I posted this up on the whitehaven forum as I am an owner in whc as well as smr and its just as relevant here to the smr readers. Commentary maybe bit more relevant to thermal coal but still comments are valid for all coal types.
https://www.zerohedge.com/commodities/coal-emerges-victorious-sanctions-and-green-policies-backfire-spectacularly
Couple of points I would like to make on some of the comments in the thread ; Yes the profit share of the economy (capital income) has been increasing in recent decades - see below , but if you split it out that has mainly accrued to banks & housing owners as the second graph shows. Housing involves a lot of mum and dad investors taking on a second property, its just not "rich greedy" business owners. Yes our big miners have done well (mainly in recent years with the Iron ore boom) but its not explicitly shown in those graphs but they often take huge risks in getting to where they are.
As an investor in a number of smaller exploration resources companies I have learnt this the hard way, most just burn up capital for little result exploration success. Then even if they find a resource the path to full development of the resource is a long and costly one and with EPA and indigenous issues also involved today, its often a regulatory nightmare to get any mine online.
Companies also pay about 20 % of the overall income tax take and when you add in all the payroll taxes they pay, one is dreaming if your thinking they are getting an easy rise in Australia. Our corporate tax rate is one of the highest in the OECD , - again see graph below , so we are not giving a free lunch away to our corporates on that measure either. Capital is a resource we must compete with like every nation so we cant be excessive in our taxing of it. Every year we always get a couple of stories from the uneducated media peddling a false narrative, that
a) companies are not paying their fair share of tax because when you look at their results their tax paid as a % of their accounting profit is often something well less than 30 %. Conveniently forgetting taxable income and accounting profits are two different things and many items are tax deductible to encourage investment and risk taking that may not be an accounting expense.
b) business is being unfairly subsidized when in fact often they are referring to items like the offroad diesel rebate where they dont pay the excise tax because D9's dont drive on public bitumen roads so why should they pay this excise, which is a user pays tax for public road usage, so the argument is totally moronic.
On the SMR front, the recent coal royalty duty hike by the Qld government is terrible from a soverign risk perspective. There should have at least been some signalling to investors this is coming and some sort of industry consultation, but there was zero. I am sorry but the Qld labor government is a clown show masquerading as a government but they can get away with stuff like that because the average voter has zero interest in these sorts of matters.
All of that said but, some here have said this has really capped out the potential gains for SMR. I tend to disagree because the shift in coal prices is so seismic and i believe sustainable that even with these hikes, significant profits are going to be made and retained by SMR. One must remember the new rates only apply on the amount above each threshold, so the headline rate of 40 % above $ 300 is not what they are paying in totality. Here is the new regime in full ;
Given all of this my own valuation estimate depending on where Met coal prices fall, comes in from around $ 3.00 per share in the longer term once the current debt is paid off , if met coal prices average about $150 USD per tonne over the investment horizon. I am not this pessimistic but and think given the mistakes made by many governments worldwide with discouraging investment in coal and I cant see green steel turning up in any significant amount anytime soon ( at least for another 15-20 years) more likely in long run $ 250-300 USD is likely to be medium to long run price (10-15 years horizon) which accords in my very high level model to a valuation of around $ 7 / share.
So even with this outrageous royalty hike, I can still see a lot of value upside here.
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