........Not sure well see $3-4 for WHC. The lowest I see it...

........Not sure well see $3-4 for WHC. The lowest I see it going right now is $5.80 and it'd be there on thin volume for a short time... but I've been wrong before... so I'm slowly averaging in over the next few years while the BMA deleveraging takes place. The price here will bounce around chaotically to the short term noise, while long term it gets ready to rerate. My biggest concern with WHC is the overall met quality blend and demand for certain qualities moving forward.....

I think the deleveraging will happen a lot faster than you suggest, quite possibly by June 2024!

Here are my comments/thinking on this from last week on the Investor Village Energy Investing board:

Whitehaven Coal Closing Blackwater Acquisition April 2, Debt Free June!!

Whitehaven Coal is scheduled to close its Daunia/Blackwater acquisition April 2nd. Payment due is US$2.3 billion ($2.1 bn acquisition cost + $300 mn Stamp Duty and transaction costs, less $100mn deposit and some transaction costs paid in Q4). At the end of Q4 2023 they had A$1.5bn in cash (approx US$1 billion), leaving around US$1.3 billion to be funded from the acquisition financing and other sources. WHC will probably add US$150-200 mn to the cash holding in Q1 2024, leaving only US$1.1 billion to be funded.

WHC announced a couple of months back that they would sell down a portion of the Blackwater mine and would consider doing the same with Daunia at a later date. Management has indicated considerable interest in buying the Blackwater stake and it appears there are at least 6 companies, maybe more, seriously interested. This is an auction process and could be concluded very shortly. Very likely something will be announced prior to deal closing April 2nd and payment would likely be received very quickly.

Total acquisition price is US$4.1 billion including $2 billion of deferred and contingent payments. Expected production is 16mn tpy from Blackwater, 5mn tpy from Daunia indicating Blackwater is approx 75% of deal value or US$3.3 bn. A 20% selldown at the acquisition cost would be $0.66 bn. The level of interest in buying a share of this mine plus the auction process suggests that it is likely the actual price could be at least 150% of original deal valuation and possibly a lot more. So looks like they will collect at least US$1 billion from the selldown. That covers all but $100 mn of financing required. Quite possible WHC will do more than 20% selldown. My thinking is if the pricing offered is attractive they could do a 25% selldown and decide not to do a selldown on Daunia. This could generate US$1.25 billion plus and fully pay off all the required acquisition financing very quickly. This is the pathway to zero debt by the end of H1 2024 (June) when WHC delivers its next half-yearly financials.

Once the initial acquisition cost is dealt with that leaves the deferred and contingent costs of US$2 billion to be paid over 3 years. A quick back of the envelope estimate based on data provided by WHC in the Acquisition Presentation last September indicates expected fob costs for 19 million tpy Daunia and Blackwater production to be around A$120/ton. Assuming met coal pricing of around A$300 per ton generates A$180/ton cash flow and over A$100 per ton after royalties and income taxes. Looks like A$2 billion per year of cash contribution and maybe considerably more with decent pricing/hedging. First and second anniversary deferred/contingent payments are likely to be US$850 million each (around A$1.3bn). That leaves A$700 million or more per year cash contribution from the acquisition from Day 1, on top of the cash flow from existing operations.

Once the initial acquisition funding is repaid Job 1 is likely to be rebuilding a cash position of at least A$1 billion as a reserve. Once that is achieved WHC will be in a position to start paying sizeable dividends again. Unless the cash is needed for something else a dividend of A$1 per year is A$835 million per year and could be achievable by the end of H1 2025.

A couple of months back my thinking was the expected reduction in second half 2023 earnings compared to prior year + the originally expected dividend suspension would result in a buying opportunity ahead of the acquisition close. My suspicion now is the modest weakness in share price following the year end financials and low dividend announcement will only last until the Blackwater selldown deal is announced which could be sooner rather than later.