Thoughts on coal & energy caps?

Hi Sidney,

We wrote the following recently about the coal price caps:

• Australia produces around ~500mtpa of coal, of that, ~50mtpa stays in the country and is used by domestic utilities.
• This is sold on a cost + formula with prices ~$140-150 at the moment. This will now be capped at $125 pressuring margins for those producers.
• These producers include Peabody, Anglo, Centennial & BHP to a smaller degree.
• Whitehaven Coal (WHC), New Hope (NHC), Stanmore (SMR) are exporters – this does not directly impact them.
• Interestingly, the producers selling domestically have the ability to reduce domestic sales by up to 20%, and this sort of move will incentivise them to do just that, so expect 20% less coal to stay in the country, which is not a good thing for power prices.

NB: MM is very much in favour of sustainable / green energy, but from an investment standpoint, we need to be acting on the facts presented to us, and for now, we continue to believe there is $$ to be made by having some coal exposure.

Regarding the AAA – this is an ETF that just rolls cash around major bank short duration term deposits. If execution costs are low then this can make sense as a cash holding, however, to MM, we like doing things direct where we can. Cash in our view should be held in cash, equities held direct where possible, the same for bonds etc. this has always been our preference.

For returns , think the 30 day bank bill type return which is 3.03% currently. Prevailing interest rates dictate this return.

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Whitehaven Coal (WHC)

LAST UPDATED 16/12/2022 16:31

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Whitehaven Coal (WHC)

LAST UPDATED 16/12/2022 16:31