Ground Breakers: Newcrest pumps dividend as it knocks back Newmont, Whitehaven makes hay while coal shines
The wolves are at the door, but underperforming Newcrest Mining(ASX:NCM) has moved to keep them at bay, delivering a shock $450 million dividend payout in a hint to shareholders it can go it alone in the face of a $24.5 billion bid from the world’s biggest gold miner Newmont Mining.
A US35cps payout includes a 15c interim dividend and a 20c special dividend from the early repayment of a prepay facility to South American gold miner Lundin Gold, where Newcrest is offtaking gold from its Fruta Del Norte mine in Ecuador.
It came as Newcrest rejected the 0.38 for 1 scrip bid from Newmont, which valued Newcrest shares at a 21% premium to its pre-bid level at $27.16 a pop.
Major shareholders have suggested they would not have supported Newmont’s indicative proposal, holding out for a higher price if Newcrest wasn’t to go it alone in a portfolio that is producing 2.1-2.4Moz this financial year but is expected to get very development heavy with billions in capex required to progress expansions around its Telfer (Havieron), Lihir, Cadia and Red Chris mines in the coming years.
Newcrest also has a significant stake in SolGold and its Cascabel copper-gold porphyry in Ecuador.
NCM has said it would allow Newmont under the hood, offering access to non-public information to inspire the Denver-based 6Mozpa gold giant to come back with a better offer.
But the dividend, which sees the miner payout the entire US15c minimum level in its current policy despite negative free cash flow, sends a signal it can stand alone without the support of the American behemoth.
RBC’s Alex Barkley said the dividend came as a surprise but sent a positive signal for its long-term prospects.
“NCM has a payout ratio of 30-60% of annual FCF, and with a historical 2H skew (~70% in last three years),” he said in a note.
“The interim dividend payment is US$134m vs FCF of negative US$197m. We had expected the same 7.5cps paid in 1H FY22 to again be paid, leaving better cash flow in H2 FY23 to allow a 2H catchup payment.
“However, NCM has opted for a strong 1H dividend; firstly in terms of the interim, and this has been further topped up by the special. NCM said the dividend demonstrates confidence in its ability to fund its growth pipeline while simultaneously providing strong shareholder returns.”
Newcrest’s shares have fallen around 40% since their five-year peak in 2019, but the shock dividend payout was part and parcel of the rose-tinted approach to Newcrest’s first half following the rejection of the Newmont bid.
The company made a statutory and underlying profit of US$293m after producing 1.04Moz of gold and 67,000t of copper in the first half of 2022-23, up 25% and 32% respectively with all in sustaining costs 8% lower at US$1089/oz and margins 17% higher at US$585/oz.
The word interim rang hard on a conference call, with Newcrest’s temporary period of upheaval following the December resignation of long-term MD Sandeep Biswas potentially opening the door for the Newmont bid.
Interim CEO Sherry Duhe, flanked by interim CFO Dan O’Connell, interim COO Craig Jones and chief technical and projects officer Suresh Vadnagra fronted analysts keen to hear more about its rejection of Newmont’s bid, or at least the details around the long-term plans NCM believes it can deliver on its lonesome.
As is often the case, additional details were hard to come by.
“We are not offering, I would say, full due diligence if that’s what you’re suggesting. I think the offer to Newmont is to share limited non-public information simply because the second proposal that we rejected, we just don’t simply see that offers sufficient shareholder value,” Duhe said in response to questions.
“But we are in the spirit of being reasonable, willing to have some conversation to help Newmont better understand the total value of our portfolio.
“We’re a great company with low cost mines with a long reserve life and a growth pipeline.
“We know our portfolio well, we know what we think the upside opportunity is and we’ll continue to, as before, progress all of the studies to the point that they reach technical maturity so we can release them to the market. And that’s really unchanged in the face of this offer and approach.”
Whitehaven Coal (ASX:WHC) shares have dropped as its interim dividend of 32c per share came in well below analyst consensus of 44c despite a record NPAT of $1.8 billion and more than fourfold lift in earnings to $2.7b in the first half of FY23.
That came off the back of record thermal coal prices, which surged in the back end of 2022 in the fallout from Russia’s invasion of Ukraine and a crunch in energy supplies globally, storming to an average $552/t over the six months from July to December.
