At midday on Thursday, the AFR ran a story that Jefferies trading desk had sold a parcel of 21mn WHC shares, or $157.5mn, post the purchase of the Daunia & Blackwater met coal mines in QLD from BHP Mitsubishi Alliance (BMA) – about 2.5% of the company. London-based hedge fund Bell Rock is touted as the seller after the miner ignored its wishes and went ahead with its growth strategy as opposed to ongoing dividends and buy-backs preferred by the activist investor. Either way, we felt the market absorbed the sale in a very encouraging fashion.
As we’ve said previously, MM, like the market, is a fan of the BHP deal, which will deliver financial market benefits, i.e. a greater degree of funding optionality and potentially increase in the number of funds that could own WHC (thermal coal is the one being snubbed from an ESG perspective), a company with 70% in met coal should be enough to overcome some mandate restrictions i.e. Steel is required for urbanisation, but importantly, steel is also required to build infrastructure for the energy transition, with very little new supply on the horizon (unlike Iron Ore which will have a greater supply response).
WHC’s share price will be largely dictated by the price of coal, but after tumbling more than 60% over the last 12 months we believe the risk/reward has moved towards the bulls, and we may consider increasing our 4% position into dips.
- We like the deal struck by WHC with BMA and can see plenty of dividends/buybacks in the future for patient investors: MM holds WHC in its Active Growth Portfolio.
MM remains long and bullish toward WHC.
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