Ground Breakers: Stanmore pays cool US$380m to take full control of Queensland coal mines as earnings soar
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What do you do when you’re a coal miner who’s just swung from a US$12m loss to a US$232.7m profit?
Buy more coal.
That’s the path taken by Stanmore Resources (ASX:SMR) which has just slammed US$380 million down on the table to buy the remaining 20% of the South Walker Creek and Poitrel coal mines from Japanese trading giant Mitsui.
It was the logical move for the assets. Mitsui put its share in the JV on the block after BHP (ASX:BHP) sold its 80% stake in the so-called BMC assets to Stanmore earlier this year for an initial US$1.2 billion cash.
BHP was happy to trade away the mines, which produce ‘lower quality’ PCI and semi-soft coking coal.
But since the deal was announced in November last year Russia’s invasion of Ukraine saw PCI prices soar and hit parity with premium hard coking coal due to Russia’s outsized share of global, and particularly European, PCI supply.
The deal has already paid off for Stanmore. Its share price has more than tripled in the past year and in just two months of ownership the $2 billion former small cap saw hundreds of million in profit flow into its coffers from the former BMC mines.
With its production capacity lifted from around 2Mtpa at its Isaac Plains complex to over 12Mtpa overnight, Stanmore generated over US$1b in revenue at average prices of US$377/t in the first half of 2022, almost all of that in the second quarter after the BHP deal closed.
The majority Indonesian owned but ASX-listed miner’s underlying half-year EBITDA was US$726m, up from US$41m for the whole of 2021, with a profit after tax of US$232.7m, against a US$12m loss last year.
Had it owned 80% of the now renamed SMC business for the whole year, the company would have generated US$2.4b in revenue and US$809m in net profit.
The second half will likely not be as profitable for Stanmore after a dive in met coal prices driven by lower steel demand across the world, though supported by a ban on Russian coal in Europe which could see premiums reemerge for PCI coal.
SMR expects to produce 6-6.6Mt of saleable coal in the second half, but has lifted cost guidance substantially across its mines.
While it remains highly profitable, Stanmore’s cash cost before royalties rose from US$78.2/t in 2021 to US$87.3/t in the first half of 2022 on inflation in diesel, explosives, power and equipment parts.
Commodities performed well overnight with nickel up more than 5% to pass the US$23,000/t mark.
But that did little to lift the materials sector, which followed larger falls in other sectors as the ASX 200 dipped by over half a per cent.
Coal miners, including Stanmore, Whitehaven (ASX:WHC) and New Hope Corp (ASX:NHC) were the top performers along with oil and gas stocks as the International Energy Agency lifted its forecasts on oil consumption for 2022 and 2023.
Materials fell 0.48% to 12.15pm AEST, with energy the lone green sector up 1.08%.