Whitehaven’s result (covered yesterday here), accompanied by the announcement of Nippon Steel’s purchase, was well received by the market, with the stock closing up +6.25% on Thursday. Whitehaven agreed to pay up to $US4.1 billion last year to acquire Blackwater and a second BHP mine called Daunia. Thursday’s sale of a stake in Blackwater resolves the question of how Whitehaven will fund next April’s $US500mn instalment, with a capital raise now unlikely. Whitehaven had $1.3 billion of net debt on June 30 before announcing Thursday’s $1.6 billion deal.
We were advocates of WHC’s acquisition of Daunia and Blackwater last year, which transformed Whitehaven from a NSW thermal coal producer into a business that will generate most of its revenue by selling Queensland coking/met coal to steel makers. However, the purchase curtailed WHC’s tremendous dividend stream of previous years, at least for now. For example, WHC will pay a total 20c fully franked final dividend in 2024, compared to 74c in 2023 and 48c in 2023, although the coal price also plays a major role here.
- MM believes that WHC’s glory dividend days will return over the coming years, but investors need to be patient.
Following last year’s $US3.2bn purchase of BHP’s Blackwater and Daunia coal mines, WHC strategically pivoted primarily to a met coal producer, used in steel making, which now delivers ~70% of its revenue across NSW and QLD. Given supply constraints and a strong demand outlook driven by India, which Nippon Steel endorsed, we are increasingly bullish on the met coal outlook.
- We are initially targeting a break of $9 by WHC – MM is long WHC in our Active Growth Portfolio.
MM is long and bullish WHC medium-term
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