Monsters of Rock: Whitehaven keeps wolves at bay… just, Bellevue pours first gold, Gold Road and Regis rep the goldies
Whitehaven Coal (ASX:WHC) has kept the wolves at bay, passing its remuneration report in an eventful AGM.
But the acquirer of BHP’s (ASX:BHP) 17Mtpa Daunia and Blackwater met coal mines has copped a chastening blow, promising to engage with shareholders over the next 12 months after copping a strike on the vote, with 40.62% of proxies voting against the resolution.
That is, in baseball and business terms, a first strike. A second 25% no vote at next year’s AGM would result in a motion to spill the board.
It comes after an aggressive lobbying campaign from London hedge fund Bell Rock Capital, which launched an online and media blitz called Fair Shareholder Returns to encourage a vote against key resolutions at the AGM.
The root cause of the near 5% holder’s discontent was the company’s up to $6.4 billion deal to acquire BHP’s mines, which will make the $6.5b capped thermal coal miner one of Australia’s largest coking coal producers.
Steelmaking coal is currently trading at a big premium to that of the energy variety and demand is considered less prone to green transition risks.
But Bell Rock says the acquisition will stifle investor returns, accusing Whitehaven of paying MD Paul Flynn three times the remuneration of his peers and complaining about last year’s introduction of a single incentive plan that took Total Shareholder Returns out as a KPI.
Whitehaven claimed Bell Rock hid that it actually held an 11% direct and indirect interest in Whitehaven, calling on the Takeovers Panel to get involved and discount its votes. The TP said no dice.
Regardless, the vote would have been strong enough anyway to force that first strike. Over 38% of proxies were also voted against Paul Flynn’s incentive plan awards.
Chairman Mark Vaile said WHC had “quite a bit of work to do” to engage with shareholders over the next year.
“This is disappointing given the terms of the Single Incentive Plan were included in last year’s remuneration report, which received a 92.5% support from shareholders,” he said.
“It is critical that we maintain a remuneration framework that is enduring, supports our business strategy and drives long-term sustainable shareholder value.
“However, we will continue to engage with shareholders on opportunities to enhance our remuneration practices and seek feedback on how we can better meet stakeholder expectation on these matters.
“Just my view in the consultations we’ve had, there has been a concern on the TSR component and there’s been a concern on discretion, which we’ve had many discussions with many institutional and retail shareholders (about).”
The Daunia and Blackwater deal, which will include an initial payment of US$2.1b, deferred payments of US$1.1b and additional payments contingent on coal prices of up to US$900 million, significantly doesn’t require the sign-off of shareholders.
Vaile said a recent survey of 400 retail holders, in what is one of Australia’s three largest pure play coal stocks, came back with 88% supporting its current capital allocation framework.
“We believe the majority of our shareholders support the acquisition and the financial and strategic benefits it will deliver. Certainly the initial market reaction to the deal suggests that is a view the market shares,” Vaile said.
“We do, however, recognise it has been a somewhat challenging time for shareholders in recent months, as we assessed this strategic growth opportunity and observed the appropriate restrictions around confidentiality and information sharing.”
The deal is expected to close in June next year.
Bearing in mind Russia’s invasion of Ukraine did send energy coal surging well beyond met coal to levels in excess of US$450/t last year, thermal coal is currently trading at around US$135/t.
Meanwhile premium hard coking coal is fetching US$350/t, with intermediary products like the semi-hard coking coal and low vol PCI also sold at Daunia and Blackwater in the middle. After June 70% of Whitehaven’s revenue is expected to come from steelmaking coal.
While thermal coal typically attracts a small pool of investors willing to brave the ESG flack, metallurgical coal has a less demonised character. The increased scale and strategic direction Whitehaven is taking will improve its attractiveness to financiers and broaden its institutional reach, Flynn told investors in a Q&A session.
Sitting on $2.45b of net cash at September 30, it had seen banks decline to engage on a new debt facility earlier this year, but was able to get Jefferies and Bank of America on board to help fund the Daunia and Blackwater deal.
… to “green gold”.
The glistening metal was up again overnight to US$1981/oz as war continues to rage in the Middle East.
