Ground Breakers: Stanmore sees Indian Summer for steelmaking coal

Stanmore Coal posts big profit lift, but falls as first half cashflows and underlying earnings cop price and costs hit
China may have peaked but SMR boss Marcelo Matos believes India will power a rise in steelmaking coal demand as it ramps up blast furnace construction
Miners fall as lithium stocks tumble

Stanmore Coal (ASX:SMR) CEO Marcelo Matos says the Indonesian backed coal producer sees major growth in the coking coal industry in the years to come.

He says India will be a major growth engine, saying production of steel from the blast furnace route will continue to rise, with the South Asian country continuing to invest in new build basic oxygen furnaces.

The age of the BOF fleet in India and China, the world’s largest producer, poses a major challenge to any shift to so-called ‘green steel’. The near 2Btpa sector worldwide is responsible for around 8% of global CO2 emissions and currently produces more tonnes of carbon dioxide than it does steel.

Matos’ bullishness in the outlook for steel producers globally comes despite fears from some major steel supply chain that China’s output, which hit a top of 1.065Bt in 2020 but looks set to fall marginally for the third straight year in 2023, may have already peaked.

“We still see out of the rest of the world ex-China steel production growing through the BOF route, which includes India which is still building blast furnaces,” he said.

“I was here last week with the CEO of Tata Steel who was visiting Australia. And it’s incredible the amount of growth which is expected in India through the blast furnace route going forward.

“Again, we have a unique position on the ASX in this context of steel production increases and our strong met coal platform.”

Stanmore says India will put on an additional 42Mt of BOF steelmaking capacity by 2027.

No dividend as Stanmore delivers big profit lift

The full integration of the South Walker Creek and Poitrel mines formerly owned by BHP (ASX:BHP) and Mitsui drove record revenue and profits for Stanmore in the first half of 2023.

One of the world’s largest PCI coal producers, largely owned by an entity controlled by Indonesian family dynasty the Widjajas, Stanmore generated US$1.493b in revenue for the half year, up from US$1.096b a year earlier.

Its profit after tax lifted from US$233m to US$340m, with EBITDA up from US$435m to US$650m, though underlying EBITDA was US$76m lower as average prices pulled back from US$377/t to US$250/t and costs lifted from US$87/t to US$97/t.

That saw cashflow fall 30% to US$395m despite run of mine coal volumes lifting from 3.9Mt to 9.1Mt and total coal sales more than doubling from 2.9Mt to 6Mt (saleable production 6.4Mt).

However, SMR expects to see costs normalise through the second half, falling to between US$83-89/t and US$87-93/t for the full year on full year saleable production of 12.3-13Mt.

Matos says inflation remains a challenge but that the worst of cost increases has been seen already. Labour costs remain a major hurdle.

“We’re still have an inflationary environment as we all know, just as an example we are going through an EA negotiation in South Walker,” he said.

“The EA is expected to renew in March next year and in the last two renewals it was in a very different environment.

“So labour costs are still under pressure as you know, three and a half percent unemployment in the country.”

Stanmore decided not to pay a dividend despite hitting a net cash position of US$70m, delaying to the full year especially with a sweep on its debt still in place.

It is also rumoured to be in the running for one or both of BHP’s Daunia and Blackwater mines, to be carved out of the mining giant’s BMA JV with Mitsubishi.

“I’d rather not comment,” Matos said.

“I’d just leave you with the comment that obviously Stanmore will always be looking at opportunities that fit with our existing portfolio and that would have a good value proposition, that includes organic and inorganic growth.”

Stanmore Coal (ASX:SMR) share price today

Miners tank on tough Monday

Stanmore fell more than 3% but was no orphan when it came to large and mid cap miners today.

The materials sector cratered to a 1.28% fall, led by the Pied Pipers in the battery metals market to a red morning.

Falling lithium prices in China have put the cat among the pigeons, dropping to the low US$30,000s range late last week.

Pilbara Minerals (ASX:PLS) shares fell around 5% this morning to $5.04, with Allkem (ASX:AKE) and MinRes (ASX:MIN) also among the hardest hit large caps.