Whitehaven Coal has flagged strong interest in the sale of a stake in its soon-to-be acquired Blackwater coal mine in Queensland, hinting at interest from Indian buyers as well as the Japanese majors who have traditionally partnered the development of Australian coking coal projects. Shares in the company surged on Friday, despite a new hiccup at the company’s Narrabri underground thermal coal mine, after the company said it had seen strong interest in buying a stake in the mine, as well as in last year’s debt funding round.
Whitehaven is not due to close its $US4.1bn acquisition of BHP’s Blackwater and Daunia mines until early April, but the company is already considering taking on new strategic partners in Blackwater, the larger of the two mines. Managing director Paul Flynn told analysts on Friday the company had received a number of approaches from steelmakers keen to buy a stake in the operation to lock in a long-term supply contract from Blackwater, which has traditionally operated on one-year rolling offtake contracts to major customers.
“A lot of this coal has traditionally found itself in the Japanese market, but the Indian market has become a very big piece of the puzzle here. So there is competition for this type of coal,” he said.
“The users of that coal, historically, are understandably keen to secure long term certainty for that volume given that there are newer and big competitors in the market for the same material.”
Mr Flynn said the company would like to sell a 20 per cent stake in the operation to help fund its future development plans — including the Winchester South project, with sits next-door to the Daunia mine. But the Whitehaven boss said the company could consider a sale of up to 30 per cent of Blackwater if it received a compelling offer.
Blackwater produced 1.2 million tonnes of coking coal in the December period, according to BHP’s latest production report, and Whitehaven said integration planning to support the transfer of the mine to its own stable is “progressing well”. Daunia produced 431,000 tonnes of coal in the December period, and Mr Flynn told analysts the company would consider selling a stake in that project in the future, but first wanted to nail down its development plans for Winchester South — which could feed into Daunia’s infrastructure.
Whitehaven will use cash generated in last year’s extraordinary coal price run to fund the acquisition, along with a $US1.1bn lending facility Whitehaven chief financial officer Kevin Ball said on Friday was “substantially oversubscribed”.
Whitehaven suffered operational hiccups at its underground Narrabri operation — the company’s cheapest producer — in the December quarter which, along with falling thermal coal prices, slowed Whitehaven’s cash generation. But Mr Ball played down any suggestion the company may have to return to the debt markets to fill a shortfall.
Whitehaven’s deal with BHP requires a $US2.1 billion payment when the deal closes in April, then a further $US1.1 billion over the following three years. The company finished December with $1.5bn in cash and said it expects to finalise the paperwork for the $US1.1bn lending facility before long.
Whitehaven Coal’s Narrabri underground operation has fallen well short of expectations for the December quarter, with geological issues and equipment failures undercutting the company’s quarterly production results. Whitehaven said on Friday its own run of mine production levels had fallen six per cent compared to the September period to 5 million tonnes — but were up 4 per cent compared to the same time in 2022.
The company said its Maules Creek and Gunnedah open cut mines had put in “solid” performances for the period, with underground production at Narrabri down “due to geological challenges and equipment reliability issues”. Managing director Paul Flynn said in a statement to the ASX the company would leave its annual production guidance unchanged, at 18.7 to 20.7 million tonnes, but had downgraded annual output expectations from Narrabri.
Whitehaven said it received an average $US142 a tonne for its thermal coal in the period — down from $US351 in the December quarter of 2022. Metallurgical coal sold by the company also fetched a sharply lower price, at $US166 a tonne, down from $US312 a tonne. Whitehaven shares on Friday closed up 3.8 per cent to $8.11.
