Ground Breakers: Once struggling coal miner is now a yield monster, Nickel Industries gets Tesla visit, Sandfire posts loss

$600m capped coal miner Terracom continues to pump out the dividends, with $220m of shareholder returns in nine months
Nickel Industries touts green credentials at Indonickel projects
Copper miner Sandfire trades down on loss

Coal miners, gritty and dirty, the bygone ghosts who lost Thatcher’s England and eternal targets of political fury.

Also, some of the top yielding stocks on the ASX in a world that was never supposed to happen, powered by Russia’s invasion of Ukraine and a collapse in investment that left incumbents on top in a world baying for their departure.

Yes, coal still has a market and over the past year it has been an extraordinary one that has made princes out of frogs.

No more stark is the story of Terracom (ASX:TER), the owner of the Blair Athol mine in Queensland and a handful of collieries in South Africa.

It returned 7.5c a share to investors in its half year results today off a $180m profit.

It is the third consecutive dividend paid quarterly by the $600 million capped junior, following two 7.5c ordinary dividends and 2.5c special payouts offered to investors after its full year results in June and quarterly activity report in September.

Based on around 800 million shares on issue, that is $220 million of returns to shareholders in under nine months. Unreal.

The dividend yield, according to Terracom, has been 23% this financial year on its current share price, an eye-watering number.

The profit number was up over $120 million from ~$57m in H1 FY22 and a $60 million loss in H1 FY21.

Thermal coal prices have moderated somewhat this year, falling from highs in excess of US$450/t in the second half of 2022 to a touch under US$200/t today. Those Newcastle 6000kcal prices remain historically high.

Even higher from a historical perspective are coking coal prices. Australia’s top quality product is now fetching in excess of US$370/t.

TER shares stormed 6% on the dividend announcement.

More is likely to come if thermal coal prices hold at current levels. Terracom has a policy to pay out 60-90% of profits each quarter, with the most recent payout representing a ratio of 77%.

Terracom (ASX:TER) share price today:

Tesla visits Nickel Industries as miner looks to prove Indonickel can meet green goals

Nickel Industries (ASX:NIC) is without doubt one of the top growing miners on the ASX, having leveraged a relationship with China’s largest stainless steel maker Tsingshan and the incredible growth of Indonesia’s processing sector to become one of the world’s top nickel producers.

It has become a regular dividend payer, with a 2c per share return today coming off the back of a near doubling in sales revenue to US$1.217 billion for FY2022, lift in profit after tax from $176m to $209.4m and rise in EBITDA from $242.5m to $339.2m.

NIC owned a single DSO nickel laterite mine when Indonesia’s shutdown of unrefined exports in 2014 halted its initial plans.

That turned out to be a blessing for the company, which has now taken majority stakes in four nickel pig iron plants with nickel metal capacity of over 100,000tpa and raised US$471m in January to underpin investments in a variety of battery grade nickel projects to grow its class 1 nickel exposure.

The big knock on Indonesia’s coal heavy nickel processing sector has been that it presents environmental and supply chain risks for battery makers in comparison to class 1 nickel sulphides producers in places like Australia and Canada.

But MD Justin Werner is touting its credentials as it moves into the nickel for battery space with an initial 10%, US$270m stake in a high pressure acid leach plant in Indonesia.

He made a big point of noting the company’s Green PROPER status from Indonesia’s environment and forestry service for its Hengjaya mine, one of the world’s ten largest nickel orebodies and one of just two to receive the rating along with one owned by global mining giant Vale.

It has drawn some of the world’s leading battery and EV makers, including Tesla, to the site to inspect the provenance of NIC’s battery supply chain.

“The mine really has become a showpiece for sustainable and responsible mining,” Werner told analysts.

“We’ve had numerous Western OEM and EV makers, including Tesla, come and visit the mine to see what what a good nickel laterite mining operation can can look like in Indonesia, as numerous customers take more of an interest in upstream and you know the source of ore for the production of nickel metal particularly for the battery market.”