Whitehaven still had $2.5b of net cash on its balance sheet as of December 31, but has also paid out $592.8m in the form of a share buyback, including $367.4m since launching a Stage-2 25% buyback in October.
Thermal prices have fallen from highs in excess of US$450/t late last year to around US$220/t on a milder than expected northern winter.
But WHC MD Paul Flynn remains bullish on the outlook for the controversial commodity.
“I think this is just a temporary softness that we’re seeing in the market. Met coal prices are improving, China’s taking Australian coal again, we’ve always said is a good thing for improved relations there,” he said.
“For the longer term, obviously, energy security is going to continue to be a real issue. Higher quality coal is gonna be needed for longer.
“And we’ll continue to play that important role, particularly for those 200 million people (Japan, Korea and Taiwan) I mentioned earlier, and without any supply side response coming on here, I think that that bodes very well for the longer term outlook.”
Flynn said the lower than expected dividend came with capital from its expansion of the Vickery mine, softer market conditions and an on average weaker second half than first half in mind.
Flynn also wouldn’t comment on rumours about mines in the BHP BMA Queensland portfolio coming to market, after reports last year the mining giant was looking to trade its Daunia and Blackwater projects.
But he did say he wanted the thermal coal miner to move over time to having a larger proportion of met coal sales, as prices have reversed a strange arbitrage which last year saw thermal coal prices greatly outstrip met coal.
Whitehaven has been a critic of the NSW Government’s proposal, with a number of miners expected to sell coal either beneath the cost of production, or potentially being forced to buy grades they do not export from other coal miners to shift to power generators.
Flynn continued his criticism of the policy, which it has been suggested could see miners have to reserve up to 10% of production for NSW generators at a $125/t 5500kcal equivalent price.
“There’s a lot of dimensions, which I think the government bureaucracy who’s been charged with evaluating this is coming to terms with, and we’ll just have to keep helping them understand the limitations of both the product and the physical nature of this,” he said.
“All in my view at the end of the day here is this is largely a political issue.
“That is my concern. There’s not a shortage of coal going round, it’s a price issue. People’s electricity bills are looking pretty unfavourable from a governance perspective, especially a government that wants to get reelected. And so I think it’s been caught up in all of this quite frankly.
“So there is coal available and if you want to pay an export parity price, then it is available.”
Whitehaven later confirmed the allocation of coal requested through the reservation policy from April 1 through the end of June next year.
“Whitehaven’s mines will be obliged to make certain volumes of thermal coal available for domestic power stations,” the company said.
“In aggregate these volumes are capped at the lower of 200k tonnes per quarter or 5% of each mine’s expected saleable thermal coal production.”
The ASX’s largest pure play coal miner by production volume, Chinese-backed Yancoal (ASX:YAL) today said the policy would pose “logistical challenges”.
“Under the Policy, the Company is compelled to make available up to 395,000 tonnes of coal per quarter to domestic power generators from its attributable saleable production,” it told the market.
“Coal sold under this Policy is subject to a price cap of A$125/tonne delivered for 5,500 kcal/kg products, energy-adjusted.
“In addition to the Policy’s direct impacts on the Company’s sales profile and revenue, the requirement to re-direct coal into the domestic supply chain presents significant logistical challenges.
“The Company has been told by NSW Government that it will not be compensated for the difference between market rates and the price it receives selling volumes under the Policy.
“Compensation may be made available in certain circumstances, such as where costs exceed the capped price of coal. However, the Company has yet to see the final framework guiding compensation and understands this may not be finalised for some weeks.
“The Company will continue engaging with the NSW Government to address any
unintended impacts of the Policy and compensation that the Company should receive for losses incurred due to this Policy.”
Meanwhile, New Hope Corp (ASX:NHC) shares tumbled 6% despite announcing an 89% lift in unaudited first half EBITDA to $1.04b.
NHC closed the half with cash and equivalents of $1.07b, despite a massive drop in coal production as wet weather struck its Bengalla coal mine in NSW.
Coal sales year to date have fallen 39.5% to 3.34Mt and dropped 22.3% quarter on quarter to 1.462Mt. Bengalla has been directed to reserve the lower of 280,000t or 15% of production until June 30 for domestic consumption, but NHC said due to grandfathering of its existing supply agreements it will not be impacted by the price cap until the first quarter of 2024.