Lens Through Coal Stocks Amid Bushfire- BHP Group and Whitehaven Coal

Major parts of Australian states of Queensland (QLD) and New South Wales (NSW) experienced the deadliest torture from bushfires. This fire started in September 2019 and flamed up till early January 2020. Every year, Australia experiences a fire season during the summer along with hot, dry weather, which makes it easy for flames to start and spread in the area. Also, natural causes could also be counted as the reason behind the fire.

Bushfires have engulfed towns in blazes with Australian residents throughout a number of states, losing lives. Bushfire not only impacted humans but claimed lives of millions of animals who were living in the forest. The fires have impacted over 7.3 million hectares of land.

For the redressal of fire, thousands of firefighters are working on the ground level. Recently, Victoria has been proclaimed as a state of disaster whereas NSW is deemed as a state of emergency. Also, US, Canada, and New Zealand have sent additional firefighters in order to fight the fire.

When it comes to the economy, there was a lot of impact faced by Australia in terms of downward growth as well as changes in few commodity outlooks. The bushfire has provided major impact in retail and insurance sector of Australia including companies, like Super Retail Group Limited (ASX:SUL), Insurance Australia Group Limited (ASX:IAG), Coles Group Limited (ASX:COL) and Australia Vintage Limited (ASX:AVG).

Apart from the above specified sectors, Coal companies have experienced an adverse impact in the form of their future growth. The giant in the industry, BHP Group Limited, stated that it is witnessing a decline in the production of coal because of the quality of air, led by the bushfire.

For deeper understanding, let us look at few companies impacted by the bushfire:

BHP Group Limited

BHP Group Limited (ASX: BHP) is engaged in the exploration, production and processing of minerals. It is also in the exploration, production and refining of hydrocarbons.

Solid Operational Performance

• The company recently updated the market with results for the quarter ended 31^st December 2019, wherein it delivered solid operational performances throughout the portfolio in the 1H FY20, which are offsetting the anticipated impacts of planned maintenance as well as natural field decline.
• At the end of the December 2019 quarter, the group possessed 345 kilo tonnes of outstanding copper sales which has been provided a revaluation at US$2.80/£ weighted average price. It added that the final price of these sales would be determined during the pending FY20.
• When it comes to BHP’s petroleum business, the total petroleum production witnessed a decline of 9% and the figure stood at 57 MMboe.
• However, for FY20, the company is expecting total production in the range of 110MMboe-116 MMboe, with the expectations that volumes would move towards the lower end of the guidance range. The total copper production experienced a rise of 7% to 885 kt.
• During December 2019 quarter, the company agreed to finance a total of US$793 million, which reflects a further financial support for the Samarco as well as Renova Foundation. This financing includes an amount of US$581 million in order to finance Renova Foundation till 31 December 2020 which would be offset against the provision for the Samarco dam failure of BHP, and a short-term facility amounting to US$212 million to be made available to till until 31 December 2020.

The metallurgical coal production witnessed a fall of 2% and reached at 20 Mt. Energy coal production declined by 12% to 12 Mt. As stated in recent media reports, the production of coal has been hampered due to the low quality of air,led by bushfire. However, the company has provided no change to its guidance for metallurgical coal production, which stood in the range of 41Mt and 45 Mt for FY20.

The stock of BHP closed the day’s trading at $40.57 per share on 24 January 2020 with fall of 1.2% as compared to its previous closing price. BHP’s market cap is $121.02 billion. The total outstanding shares are 2.95 billion, and its 52-week low and high is $32.245 and $42.330, respectively. The stock has generated a total return of 16.05% and -1.2% in the time period of 3 and 6 months, respectively.

Whitehaven Coal Limited

Whitehaven Coal Limited (ASX: WHC) is into the development and operation of coal mines in New South Wales (NSW).

Recently, the company reported its financial and operational performance for the December 2019 quarter and outlined the following:

• For the quarter ended 31December 2019, the ROM coal production stood at 3.1 Mt, reflecting a fall of 58% as compared to the previous corresponding period.
• Also, during the same time period, the saleable coal production witnesses a decline of 44% to 3.1Mt, against pcp.
• During the quarter, the company realised US$66/t (average) pertaining to the sales of own thermal coal.
• This was 2% under the gC Newc (average) price, driven by doubling other thermal coal sales.
• WHC also experienced restriction on blending opportunities because of the low manufactured volume of CV thermal coal (high).
• During the December 2019 quarter, the company successfully commissioned three new Hitachi EX5600 excavators as part of the 3Mtpa expansion. Tarrawonga is most likely to reach the planned production run rate of 3Mtpa ROM in the fourth quarter of financial year 2020.
• During the same time period, the company wrapped up the acquisition of EDF Trading Australia Pty Limited, which is currently the owner of 7.5% interest in the Narrabri underground mine. This acquisition has led the company’s ownership interest in the mine to 77.5%

On the thermal and metallurgical coal outlook front, the company stated that the softness in global demand and in demand for thermal coal has been resulted by the trade dispute between the United States of America and China. The trade dispute has also resulted in slumped European gas prices, seaborne thermal coal price softness and surge in carbon’s European price. Moreover, LNG prices have also impacted coal prices during the last couple of years. Irrespective of this, solid trader and end user demand for thermal coal of high quality remains.

As per the media reports, the company commented that the smoke in the air in Australia has led to the decline in the coal production.

The stock of WHC closed the day’s trading at $2.44 per share on 24 January 2020 with fall of 0.81% as compared to its previous closing price. WHC’s market cap is $2.52 billion. The total outstanding shares of the company stood at 1.03 billion, and its 52-week low and high is $2.420 and $4.698, respectively. The stock has generated total negative returns of 26.57% and 32.17% in the time period of 3 and 6 months, respectively.