Whitehaven Coal shows impressive production levels despite disruptions
- COVID-19 did not affect WHC production, with no known cases have been recorded on site
- Related complications with shipping and demand have begun to ease
- Production levels are strong, with more expansions planned
Whitehaven Coal Limited (ASX: WHC) on the 15th of October released the September 2020 quarterly production report and also provided an updated FY21 cost guidance. The report goes into depth with different site developments and the way that the macroeconomic environment has affected profitability.
COVID-19 has affected most businesses, yet WHC has been able to continue strong sales due to demand in Asia. Operationally, the company is on track with momentum carried over from last quarter. However, due to the new macroeconomic environment, cost reductions and increased fiscal discipline have become the new normal for WHC. No known cases of COVID-19 have been confirmed on any WHC sites, with operations largely unaffected.
Despite positive production figures, the profitability of coal has been affected by the price hitting historic low points. The globalCoal Newcastle Index (gC Newc) shows an average price of US52/t, with pandemic impacts on China restricting demand. Thermal coal sales account for 26 per cent of the quarterly production mix, with lower quality coal facilitating exposure to Korean markets. Metallurgical coal sales accounted for 11 per cent of sales over the quarter, which was down by 20 per cent prior corresponding period (pcp), due to COVID-19 related complications in shipments, especially in the Indian region.
Looking at all operations, total managed coal sales are up 13 per cent from the pcp, up to 6 megatons (Mt). Total own managed coal was up 15 per cent to 5.6 megatons, with a run-of-mine (ROM) production of 4.5 Mt, up 4 per cent from pcp. Certain mines grew in profitability and production, yet the Indian shipment delays caused drops of ROM by up to 36 per cent.
Other mines had positive results in ROM, with the good news of attractive production figures and support in Asia is compounded by the NSW Independent Planning Commission (IPC) approving the Vickery Extension project on the 12th of August. The extension is set to open up the capacity to 10Mtpa, with other development projects are underway with the Narrabri Underground Mine extension and the Winchester South Metallurgical Coal Project.
The updated outlook for metallurgical and thermal coal is now gaining positive momentum with Asian consumers resuming shipments under term contracts. The Asian winter has helped stabilise the sale of thermal coal which traditionally inspires stronger demand. Currently, WHC is on track with their FY21 managed coal sales of 18.5 to 20 Mt, with unit costs expected to range between AUD69/t and AUD72/t.