Top Gainer: Whitehaven Coal (WHC)
In another bloodbath on the Australian market, there were very few winners, with only 6 stocks on the ASX200 made gains – three gold miners, two coal miners and Aristocrat Leisure. And the gains were meagre – of the six, only Whitehaven Coal managed to increase by more than 1%, rising 1.5% to be the day’s top gainer.
However the coal miner dropped 28% in just two months after hitting an all-time high of $7.30 in April this year. A recent rally of almost 20% looks like it will come undone as markets around the world tumble in unison.
Prior to the last few weeks of economic and market turmoil, the future seemed bright for coal. A recent coal report by Wood Mackenzie expects the 28 projects within its coal supply research to contribute 157 million tonnes of marketable coal annually by 2023 – with thermal coal for export representing around 60 per cent. Indeed, more countries will move to develop their coal assets – especially thermal – but to their benefit, most local producers tend to be low-cost operators.
Much of the positive outlook for the sector is wired to greater dependence on thermal coal from Japan, India and China. Australia is also an important source of coal for South Korea, providing 32 per cent of its thermal, 30 per cent of anthracite and 56 per cent of coking coal imports.
And according to the Australian Bureau of Agricultural and Resource Economics and Sciences, world thermal coal trade is projected to increase by 4 per cent a year to 962 million tonnes in 2016. Increasing thermal coal imports into developing economies – particularly India and China – will drive growth, and growing demand will be met by Australia, Indonesia and Columbia.
In its 2011 March quarterly report on Australian commodities, ABARES says global metallurgical coal trade is forecast to increase at an annual average of 5 per cent to reach 341 million tonnes in 2016, with emerging Asian economies lifting imports.
Although Whitehaven recently announced that no suitor had been found during a formal bid process, analysts remain positive on the NSW coal miner. Citi analyst Craig Sainsbury says Whitehaven has coal-volume growth, a quality large scale asset in Narrabri and potential projects like Bluevale. “Now that the bid situation surrounding the stock has eased, we can take a look again at Whitehaven and assess the company on a standalone basis,” Sainsbury said. “Given the retracement in the shares, we see value starting to emerge in Whitehaven and believe that the stock is a solid fundamental investment at these levels.”
Andrew Pedler is also bullish on the miner, saying that Whitehaven is set to benefit from the positive outlook for coal. “It is a leading coal producer in the Gunnedah Basin with five mines in the region and has invested $227 million in its Narrabri mine which moved into production in June 2010,” he says. “WHC’s management is more interested in developing its existing high-quality coal assets and seeking new growth opportunities – rather than courting recent interest from potential buyers.” Pedler has a $6.99 price target on WHC.
Based on Thomson Reuters data, five analysts have a buy on WHC, six have a hold and just one has a sell.
Stock code: WHC
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