Company Reports

Commodity prices generally fell in the September-ending quarter, except for gold. Concerns about weak China end-user steel demand affected iron ore and other steelmaking commodities, while base metals prices fell on worries over slower economic growth in China and elsewhere.

New Hope’s fiscal 2024 result was solid, despite realized thermal coal prices of about AUD 195 per metric ton, declining 43% from the previous year. In turn, its margin per metric ton fell 62% to AUD 89, but nonetheless remains impressive. And while adjusted EBITDA of about AUD 860 million decreased by roughly half, it was in line with our expectations and the company’s third-highest result in its history. Increased unit cash costs and lower prices more than offset 14% higher attributable coal sales volumes of about 8.7 million metric tons. Most of the increase in volumes is due to the first sales from its New Acland stage 3 mine in Queensland.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity sales of thermal coal to rise to about 13 million metric tons in fiscal 2029, up from roughly 8.7 million in fiscal 2024, driven by the ramp up of New Acland Stage 3.

Shares of most of our global mining coverage fell during the quarter, and the average price/fair value estimate has fallen modestly to 1.05 at July 8, 2024 from 1.07 last quarter. While our coverage is close to fairly valued on average, there is a wide dispersion, with no-moat mineral sands miner Iluka the cheapest, trading 30% below fair value at that date. Mineral sands prices are lower, on reduced demand from China’s property sector. Rising interest rates and slowing housing markets in the West are also a near-term headwind. However, longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. Its proposed rare earths refinery in Eneabba is an option, on elevated rare earths prices and potential Western tariffs on Chinese production.

Base metals prices surged earlier in the June quarter of 2024 before partially reversing due to concerns over China’s economy. Iron ore prices are broadly stable despite China's struggling property market and weak infrastructure spending, leading to questions over China's steel demand. After updating our commodity price assumptions, no-moat Iluka is the cheapest miner we cover, trading 31% below its unchanged fair value estimate of AUD 9.50.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2028, up from roughly 7.5 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2028, up from roughly 7.5 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2028, up from roughly 7.5 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

No-moat New Hope’s fiscal 2024 first-half result fell materially on last year's but was broadly in line with our expectations. Adjusted EBITDA of about AUD 430 million declined 60% on the same period last year, driven by lower thermal coal prices. Average prices of AUD 197 per metric ton were 58% down on last year, which more than offset higher coal sales and lower unit cash costs. The AUD 0.17 fully franked interim dividend to be paid in May was higher than we expected, and we now forecast total 2024 fully franked dividend of AUD 0.34 per share, up from AUD 0.27 previously. This represents a forward yield of 7.4%. Given the 19% discount to fair value at which the shares trade, we think share repurchases would be value-accretive and worth consideration. However, despite a strong balance sheet, with net cash and liquid investments of roughly AUD 400 million, New Hope currently prefers dividends to buybacks, given the legal uncertainty over its New Acland Stage 3 mine in Queensland. Environmental groups continue to oppose New Acland. While we think they are unlikely to prevail, until this issue is resolved New Hope’s capital management policy seems sensible.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2027, up from about 8 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

Strong China steel production is supporting prices for steel inputs despite recession concerns. Otherwise, changes to our commodity price assumptions are mixed, led by higher near-term iron ore prices and lower near-term thermal coal prices. We think thermal coal miner Whitehaven Coal and minerals sands miner Iluka are the cheapest we cover. Both trade at 29% discounts to our AUD 9.50 and AUD 10.50 per share fair value estimates, respectively, with Whitehaven’s down 3% on lower near-term thermal coal prices, partially offset by a weaker Australian dollar. Peer New Hope is also down 3% to AUD 6.10 per share. Iluka’s estimate is unchanged, with a weaker Australian dollar offsetting lower synthetic rutile prices.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2027, up from about 8 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

We raise our fair value estimates for no-moat-rated coal miners Glencore, New Hope, and Whitehaven after updating our assumed near-term thermal and metallurgical coal prices. Our updated fair value estimates also incorporate our latest foreign exchange rate assumptions along with higher coal royalty rates imposed by the New South Wales government. New South Wales will scrap the cap on domestic thermal coal prices effective July 1, 2024, which will be replaced with a 2.6% increase in state coal royalties from that date. However, higher royalties are more than offset by improved near-term thermal and metallurgical coal prices and weaker exchange rates versus the U.S. dollar. Our fair value estimate for Glencore increases by 4% to GBP 530 per share and Whitehaven by 3% to AUD 9.80 per share. Our New Hope forecasts already incorporated the new royalty assumptions; however, we increased our New Hope fair value estimate by 3% to AUD 6.30 per share given higher near-term thermal coal prices and the lower AUD/USD exchange rate.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2027, up from about 8 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.

New Hope’s fiscal 2023 earnings were strong despite wet weather in the first half dampening volumes from the Bengalla mine. Underlying EBITDA rose 11% to AUD 1.7 billion versus fiscal 2022, with higher thermal coal prices offsetting 14% lower volumes. We maintain our fair value estimate of AUD 6.10 per share for no-moat New Hope. We raise our expectations for near-term future coal prices and expect a faster increase in volumes from Bengalla. However, we expect a slower start for New Acland stage three with environmental court delays lowering our near-term volume forecasts there.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity salable thermal coal production to rise to about 13 million metric tons in fiscal 2027, up from about 8 million in fiscal 2023, driven by the ramp up of New Acland Stage 3.