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Whitehaven Coal Ltd (WHC) $6.95

WHC is evolving its business, away from primarily thermal coal used in power generation which has historically accounted for the bulk of their revenues,  to a more balanced operation where metallurgical coal used in steelmaking will become the primary driver of revenue, accounting for around 70% of sales after last year’s $6.4 billion agreement to buy BHP’s Blackwater and Daunia mines which is on track to complete in April, i.e. like MM, WHC believes coal has a future far longer than many hope/believe. While the result was a touch soft last week in a few areas, there was nothing concerning us in the numbers, the share price reaction was too harsh and not helped by the NHC result yesterday:

  • From a valuation perspective, WHC is trading ~15% below its global peers for FY25, which we believe is unjustified.

So, what’s their plan from here? They will likely sell stakes in both Blackwater and Daunia assets once the sale completes with Blackwater first on the block and the key to alleviating some balance sheet concerns.  This would likely be to a strategic buyer with 20% tipped to yield more than $US500mn, For some added spice, there is speculation around Indian buyers Avidys or JWS, and if that was the case, it could be the first step towards WHC &/or some of its assets, with both having eyed Australian coal assets for many years. The price achieved for Blackwater will be important, especially as they will likely sell down 20% of their Daunia assets as well.

Valuing WHC primarily comes down to coal price projections over the coming years, but we believe as the world’s need for coal persists into the next decade, WHC will again become the cash cow of the last few years.

  • We feel the short-term movements in WHC are guesswork, but we like its medium-term strategic stance – MM holds WHC in our Active Growth portfolio.
MM is long and bullish on WHC
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Whitehaven Coal Ltd (WHC)
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