From The Intelligent Investor yesterday:
"The coal boom isn't over. New Hope, at its out-of-cycle interim results, reported a net profit of $252m and operating cash flow of $130m, even as coal prices sank almost 60% compared to the same period last year.
Despite that decline, thermal coal prices still sit over US$130 a tonne, well above long-term averages. Our view remains that thermal coal prices will stay higher for longer. High prices have failed to incentivise enough supply, and demand remains steady.
New Hope did benefit from hedging, which added $61m to profit, but the economics of the Bengalla mine are mouth-watering without it. Bengalla is one of the lowest-cost mines in the country, with cash costs of just $68 a tonne, selling coal at almost $200 a tonne.
Surplus cash flows were once again paid in dividends; the business paid 17cps for the period and is likely to yield about 8%, fully franked, for the full year.
We see this as a base case outcome. Coal prices are seasonally low and susceptible to supply shocks and price spikes. New Hope has also been investing heavily in expanding output - it spent over $300m in the period - which will result in higher output and, ultimately, higher dividends. We believe New Hope should generate low-to-mid-double digit returns for years while taking little risk.
The balance sheet remains pristine, and management suggest it will retain at least $300m in net cash as a buffer.
Expansion comes from three sources. Bengalla, which was producing 8mtpa a few years ago, will ramp to 10mtpa (New Hope has an 80% stake); New Acland, which began production this year, will raise output to 5mtpa by 2027; and a 19.9% stake in Malabar Resources will yield 1mtpa of low-cost coal as it begins production over the next three years.
All up, New Hope - the most conservative, dull coal miner on the market - will double output by 2027.
Those tonnes will be high quality and low cost, generating more cash flows to pay higher dividends while carrying a net cash balance sheet and doing nothing silly. There aren't many miners we would be happy holding for the long term, but New Hope is an unlikely candidate."
https://www.intelligentinvestor.com.au/investment-news/intelligent-investor-fund-reports-2406/153718
(20min delay)