Goldman Sachs Buy Target Price $1.80 (12/06/2020)

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Price Target and Rating HistoryGoldman Sachs 12/08/2020 BuyTarget Price $1.80New Hope Corp. (NHC.AX):..

Record year at Bengalla, NAC3 appeal hearing in Oct; sooner than GSe.

NHC produced 2.79Mt (+21% vs GSe at 2.3Mt) and sold 2.36Mt (+2% vs GSe) of thermal coal in 4Q FY20. Production beat across both Bengalla and New Acland with Bengalla having a record production year at 10.3Mt (100% basis). Sales volumes were impacted by wet weather at Newcastle Port, deferring shipments into August; this will help sustain flat YoY sales volumes as the Bengalla dragline undergoes a planned 80 day maintenance shutdown. NHC has a High Court appeal hearing scheduled for 6 October 2020 on the New Acland Stage 3 expansion; this is sooner than we had expected but we continue to model the final Government decision to take place in mid-CY21.

Key takeaways

Coal production and sales:
NHC produced 2.79Mt (+21% vs GSe at 2.3Mt) and sold 2.36Mt (+2% vs GSe) of thermal coal in 4Q FY20. Production beat across both Bengalla and New Acland with Bengalla having a record production year at 10.3Mt (100% basis). Bengalla sales volumes were impacted by wet weather at Newcastle Port, deferring shipments into August; this will help sustain flat YoY sales volumes as the dragline undergoes a planned 80 day maintenance shutdown, which should have a modest impact on production volumes in our view as the dragline only moves c.20% of the overburden.New Acland Stage 3 approval update: NHC is in the final stages of permitting approvals for the A$300mn Stage 3 extension and possible future expansion of its New Acland mine (to c. 7.5Mtpa). The main opponents of the project, the Oakey Coal Action Alliance (OCAA), recently sought special leave to appeal the Court of Appeal decision in the High Court, and they were successful with the High Court deciding on 5 June that they can appeal. The Queensland State Government has stated it will await the outcome of this action, which we had assumed could take up to 12 months; however NHC announced today that the High Court will hear its appeal on 6 October 2020; this is sooner than we had expected. Nevertheless, we have not revised our timing on the Government decision and continue to believe this will take place in mid CY21.

Thermal coal market:
NHC saw thermal coal demand from its customers in Japan, Korea and Taiwan decline over the second half on Covid-19 on reduced demand and cheaper gas pricing. Indian demand for thermal coal declined significantly due to reduced demand on statewide lockdowns and the Government driving industry consumption of domestic coal. Vietnam however recorded record coal imports.