- Coal miners continue to climb, with Yancoal predicting prices will remain strong for the rest of 2022
- Yancoal is weighing up M & A as its cash pile builds, with Whitehaven also hitting an all time high
- Energy sector leads gains on Friday, with the sector up almost 4%
Coal stocks have surged again today, leading market as energy concerns across the world return to become the dominant investment theme.
Oil prices are edging back in the direction of US$100/bbl, with gas prices in Asia near five month highs and coal similarly pricey.
Metallurgical coal has even come back into favour, returning to US$250/t after threatening to dip below US$200/t a few weeks ago.
Russia’s invasion of Ukraine has been supplemented by other issues, including low water levels in German waterways, Chinese power shortages and a northern hemisphere heatwave to push the price of energy back up.
Yancoal (ASX:YAL) surged by 6.16%, as the Chinese-backed miner’s Australian boss told investors its sales into Europe became 9% of its business, a nine-fold increase, in the wake of Russian coal’s rejection from its traditional marketplace.
CEO David Moult thinks issues that have fired thermal coal prices beyond US$400/t this year, including wet weather in New South Wales and high demand from all corners of the globe, are going to keep prices above normal levels going into next year.
“Coal markets into next year, all I would say is at the moment we’re looking as though for the remainder of this year, those (things) that have impacted the coal price in the first six months look to be continuing to the second six months,” he said.
“We are still getting some effect from the rain even if we don’t get any more rain this year, we’re still having that recovery period.
“And that’s affecting all the producers in New South Wales so there is a shortage of supply, especially in the in the low ash, thermal coal area.
“As we move into 2023, I think it will depend on on many factors. If you go back, pre the Ukraine crisis, the coal price was already at a higher and stronger level than maybe we would have expected it to be at that time.”
Coal equities float above the pack
Yancoal on Wednesday announced a record half-year result, with the largest pure play coal miner on the ASX declaring a $696 million dividend after sky high commodity prices drove a 1447% lift in profits to $1.74 billion.
The reversal of fortune in the coal market over the past 12 months has boosted its cash on hand to $3.4 billion as of June 30, with net debt of $232m. The company is likely to be in a net cash position now, meaning it is primed for M & A.
Some big met coal assets could well be on the market, with rumours BHP (ASX:BHP) would like to see some of the mines in its BMA portfolio in Queensland, where the Big Australian is also having a hissy fit over new steep royalty charges from the State Government.
While thermal coal (13.3Mt of Yancoal’s 15.7Mt of attributable half year output) is currently fetching a large and unusual premium over coking coal, Moult said met coal was the commodity of more interest to the $7.5b company, which could also diversify outside coal into commodities like lithium and renewables.
“We don’t have a target size of an M & A, it depends what opportunities arise and how we think they would be synergistic or fit within the Yancoal portfolio,” Moult said.
“Australia or overseas, we are open to both. We certainly are not against additional coal investment, metallurgical coal would be our preferred to balance our thermal coal and add to the metallurgical coal we already produce from our mines in Queensland.
“But again, we are looking at different geographical areas, different countries and different commodities. And at the moment we’re working through a process and bringing this down to a few target areas and a few target commodities.
“We are the moment keeping a very open mind as to where we diversify, but we are certainly not against further investment in coal here in Australia, or other minerals in Australia.”
Yancoal was itself a target for its major shareholder, China’s Yankuang Energy, a few months back. An independent board committee rejected its “lowball bid”.
Yancoal (ASX:YAL) share price today:
Energy and mining stocks enjoy strong end to week
Energy stocks rose almost 4% with the materials sector, largely comprised of the major miners, added 0.82% on a strong day to end the week.
Whitehaven Coal (ASX:WHC) ended the day up 6.2% on $7.36, hitting an all time high that eclipsed its 2011 records.
O&G stocks Santos (ASX:STO) and Woodside (ASX:WDS) also made major gains while gold miner Newcrest (ASX:NCM) led the hard rock miners after posting stronger than expected profit and dividends for the 2022 financial year.