• New Hope CEO Rob Bishop says coal pricing is not going back to historical norms as a dearth of new investments expose the sector to supply shocks
  • NHC generated a record profit of more than $1 billion last year, gearing it up to pursue aggressive organic growth plans
  • Iron ore prices to fall back to US$100/t in 2024: Citi

Fresh off a record profit in excess of $1 billion, the head of one of Australia’s biggest coal producers says historical long term prices are a “distant memory”, with inflation and a dearth of investment in supply leading to a new world for coal pricing.

As it faces the prospect of continued initiatives to curb new coal developments in the face of the energy transition, New Hope Group (ASX:NHC) CEO Rob Bishop says the exit of majors from the coal scene meant expansions that previously responded in times of higher prices were no longer on the cards.

That means ironically higher prices for a commodity many think … or wish … will be dead in a few decades.

Bishop’s comments came after Soul Patts-backed New Hope delivered a $1.087b net profit on revenues of $2.75b, stoked by record average realised prices of $346.73/t, largely propelled by a brief run last year to US$450/t from the supply shock that followed Russia’s invasion of Ukraine.

“Historically, the coal industry had significant investment from the major producers and upticks in demand were met with large scale supply side response in both investment and timely greenfield expansion,” Bishop told investors and analysts in Sydney at the presentation of the miner’s full year financials, which included a 30c per share final and special dividend that took the firm’s payout to 70c for the year or a tick under $600 million.

“For over three years now, volatility has been the theme, and we expect this to play out for some time yet.”

It is not only supply shocks in coal that could send prices higher than the ~US$160/t trading range today for Newcastle 6000kcal high CV thermal coal.

As coal is a cheaper substitution for gas power, crimps to gas supply like the ongoing industrial action at Chevron’s operations in WA could send coal prices higher as the cost of LNG lifts.

“Capital available to invest is very scarce and approvals even scarcer. Add to that a very tight market and the slightest economic shocks or supply disruptions across any of the key reliable baseload power sources has a huge impact on realised prices across the commodities,” Bishop said.

 

Higher costs could lift prices further

New Hope’s flagship asset is the Bengalla mine in the Hunter Valley, which delivered 9Mt in FY2023, with output for New Hope’s share of saleable production dropping from 7.9Mt in 2022 to 7.2Mt in 2023.

That came at cash costs of $56.7/t, up 21% on 2022, a third or $3.2/t of that attributed to the impacts of inflation. Another $6.5/t (67%) was attributed to growth and volume impacts caused by weather and Covid.

New Hope’s cost base remains well below peers like BHP (ASX:BHP), Whitehaven (ASC:WHC), Glencore and Yancoal (ASX:YAL), with US-listed Peabody Energy the only thermal producer chrurning its tonnes out cheaper.

NHC is planning a production rebound beyond 10Mt in FY24, pushing out to 11Mt long term, with first coal now mined from the New Acland Stage 3 project in Queensland and the 6.5Mtpa Maxwell mine, held by 15% owned Malabar Resources.

$200 million is committed through operating cash flows over the next three years to expand Bengalla, where production will hit 13.4Mtpa on a run of mine basis by September 2024.

New Acland will hit a 5Mtpa rate by FY2027. As it grows production in a volatile market, New Hope warns the cost challenges facing the industry and a small pool of high CV competitors including only Colombia and Russia could mean high prices and strong demand, especially as power companies look for more efficient coal to reduce their emissions.

“Significant increases across all major supply jurisdictions will squeeze margins and arguably push up a rebalance in price,” Bishop said.

“The pressure on unit costs has not only been due to cost imposts including government royalties, and labour and consumable inflation, but also volume impacts reduce the tonnage base to spread site cash costs.”

New South Wales coal miners will face a 2.6% royalty hike from July 1 next year, but will no longer have to quarantine coal for its domestic reservation policy.

 

Renewables uptake ‘will fall short’

Talk about pushing your own barrow, but we’ll leave it here for you to judge.

At the same time as coal supply is starved, Bishop has warned the uptake of renewables will fall short as Net Zero 2050 targets become ‘increasingly challenging and uncertain’.

He says demand from coal is continuing to increase, with the transition away from fossil fuels likely to take decades.