Safe haven demand has led Aussie gold stocks higher in recent weeks.
One, now hoping it can now get to the next up-leg of the Lassonde Curve, is Bellevue Gold (ASX:BGL), which announced the delivery of its first 8.3kg gold bar yesterday.
It is the first output from the mine of the same name in the northern Goldfields.
Closed in 1997 after producing 800,000oz at 11g/t over around a decade, the mine spent 20 years as a water pit after it was thought a fault ended the high-grade mineralisation.
That was until a then 3c Bellevue picked up the ground in 2017, soon making the Viago and Tribune Lode discoveries that would revive the mine and shoot the firm into the ASX 200.
Now valued at $1.61 billion, Bellevue is trading at a share price of $1.41 today.
With its high grades and renewable power penetration, the company has ambitious plans to target net zero on a tonnes of CO2 per ounce basis by 2026, with renewable energy to comprise 70-80% of its initial mix.
But also, just get a look at that gorgeous, weighty gold. The bar in BGL MD Darren Stralow’s hands clocks in at around $840,000 cash.
That’ll get you a couple of good jumbo operators, for sure.
The newly minted miner says it all came in on time and on budget, though the real proof in the pudding will be in the ramp up as operating costs and production numbers start flowing through.
It’s still a good day for the big MD.
“The start of production is the culmination of an incredible journey which started with an exploration project,” Stralow said.
“To achieve this on time and on budget is a huge feat, particularly given the skills shortage and economic climate of recent times.
“This is a major credit to our construction and operations teams who, alongside our key contractors, have worked tirelessly to deliver this project.”
To a couple of the big dogs of the gold industry, by production at least if not market cap.
Regis Resources (ASX:RRL) ironically trades at just $1.27 billion, well below Bellevue despite its more than 400,000ozpa production rate.
The miner has been urgently busting to expel its hedge book which is, an extremely excited and probably agitated MD Jim Beyer notes, now just nine months away.
Once that happens it may actually be able to enjoy the benefits of its 30% share of the massive Tropicana mine and its 100% owned Duketon operations.
Regis was up slightly today after announcing 111,400oz of gold production in the September quarter at AISC of $2106/oz, including 76,400oz at $2180/oz at Duketon and 35,000oz at $1859/oz from Tropicana.
Its gold sales came in at 106,600oz at a price of $2560/oz, laying bare the impact of its hedgebook.
Other gold miners have pulled in prices closer to $3000/oz for the September quarter. After a hedging loss of $41m, Regis still managed to generate $97m of operating cash before spending $64m in capex, $13m on exploration and $4m on the pre-development McPhillamys project in NSW.
In FY25 Regis, which expects to produce 415,000-455,000oz at AISC of $1995-2315/oz this financial year, could produce $170m in free cash at current prices.
“Gold production and costs are right on plan. It was our first full quarter where all key operating assets were in commercial production and the performance clearly demonstrates the cash generating capacity of the operating assets as they transition to cash harvest phase,” Beyer said.
“With the closure of the hedge book now less than nine months away it is crystal clear that the Company’s free cash flow generation in FY25 is set to accelerate and we expect to deliver more than $170M in additional pre-tax cash flow at current spot gold prices.
“It is also very pleasing to see the next potentially long life growth project at Tropicana, the Havana underground, progress through the Pre-Feasibility stage and onto the next evaluation stage.
“Tropicana continues to prove to be an exceptional long-term investment that continues to grow in value.”
And $2b capped Gold Road Resources (ASX:GOR) meanwhile maintained guidance of 320,000-350,000oz at its 50% owned Gruyere mine near Laverton in WA, with AISC for the 2023 calendar year expected to remain within guidance of $1540-1660/oz.
It produced a record 88,668oz at $1682/oz in the September quarter, with Gold Road’s sales on an equity basis coming in at 44,231oz at a price of $2946/oz, generating some $93.5m in operating cash flow and a record $51.7m in free cash.
Gold Road, which also has a 19.9% stake in De Grey Mining (ASX:DEG) worth in excess of $345 million, was sitting on cash and equivalents of $209.3m on September 30.