Werner said NIC is continuing to review opportunities to delve further into the battery market, touring battery plants Tsingshan has been establishing in China recently.

“This is really the first sort of step for us, we’ve still got a lot to do with the HPAL,” he said.

“But look, we will always look at opportunities if they’re if they’re value accretive.

“At this stage, the next focus really will be just executing that nickel sulphate and nickel cathode strategy and then diversifying our production base into more of that class one nickel and cobalt space.”

Nickel Industries (ASX:NIC) share price today:

Sandfire posts loss

Sandfire Resources (ASX:SFR) is the next copper stock on the ASX with OZ Minerals (ASX:OZL) about to be taken off the shelf by BHP (ASX:BHP).

But it’s lost some serious momentum amid a tough transition from its long-running but depleted DeGrussa mine in WA to the MATSA copper complex in Spain as its major asset.

Sandfire paid a high price for the mine, sending $2.6 billion in the direction of owners Mubadala Investments and Trafigura last year.

That required a big chunk of equity and, significantly, debt. With cash of US$263.7m and net debt of US$378.3m, paying that off is a major focus, with dividends to shareholders pushed to the side.

Today’s half year results saw Sandfire record record sales revenue of US$431.7m, up from US$311.8m a year earlier, with payable metal sales of 46,005t copper, 32,813t zinc, 4125t lead, 11,785oz gold and 870,000oz silver.

Group EBITDA was US$135.9m, down from US$161.6m a year earlier, with MATSA making up US$89m and DeGrussa contributing US$80.3m, but operating cash flow fell further from US$193.1m to US$68.2m, with profits swinging from a US$55.2m profit to a US$27.1m loss.

A period of weaker copper and zinc prices in the second half of last year as Covid strangled the major Chinese market played a role, with average prices of US$8098/t copper and US$2987/t zinc comparing unfavourably to the prior year when average received copper prices came in at between US$9600-10,600/t, near all time highs.

With a new mine at Motheo in Botswana also on the way, acting CEO Jason Grace said Sandfire is seeing improved margins in the March quarter at MATSA, with lower energy prices in Europe and stronger metal prices so far this year.

“The combination of rising inflation and input costs – notably the spike in European energy costs during the half-year – together with slightly weaker metal prices and a significant increase in
depreciation and amortisation charges due to the capitalisation of the MATSA acquisition, resulted in a net loss after tax for the period,” he said.

“However, with production guidance maintained at 83-91kt of copper and 78-83kt of zinc for FY2023, energy costs easing in Europe and a strengthened copper price since the start of the year, the second half of FY2023 has started on a positive note with improved margins seen in the March 2023 Quarter.

“The recently completed successful capital raising has also allowed us to further strengthen and derisk our balance sheet, with net debt of $378 million at the end of the reporting period, while also providing a strong platform to support our longer-term growth strategy.

“I would like to take this opportunity to congratulate our team in Botswana for the execution and delivery of the Motheo Copper Project on schedule. We recently hosted a group of investors to site to see this impressive new facility, and we are now preparing for the start of production in the coming weeks.

“This will mark a very exciting milestone for Sandfire – being our first mine in Africa – and together, with production from our cornerstone MATSA Copper Operations in Spain, puts us in a great position to capitalise on the strong copper price and the increased demand for copper as the world’s decarbonisation efforts continue to gather speed.”

RBC’s Kaan Peker said Sandfire delivered “no real surprises”, though NPAT missed both RBC and consensus estimates on interest costs.

“SFR had provided revenue, operation EBITDA, net debt, key unaudited cash flow numbers, as well as guidance update as part of its December Quarterly results in January, de-risking the interim result and guidance has been retained. It looks like Consensus numbers are a bit stale, given the difference on pre-announced P&L and cash flow metrics (Revenue, EBITDA and Net debt),” he said.