“The supply side however, still falls short, creating a huge opportunity for Australia to fill the gap should the government and investment community support this,” Bishop said.

“The overreaching ESG pressures on the industry will continue to starve supply side response, and those projects that have secured long operating permits will prosper as a result.”

 

ASX coal stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.008 0% 60% 33% -33% $ 11,487,191.28
CKA Cokal Ltd 0.11 10% 5% -31% -51% $ 113,289,642.90
BCB Bowen Coal Limited 0.145 32% 7% -49% -60% $ 320,397,881.70
SVG Savannah Goldfields 0.066 -7% -14% -60% -73% $ 13,229,054.98
GRX Greenx Metals Ltd 0.94 -3% 1% 63% 269% $ 256,506,202.66
AKM Aspire Mining Ltd 0.099 2% 1% 90% -6% $ 47,210,239.61
AVM Advance Metals Ltd 0.006 0% 0% -25% -50% $ 3,531,352.36
YAL Yancoal Aust Ltd 5.14 5% 1% -8% -16% $ 6,615,401,579.37
NHC New Hope Corporation 6.3 6% 11% 21% 13% $ 5,215,719,812.88
TIG Tigers Realm Coal 0.006 0% -14% -50% -70% $ 78,400,214.21
SMR Stanmore Resources 3.47 14% 25% 9% 50% $ 2,992,620,224.88
WHC Whitehaven Coal 6.69 9% -8% 0% -22% $ 5,529,931,182.24
BRL Bathurst Res Ltd. 1.015 5% 0% 9% 13% $ 187,532,584.40
CRN Coronado Global Res 1.86 15% 19% 5% 16% $ 3,009,234,445.35
JAL Jameson Resources 0.051 0% 0% -29% -27% $ 19,967,066.10
TER Terracom Ltd 0.455 -3% 3% -20% -57% $ 372,449,299.28
ATU Atrum Coal Ltd 0.005 0% 0% 0% -33% $ 6,958,495.86
MCM Mc Mining Ltd 0.135 0% -13% -13% -70% $ 53,954,802.27
DBI Dalrymple Bay 2.76 -1% 2% 5% 30% $ 1,378,217,434.26
AQC Auspaccoal Ltd 0.105 -9% -30% -23% -83% $ 50,351,752.49
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Citi hits the brakes on iron ore positivity

JP Morgan’s bullishness on iron ore as prices ran beyond US$120/t was duly noted last week, with the bank ramping up price forecasts for 2024 13% to US$110/t.

There are naysayers though, with Citi quick to discount iron ore’s “sweet spot” run to spot prices as high as US$124/t.

62% Fe futures in Singapore were paying US$122.05/t close to yesterday’s open.

While Chinese pig iron production is up 3.5% YTD and crude steel output is up 2.5%, port inventories are down 123Mt to 107Mt between late March and today.

The desire to run those stocks down to 3.4 weeks of production is down to anticipated future production curbs, Citi thinks.

Manufacturing and infrastructure demand are currently making up for a weak property market while improved credit data is also driving sentiment with steel output in August of 86.4Mt up 3.2% YoY but down 4.9% MoM seasonally adjusted.

Iron ore miners have been bullish on the prospect that the rise of India’s steel industry could replace lost demand out of China.

But Citi says investors should not lose sight of the big picture. They think iron ore will go back to US$100/t next year, and long term a sliding Chinese population will see steel output fall as environmental imperatives also see rising supply from electric arc furnaces, which predominately use scrap steel and not iron ore as their primary source of supply.

“In 2022, China’s population declines and Citi expects the decline to continue to 2040,” they said.

“Per capita crude steel consumption peaked in 2020 at 735kg/person and we expect this to moderate to 620kg by 2040.

“Our modelling has crude steel prodn in China declining to ~900Mt in 2040 vs a peak of 1.07Bt in 2020.

“We expect EAF prodn to double to ~200Mt by 2040, hence, China BOF prodn falls from the current 920Mtpa to <700Mtpa in 2040. "Conversely we expect China's scrap consumption (EAF and BOF) to rise from ~190Mtpa currently to nearly 300Mtpa in 2040. We do not expect world ex China can act as an offset for iron ore demand."  

