thinking forward at this point in time:1. the world has an...

thinking forward at this point in time:

1. the world has an imbalance of energy supply/demand if the western sanctions on russian energy hold and we avoid global recession from rapid interest rate normalization to deal with inflation.

2. china is likely to want to sure up its coal supply options

2.1 option 1 is ramp up domestic supply where they have in theory the best reserves in the world, however the quality of product is inferior to AUS product (air pollution from ash + emissions due to lower burn efficiency). Can they martial the workforce and develop the infrastructure quick enough? not so sure. building a hospital in a week is impressive but mines take a bit longer to bring on line.

2.2 option 2 is import more - from russia (how comfortable are they with that). from Indonesia - it has to pay more now that others are competing for supply. from Australia - we typically have sold to the highest bidder and they never officially baned the coal imports - was officially a quality issue right and why not link the resumption to bilateral relationship improvements - no face loss there. USA may not have surplus to export as domestic prices may be good enough to absorb all output.

3. The imbalance for coal is likely to get worse in next few years as asian coal consumption increases but limited new investment

4. Qld gov coal royalties may take off some icing from coal company profits but make pathway to NA3 approval easier politically as its going to improve the public purse and its more of an extension rather than an whole new project (like adani was).

5. green energy availability may well be accelerated by point 1 above but its not a switch you can flick (as we see in Australian energy market).

6. Large global miners will likely continue their exit from coal to placate shareholders and maintain ESG commitments and access to capital to target tier 1 non coal resource development options

Conclusion - I can see the short to medium term fundamentals for Australian thermal coal in general and NHC in particular remaining attractive however due to the long term uncertainty we may see some share price peaks at low P/E simply due to the underlying long term value of potentially stranded assets with rehabilitation costs. Further i expect the value creation will largely be around dividends and possibly some M&A consolidation as the large miners strategically position into forward facing commodities while pure play coal companies buy up and maybe even consolidate to get the benefit of scale and diversity of geography. I am thinking USD 250 ave over next three years (based on current futures for 2024 jan-jun) wtih AUD at long term ave 70c i would think 10% p.a. ROI is high confidence with reasonable prospect of 15%+ at current pricing.