"As we have argued for a time, New Hope operates a low-cost thermal coal mine that is geologically simple and fully permitted. It has no debt, a long history of excellent capital allocation, and high-quality, aligned management. To top all that off, it trades at an attractive price.
At spot prices, we expect an astonishing free cash flow yield of around 40%. This is, of course, unsustainable, but even at half today’s coal price, with long-term prices at US$70 a tonne, New Hope should generate a free cash flow yield in the double digits.
We’ve made the case for coal exhaustively and constantly (see The end of coal?). The strengths of those arguments, and our convictions in them, aren’t shaken by this action.
We don’t know why the last chief executive left. We don’t know if that has any significance beyond that action. We do know that the business is operating smoothly, spitting out cash, and the investment case remains on track."
NHC Price at posting:
$2.40 Sentiment: Buy Disclosure: Held
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