Monsters of Rock: Whitehaven slides as analysts review FY results and a weaker vintage of Grange

Whitehaven takes a hit as analysts issue warning on near-term earnings
Grange take even bigger hit on sliding iron ore profits
Materials and energy stocks limp into the weekend

Whitehaven Coal (ASX:WHC) couldn’t have had a better day yesterday, despite cutting its dividend after banking a US$1.08 billion ($1.6bn) take from two Japanese steel mills to backfill cash splashed on the Blackwater and Daunia coal mines from BHP.

Today, the opposite, with WHC giving up its M&A gains with a 6.4% slide.

Some unease from analysts probably played a role.

Paul Young and Caleb Heiner poured cold water on any suggestions the sale price was a major win, saying it came in ‘broadly in line’ with their bank Goldman Sachs’ NPV for the met coal assets.

Instead, they’ve placed the focus on the higher-than-expected cost guidance they saw in WHC’s results yesterday.

“Unit costs are expected to increase to A$140-155/t, which is well above our A$133/t forecast and VA cons at A$123/t,” Young and Heiner wrote in a note to clients.

“Most of this is inflation, higher cost associated with the small Vickery starter pit in NSW, impacts from the safeguard mechanism, and higher waste stripping in Queensland, where unit costs averaged A$147/t in the June Q, implying unit costs of A$160/t or so for FY25 on our estimates.

“This is broadly in line with Bowen Basin coal peers in 2025 and is a function of waste stripping catch-up, with half of the dragline pits needing to be straightened up.”

At the same time, they noted Whitehaven has taken measures to reduce workforce numbers and costs at its newly acquired Queensland mines, though only its legacy NSW assets are contributing to dividends at the moment.

GS had taken its 12-month price target down 13% to $6.80 from $7.10 on the back of higher D&A, lower-than-expected production guidance and higher-than-expected costs, telling investors earnings per share will fall 41%, 57% and 57% respectively over the next three years.

GS is also bearish on thermal coal, a market where it says rising exports, lower marginal costs and lower Chinese demand will cut prices from ~US$146/t currently to US$120/t by the end of 2024.

It’s more bullish on met coal, seeing cost support at US$220/t (around 10% above current levels), but Young and Heiner think the “fully valued” Whitehaven will be free cash flow negative in the next two years as they continue to pay down debt and make progress payments to BHP.

That could change once the 30% sale of Blackwater to Nippon and JFE Steel clears.

Barrenjoey also downgraded Whitehaven from a buy to a hold.

Grange a weak vintage

Some vintages of Grange are highly sought after, the 2024 model of the Tassie iron ore miner Grange Resources (ASX:GRR) not as much.

It saw revenue slide 16% from $278.4m to $234m YoY in the first half of 2024, with profit down even further by 62% from $70.4m to $26.5m.

Despite delivering a 0.5c interim dividend the high-grade magnetite iron ore exporter, which suspended its half year dividend in 2023, was down 8.3% today.

Grange lifted pellet production from 1.19Mt in H12023 to 1.22Mt, but saw sales slide from 1.21Mt to 1.05Mt YoY in the half.

Operating costs were also up from $137.41/t to $152.79/t, with labour costs and ageing equipment that required servicing to blame.

GRR’s cash position remained healthy, up from $282.06m at December 31 to $289.6m, but prices were down from US$134.93/t to US$120.43/t YoY.

But it has some big capital items coming up. Grange is planning to provide approval for an underground development beneath the North Pit at the historic Savage River mine at the end of the year, and is upgrading its power infrastructure to phase out coal burning over the next three years.

The broader materials market was down 0.66% and energy off 1.14% to trail the rest of the ASX 200 aside from utilities, with a number of gold, coal and lithium miners in the red.

Chalice Mining (ASX:CHN) was up over 5% after committing to a range of cost reduction initiatives, trimming its board from six to four with the departures of Linda Kenyon and Jo Gaines and cutting monthly expenditure from $2.4m to $1m a month for the next four months.