The dark clouds on the horizon are not just the mark of a long hot summer drawing to an end, but also a reflection of the trouble brewing for Australia’s coal mining operations resulting from sinking coal prices and the high Australian dollar.
Brisbane based energy producer and port operator New Hope Corporation (NHC.AX) announced yesterday a drop in profit of more than 31% for the first half of the 2013 financial year. Revenue from ordinary activities was down 16.9% for the half, with net profit attributable to shareholders down 31.9% to $68.8 million. The average revenue per tonne of thermal coal sold was down 8.1% as the combination of dropping in coal prices and the high Australian dollar eroded value.
New Hope maintained its interim fully franked dividend of 6cps and has introduced an extensive cost cutting program to try and maintain margins, but is certainly not the only producer to be hit by what could be the coal industry’s equivalent of a perfect storm.
The storm has already touched down and wrecked havoc with two other coal producers Xstrata (XTA.L) and Rio Tinto (RIO.AX). Both companies have announced job losses as a result of the conditions. Xstrata is closing the company’s Brisbane office at the cost of about 100 jobs, while Rio is also cutting around 100 jobs in an effort to cut costs. This will add pressure to other coal producers including Whitehaven Coal (WHC.AX) and YanCoal Australia Limited (YAL.AX).
In New Zealand, the same factors have resulted in the demise of state-owned coal miner Solid Energy which is laden with debt and forced the redundancies of 450 employees in November last year. The company was set to be publically listed in 2013 as part of the New Zealand governments plan to sell state owned assets.
The two biggest factors impacting all these companies – unfavourable currency rates and lower coal prices – are elements coal producing companies have very limited control over. What the companies do have control over is how they respond, and investors should pay close attention to management decisions around debt levels, cost controls and dividend payments which will help the companies to hunker down and ride out the storm.
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