Monsters of Rock: Coal leads the way on wait and see day for big miners

Coal stocks lead the way as materials records 0.48% gain
BHP shares continue to climb on day after announcing megaprofit

No one really wanted to follow BHP (ASX:BHP) in earnings season, and the big miners wisely left a bit of breathing room as the market digested yesterday’s mega profit and shockingly large dividend from the world’s biggest miner.

One notable fact from its financials was the massive contribution met and thermal coal made to BHP’s earnings, contributing almost a quarter of its profit.

That segment of the materials and energy market was the big winner today, with Whitehaven Coal (ASX:WHC), New Hope Corp (ASX:NHC) and Yancoal (ASX:YAL) all among the big movers.

BHP and iron ore rival Rio Tinto (ASX:RIO) were both up 0.84% as BHP boss Mike Henry’s upbeat take on China yesterday stirred enthusiasm from investors.

Materials stocks rose 0.48%, with the energy index falling 0.59%, despite a shift down in iron ore prices, with Singapore 62% Fe futures lowering 2.11% to US$103.40/t.

Monstars share prices today:

Falling iron ore prices could hit BHP earnings

The market lapped up BHP’s results beat yesterday with gusto.

But some analysts are seeing some darkness on the horizon as the cash generating machine winds back on lower future iron ore prices and rising capex.

BHP expects to increase its capital spending from ~US$6b last year to US$10b by 2024 to sustain its operations including rising spend on decarbonisation projects.

“We expect a downward adjustment to consensus numbers on the back of today’s results as the market recalibrates the future cash flow position in this higher cost, higher capex environment,” RBC’s Kaan Peker and Tyler Broda said.

“Although driven in a large part by weaker iron ore price forecasts ($85/t for FY23), at $25.9bn we remain well below VA consensus of $34bn and costs are likely marginally higher than we had expected. In addition, the capex will shift the FCF generation potential of BHP.

“Although likely to still be better than largest peer Rio Tinto, the magnitude of the higher capex estimates, with negligible near-term directly linked volume growth, will likely see FCF fall in consensus.”