-back, and still pay a healthy bonus to management,” he said.

“This structure could reward WHC management in their pursuit of BHP’s Daunia and Blackwater mines, even if it destroys shareholder value in the process.

“From 2023, TSR has been removed while the weighting given to run-of-mine production and EBITDA has increased to 20% and 25% respectively.

“WHC’s remuneration scorecard now explicitly ties EBITDA and ROM production to executive remuneration. These measures incentivise management to focus on top line growth, which can be achieved through acquisitions that may be not beneficial to shareholders.”



Bell Rock’s letter to Whitehaven shareholders today appears to have unmasked the mystery faces behind the launch of a website called “Fair Shareholder Returns”, launched last week to prosecute the argument against WHC’s bid for the BHP assets.

That site not only asks shareholders to knock back the remuneration report and Paul Flynn’s incentive plan, but calls also for voters to nix the re-election of director Raymond Zage and elections of Nicole Brook and Wallis Graham.

Almost 92% of votes were cast in favour of WHC’s 2022 remuneration report, after a 53.5% no vote was recorded in 2021.

And Whitehaven says its approach to remuneration is unchanged since receiving that apparently strong endorsement.

“The company’s incentive structure – aligned to creating strong returns for shareholders over the long-term – hasn’t changed this year,” a Whitehaven spokesperson said.

“In FY22, Whitehaven delivered 154% TSR (number 1 on the ASX100) and in FY23 delivered 52% (number 9 of the ASX100).

“Our capital allocation framework continues to focus on investing to maximise profits from operations, maintaining a strong balance sheet, returning capital to shareholders and deploying capital to create future value and keep the business on a sustainable footing.

“Whitehaven will always look to make decisions in the best interests of all shareholders, rather than just a few, consistent with sound corporate governance principles.”

UK-based Bell Rock, which controls a little under 5% of the Whitehaven register, is understood to have raised concerns about the long tenure of Zage, Flynn and chairman, former Deputy PM and Nationals leader Mark Vaile, whose time at Whitehaven has run for more than a decade.

Whitehaven stock has fallen 36.8% over the past 12 months, far more than peers New Hope (ASX:NHC) and Yancoal (ASX:YAL), though Bell Rock argues it is more extreme once adjusted for the impact of dividends.

Thermal coal prices have fallen significantly from record highs over the same period.


What is Whitehaven’s rationale for BHP bid?

Whitehaven delivered run of mine production of 18.2Mt from its Maules Creek, Narrabri and Gunnedah mines in New South Wales last financial year.

Around 94% of its sales went into the thermal market. While it spend 243 between the middle of 2022 and early 2023 after Russia’s invasion of Ukraine destabilised coal markets, steelmaking coal brands are now back to trading at a healthy and traditional premium.

Its undeveloped Winchester South project is located to the south of the Daunia mine, which along with Blackwater significantly increases its production rate and the mix of met coal in its sales profile.

While thermal coal is viewed as being replaceable long term by renewable energy and nuclear power, there are no commercial substitutes for coal in the steel production process.

Whitehaven had $2.65 billion in cash on its balance sheet at June 30.