Monsters of Rock: First Queensland, now New South Wales, booming coal miners bite their nails on the impact of government intervention

• Whitehaven Coal boss Paul Flynn issues concerns over NSW Government’s expansion of its domestic coal reservation policy
• Coal miners WHC and YAL run after reporting massive earnings
• Materials and energy end the week on a high

Whitehaven Coal (ASX:WHC) shares have climbed more than 6% on a massive trading day for coal stocks flying in the face of concerns over an expansion of the NSW Government’s domestic coal reservation scheme.

Whitehaven boss Paul Flynn was outspoken on his concerns about the policy which the Australian says could see between 7-10% of local coal miners’ production, outside of previously contracted tonnes, reserved for the domestic market at $125/t.

It is a price that is not only a quarter of the price being extracted by booming coal producers seeing record profits from sales into the tight Asian and European coal markets, but also below the cost base of some miners hammered by wet weather, labour shortages and inflation.

BHP (ASX:BHP) this week revealed its NSW Energy Coal operations, the 15Mtpa Mount Arthur Thermal coal mine in the Hunter Valley, would see costs rise to US$84-91/t (~$130) in FY23 after opex blowouts in the first half of the fiscal year.

With record profits and major returns to shareholders over the past year following Russia’s invasion of Ukraine, coal miners already demonised by broader ESG forces have faced political pressure to do more to relieve domestic energy shortages and prices, including a Federal Government cap on east coast prices and royalty hike in Queensland.

Whitehaven shares surged today after the company announced it expects to report a more than fourfold year on year increase in EBITDA for the first half to $2.6 billion after generating $2.5b in cash in the half year ($1b in the December quarter).

After a rain affected September quarter, Whitehaven’s four NSW coal operations delivered run of mine production of 4.8Mt (up 21% on the September quarter and 50% on December 2021), and equity sales of 3.4Mt (up 16% and 20% respectively).

Prices of $527/t were down slightly on the $581/t in the September term, but still more than double the $211/t average price in December 2021, with a record average H1 coal price of $552/t.

“Expropriated”

While investors were drinking in Whitehaven’s positive news on prices, earnings and production, Flynn was taking aim at the New South Wales Government and Treasurer Matt Kean’s reservation policy changes.

They came about because of a flagged shortfall from production issues at miners who have traditionally supplied NSW power plants and had already been directed to reserve around 18.6Mt of production from April 1 2023 to June 30 2024.

WHC is not one of those, and unsurprisingly Flynn is unhappy about the prospect of being dragged in.

“It’s a strange world that we’re living in, there’s no doubt about it, you think you know the jurisdiction you’re operating in,” he said on an analyst call.

“And it’s very strange waking up one morning thinking that a portion of production is about to be expropriated by the government, so that’s very odd.

“So there’s not a lot of detail yet, we’ve had information requests, we’re providing information, there’s a lot of concerns here on various levels, of course.

“The most obvious one is whether or not this policy, hastily cobbled together as it seems to be, will actually deliver a benefit for the average person on their electricity bill.

“I mean, there’s plenty of big moving pieces of the puzzle and obviously, the sacrifice is tonnes to be devoted at a cut price is large and immediate and the flow on impact into a customer’s electricity bill would be somewhat down the track and how the government intends to actually police that just is beyond me.”

Flynn argued Whitehaven’s production, largely geared towards the 6000kcal high CV thermal export market, was not a grade typically used in domestic plants, with large logistical challenges to actually deliver its product into that market.

“That’s the point we’re making very clearly to the government that wouldn’t be the highest and best use of our coal,” he said.

“They’re obviously trying to solve a problem with a shortfall from some of the mines that traditionally have supplied those power stations.

“The other thing, I think, which is just worthwhile acknowledging also, which we’ve been at pains to highlight in that initial meeting we had with the government, there is the logistical challenges of even delivering our coal to a number of these power stations, the logistics is practically impossible for some of them.”

Flynn cautioned the market was extremely tight and there were few uncommitted tonnes in the short term, saying more transparency was needed on the scale of the shortfall that needed to be covered.

“There’s too many stakeholders involved in this thing that it demands transparency, in terms of that assessed shortfall, because if I’m on the generation side of things, say for instance, it will be very easy for me to say I’d love to buy lots of coal at the moment at $125 Aussie,” he said.

“We can see the various competing interests here, so we think the solution to all of that is just to make sure that there’s the highest degree of transparency that can be provided to give everyone comfort that we’re all working in the same direction to solve the same problem.”

Whitehaven Coal (ASX:WHC) share price today:

Yancoal rakes in cash

Another coal miner raking in the cash in December was Yancoal (ASX:YAL).

The Chinese backed producer mined 11.5Mt of ROM production at a 100% basis, with 6.6Mt of attributable saleable production and 6.9Mt of attributable sales at an average selling price of $422/t in the December quarter.

The miner has paid down US$2.76 billion in debt over the past 15 months, leaving it with a massive $2.7b in cash, even after big dividend payouts last year.

But it has flagged a potential blowout in operating costs beyond its $84-89/t range after wet weather, pandemic disruptions and labour shortages saw full year saleable coal production fall 5% below its 31-33Mt target.

CEO David Moult remains confident in the strength of seaborne coal markets in 2023 despite a gradual recovery in supply after a weather and supply chain cooked 2022.

“Supply side constraints and global energy market uncertainty lifted international thermal coal prices to record levels in 2022,” he said.

“The supply side recovery is likely to occur gradually, and structural imbalances should persist in the international market. We anticipate international thermal coal prices to remain well supported in 2023.”

YAL closed less than 30c off its all time high after rising more than 4.5% to $6.64 per share. It sold 24.6Mt of thermal coal and 4.7Mt of met coal in 2022 (down 22% YoY) at an average price of $378/t (up 168% YoY).

Energy finished the day up 1.4% while the materials sector closed up 0.86%, powered by a lift in gold prices to over US$1925/oz and record cash generation from lithium beast Pilbara Minerals (ASX:PLS), putting on 13.18% after announcing it made $851.1m in cash after costs in the December quarter.

Monstars share prices today: