The Coal Trader

Whitehaven soars on coking coal pivot

Whitehaven Coal’s shares rose to the highest level in a year after the miner said it had been oversubscribed by lenders and suitors clamouring for minority stakes in its new coking coal mines as part of the producer’s steel industry pivot.

More than 90 per cent of Whitehaven’s sales in the past three months were thermal coal for power generation, but the miner expects about 50 per cent of its future sales to be coking coal for steelmaking, after last year’s $6.4 billion agreement to buy BHP’s Blackwater and Daunia mines.

BHP sold two of its Queensland mines, Daunia and Blackwater, to Whitehaven for $6.4 billion. 

Whitehaven managing director Paul Flynn has previously accused Australian banks of being too reluctant to lend to coal, but his chief financial officer Kevin Ball said on Friday the $US1.1 billion ($1.67 billion) loan to pay for the BHP deal had been “substantially oversubscribed”.

Mr Ball said he was confident that Whitehaven could close the BHP transaction in early April without having to take on further debt.

The deal structure requires Whitehaven to pay $US2.1 billion on completion in April, then a further $US1.1 billion over the subsequent three years.

Whitehaven could have to pay a further $US900 million to BHP in future years if coal prices remain strong. The miner had $1.5 billion of cash on hand at December 31.

Mr Flynn said efforts were under way to sell a minority stake in the Blackwater mine to a strategic overseas customer in the steel industry.

“There is a range of different names in there from different jurisdictions,” he said. Ideally, he would like to sell a 20 per cent stake, but may sell as much as 30 per cent if demand were strong enough.

“It is like the funding, we were well oversubscribed there, so we took a little more,” he said on Friday. “If we are overwhelmed, we are open-minded.”

Whitehaven may eventually sell a stake in the Daunia mine too, but Mr Flynn said he wanted to fully understand the value of combining Daunia with Whitehaven’s adjacent undeveloped coal project (Winchester South) first.

In light of the big spend on acquisitions, Whitehaven has reduced investment in its existing growth projects by between 12 per cent and 22 per cent.

Whitehaven retained its full-year coal production guidance, despite geological challenges reducing output at the Narrabri mine and a major train derailment in the NSW coalfields in December.

Rival miner Yancoal’s supply chain was disrupted by the derailment on the Ulan line, although Whitehaven said it was unaffected.

Whitehaven said strong coal production at the Maules Creek mine would offset the downgraded guidance at Narrabri, and the company still expected its share of coal sales to be between 12.7 million and 13.9 million tonnes in the year to June 30.

Whitehaven shares were more than 4 per cent higher at $8.16 on Friday.