Last sentence in my prior post sums it up. Why would it be undervalued?
Coals integral situation has become more widely understood given power shortages driven by lack of coal globally and Russias invasion sent the signal home. Covid lockdowns did their part on suppressing demand and stimulus thereafter did its part in driving demand on the back of fear of running out and the natural demand and economic boom that came with it. The coal price was basically a reflection of fabricated economic activity through debt issuance and distribution to the populace. People saved money during lockdown, received free gov money, and were eager to spend when chains were loosened.
The situation with the historic coal prices, current cost of extraction per ton and current SP with economic factors and cyclicality at the dawn of 2020 were much different than today. Undervaluation at that time was unequivocal. Today, the situation is muddied, I had WHC as 100% of both my SMSF and main portfolio from end of 2020 to March 2023, where I sold at just under $7. SP has moved sideways since! Selling was very hard for me, I was very attached to this company. But India/China quick response and speculative nature of futures was drying up. Writing was on the wall when coal was over $400, but ones own confirmation bias filtered out the voices of derision. Human nature is to see what we want to see and what we want to see in many ways is all there is. Coals peak and WHC failed buyback/lack of logical dividend payout on massive profits/CEO selling half his shares were flashing red lights that it was over. Not only that, but when WHC made news headlines for ASX most profitable stock and when ABC reported on them, it was a sign that it was a time to sell, but I had drunk the cool aide and was riding the wave, enjoying the portfolio view and loathing the naysayers (who were right). What a trip though, what's success without learning?
Point is, coal was more out of favour before than it is now in the general scope of things but not by much. It is hard to find a good deal on something that is generally not despised. Also, if you see the SP at $11, now at $7, people will have a fixation that it will return to its highs, as with the coal price. There is no bargain in WHC now. They are nearly destined to menial cashflow going forward while they get a grip on the acquisitions and debt position thereafter. Keep in mind, WHC has spent half the time losing money in recent history, but it is still making money now. So why is it a good deal? SSCC is in general terms at a high point and saying that this and that will see more need for the commodity and prices will rise is a fool's game. The very fact that the commodity is recognised as more integral could very well see its price decrease. Utility could lead to abundance and abundant (which coal is) means cheap, like water.
Now I could be wrong, and this rocket ship takes off again and the vibe of speculation turns into fundamentals. Fundamentals have an effect on speculation and vice versa. Or WHC cash dries up and SP stays where it is because of speculation. There is no easy answer. In hindsight, if I had known WHC would have done the acquisitions that it did before I sold my entire position (with average buy in at ~$1.50) I would likely not have sold, but that's in hindsight and I can't guarantee it. But I also cannot now justify buying in at this price for the reasons given and the minimal margin of safety and fair coal price that gives majority of producers a healthy profit, thus driving investment (i.e. acquisitions!). I also urge those that buy to not view it as good just because they bought. It is common for one to view his decision as better after making it than before.
Short end of it all is that what I have said is less than 1% of all that is to be said and read in conjunction with future coal and SP. And if it all were to be read, it would change daily as humans are dynamic in thought and action. To simplify it for everyone, buy low sell high! How do you know its low? You don't! How do you know its high? You don't! If its low it can go lower and never come back, if its high it can keep going higher. I also do not think we are at the trough of the cycle because profitability in general reigns. Supply and demand dynamics are simple if you complicate them first and delve into the actions that bring them into play. No doubt given inflation that coal will be higher for longer, but so will extraction costs. Id say coal price is at about US$100 today on historic WHC cost of sales of A$70 per ton! This is now at some A$110 per ton with coal price at US$130. Rough figures.
This is an old example as WHC aims to now be 70% met coal producer, in the near future of course. Which I see as nothing more than a publicity stunt as in years prior, before acquisitions, they blended their coal to achieve higher met or SSCC dependent on which one had higher prices. When it was $400, they blended for thermal, and many years prior it was for coking. Undoubtedly WHC is now valued on SGX coal prices. Market may not fully incorporate added costs for coking and the very fact that WHC will not be the only one making this move! What if others shift toward coking blends? Supply and demand? Steel is not a perishable; I do wonder what stockpiles that are out there which may undermine the steel and SSCC price. The amount needed may be less than we think. Market is also pricing WHC as more of the past to come in the future, with touted managerial ambitions factored in at current coal prices. This is a common psychological fallacy; it is why super funds advertise historic data and then put a disclaimer for you in the end about said figures. Truth is future is dynamic and anything can happen. Someone posted a broker report of WHC future earnings projections. you will see that those numbers are more of the same as what has been in the last few years. Almost carbon copies. If you also looked at same broker reports pre covid it would have said more of the same of those lousy results. We love to extrapolate the past; the love of consistency is a double-edged sword. All I see in WHC now is people posting to appease and justify their own decisions while drowning out any conflicting information to their narrative. I did that too.
Many Chinese cross the border to work in Russia, if there is economic potential they will find the workers from central Asia, Asia is a big land mass. I also doubt their immigration scrutiny is as harsh as ours, especially with the size of their land borders and difficulty on controlling them. One does not need an engineering degree to work in a coal mine.
You own WHC shares, you should, good luck!
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