Australian coal miner Whitehaven shares surge 150% since Ukraine war

Coal is unloaded in large piles at the Ulan coal mines near the rural town of Mudgee in central New South Wales, Australia, on March 8, 2018.

david gray | Reuters

Shares in Australian coal producer Whitehaven have risen 200% this year.

The Australian-listed miner’s share price has risen 150% since the Russia-Ukraine crisis began in late February, reaching an all-time high of A$7.90 ($5.47) on Wednesday. .

In other words, an investor who bought Whitehaven shares late last year would have seen their investment increase more than threefold.

Chatter among stock watchers on the popular Australian stock market online forum HotCopper has also increased.

Some were excited about Whitehaven’s all-time high, while others were wary its share price might be “too high.”

But one analyst had words of warning.

For investors considering whether to cash in on stocks, they should beware as shares are now highly speculative, said Australian equity analyst Under The Radar Report, mining analyst Peter Chilton.

“It’s a good company, but there has been a lot of exuberance in the share price, which is not sustainable,” Chilton said.

Based on last full year’s results, Whitehaven is unprofitable. The coal producer had around A$500m in losses last year, including impairment write-offs.

Last year, he attributed its poor performance to the high value of the Australian dollar, Covid-19, production problems and, ironically, the fall in the price of coal. The company is due to release its latest 2022 annual results on Thursday.

But this year, what’s underpinning Whitehaven’s rise is the meteoric rise in the price of thermal coal, the world’s benchmark fuel for power production.

The price of fuel soared even faster after the war in Ukraine began, with high-quality thermal coal trading at record highs above $400 a ton. By comparison, in the last ten years, high-quality steam coal has sold for between $50 and $120. tonne

The crisis in Ukraine and the subsequent ban on the import of Russian coal by the European Union, which came into force in early August. – has eliminated a part of the world’s supply of coal. It has forced many European countries to go further afield to Australia for fuel., driven by increased urgency as winter approaches.

The International Energy Agency warned in a report last month that global coal demand will return to an all-time high this year, while coal consumption in the European Union could rise 7% this year on top of the 14% jump from last year.

Efforts to curb emissions have been put on the back burner, with coal being “the single largest source of energy-related carbon dioxide emissions,” the IEA said.

“As other coal producers face constraints in replacing Russian production, prices in coal futures markets indicate that tight market conditions are expected to continue well into next year and beyond,” the IEA said in a statement. a statement in July.

Impact of Russia’s war on Ukraine

The Russia-Ukraine crisis has exacerbated what had already been a tight coal market, said Pat Markey, managing director of Sierra Vista Resource, a Singapore-based commodity consultancy.

“Stronger gas markets have underpinned the strength in coal-fired generation, so this has increased demand for thermal coal,” Markey said.

“Even before the Russo-Ukrainian war, there has been a general lack of investment on the upstream side of the coal business, as a result supply has not kept pace with demand, supporting the price of coal.”

It’s not just Whitehaven that has benefited, but also its thermal coal mining peers, including New Hope, Terracom and Yancoal, Markey said.

On Monday, New Hope released quarterly results that revealed that its earnings (EBITDA) almost doubled from the previous quarter.

Terracom’s share price is now almost 1 Australian dollar, up from 20 cents at the beginning of the year.

Last week, Anglo-Australian miner BHP posted its highest annual profit in 11 years as a result of high coal prices.

“Basically, the price of thermal coal is through the roof … it’s at historically high levels. Like many commodities, including oil, there have been supply shortages due to reduced investment,” said Chilton, an analyst of mining.

“We are careful if [coal prices] can go higher, because we’re surprised it’s gone that high.”

Markey said that in the medium term, the market appears to be supportive of high coal prices and Whitehaven has an advantage given the high quality of its coal, but he would not say how high the share price could rise.

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