ASX iron ore stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.008 0% 0% -68% -73% $ 3,785,018.26
ADY Admiralty Resources. 0.007 17% 0% 0% -22% $ 7,821,474.92
AKO Akora Resources 0.16 -11% 0% 14% -24% $ 15,197,250.24
BCK Brockman Mining Ltd 0.027 13% -10% 4% 0% $ 250,566,267.54
BHP BHP Group Limited 45.1 2% 3% 4% 19% $ 231,945,532,653.12
CIA Champion Iron Ltd 6.51 7% 19% -12% 26% $ 3,419,324,808.35
CZR CZR Resources Ltd 0.13 -4% -19% -30% -54% $ 31,824,177.21
DRE Dreadnought Resources Ltd 0.053 0% 15% -17% -54% $ 178,044,395.50
EFE Eastern Resources 0.009 13% -18% -25% -71% $ 9,935,571.69
CUF Cufe Ltd 0.017 31% 6% -6% -11% $ 17,191,685.48
FEX Fenix Resources Ltd 0.23 -4% -22% -6% -12% $ 159,657,241.60
FMG Fortescue Metals Grp 20.97 5% 3% -2% 20% $ 65,274,056,261.60
RHK Red Hawk Mining Ltd 0.78 -1% 16% 66% 30% $ 132,546,132.95
GEN Genmin 0.18 0% 3% 0% -20% $ 81,275,982.12
GRR Grange Resources. 0.485 5% -4% -37% -35% $ 538,162,494.57
GWR GWR Group Ltd 0.095 7% 10% -14% 14% $ 29,551,932.26
HAV Havilah Resources 0.24 0% -11% -27% -29% $ 71,243,822.25
HAW Hawthorn Resources 0.12 0% 4% 38% 25% $ 40,201,873.56
HIO Hawsons Iron Ltd 0.038 6% 3% -31% -91% $ 32,167,487.07
IRD Iron Road Ltd 0.08 0% -14% -33% -43% $ 64,551,317.76
JNO Juno 0.115 92% 44% 34% -4% $ 10,852,640.08
LCY Legacy Iron Ore 0.015 0% -17% -17% -21% $ 96,102,392.99
MAG Magmatic Resrce Ltd 0.068 15% 3% -24% -51% $ 15,896,025.50
MDX Mindax Limited 0.054 8% 4% -46% -8% $ 110,460,174.12
MGT Magnetite Mines 0.35 3% -13% -36% -74% $ 27,635,417.64
MGU Magnum Mining & Exp 0.032 -18% -16% 78% -11% $ 25,324,543.06
MGX Mount Gibson Iron 0.46 3% 15% -10% 11% $ 552,560,796.52
MIN Mineral Resources. 70.35 2% 11% -12% 3% $ 13,753,162,374.00
MIO Macarthur Minerals 0.18 -14% -5% 44% 13% $ 29,889,627.84
PFE Panteraminerals 0.051 -14% -39% -46% -54% $ 4,999,340.69
PLG Pearlgullironlimited 0.026 4% 4% -26% 6% $ 3,910,405.95
RHI Red Hill Minerals 4.17 2% -3% -5% 13% $ 270,631,351.76
RIO Rio Tinto Limited 118.54 4% 12% 3% 28% $ 44,289,806,492.34
RLC Reedy Lagoon Corp. 0.006 0% -14% 3% -59% $ 3,700,101.53
CTN Catalina Resources 0.004 -20% 0% -33% -56% $ 4,953,947.57
SRK Strike Resources 0.056 -2% 10% -7% -49% $ 15,890,000.00
SRN Surefire Rescs NL 0.015 -6% -6% -17% 7% $ 26,421,815.63
TI1 Tombador Iron 0.022 16% 5% -12% 0% $ 47,459,112.21
TLM Talisman Mining 0.14 -3% -3% 0% -3% $ 28,248,052.35
VMS Venture Minerals 0.01 -23% -29% -52% -62% $ 23,400,156.42
EQN Equinoxresources 0.195 30% 15% 18% 22% $ 7,650,000.17
AMD Arrow Minerals 0.003 0% 20% -57% -40% $ 9,071,295.29
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