New Hope (ASX: NHC) Declares 22¢ Dividend Amid Profit Halve and Market Challenges

New Hope Corporation (ASX:NHC), a major Australian coal miner with operations in New South Wales and Queensland, has announced a final dividend of 22 cents per share despite reporting a sharp decline in its full-year profits for the 2024 financial year. This brings the total dividend payout for the year ending July 31 to 39 cents per share, set to be paid to shareholders on October 24.

Profit Decline Amid Falling Coal Prices

New Hope's net profit for the 2024 financial year came in at $475 million, a 56% decrease from the previous year’s $1.08 billion, narrowly missing market expectations of $492 million. The significant drop in profitability can be attributed to the sharp decline in coal prices from record highs, which had boosted the company's earnings in prior periods.

During the financial year, New Hope sold its coal at an average price of $183 per tonne, a 47% reduction from the $346 per tonne it achieved in the previous year. This price slump mirrors a broader trend in the global coal market, where demand softened due to milder weather in key northern hemisphere markets and a buildup of customer inventories. These factors created downward pressure on prices following the record highs seen in 2023, fueled by supply constraints and heightened demand.

Revenue Challenges and Market Conditions

Revenue for New Hope in the 2024 financial year totaled $1.8 billion, a 34% decrease from the previous year’s $2.7 billion, largely in line with analyst expectations. The drop in revenue was driven by the lower realized coal prices, despite an increase in production volumes.

New Hope managed to produce 9.1 million metric tonnes of coal during the year, marking a 26.4% increase compared to the previous period. However, the higher production levels could not offset the impact of the steep decline in coal prices. The global coal market has been highly volatile, with prices initially spiking due to supply shortages and geopolitical tensions, but then retreating as demand cooled and stockpiles increased.

The company acknowledged the challenges it faced, attributing much of the decline to market dynamics that were beyond its control. In a statement to the market, New Hope said, “A milder winter in the northern hemisphere and an increase in customer inventories resulted in softening demand, creating downward pressure on prices following record highs the previous year.”

Dividend Payment: A Return to Shareholders

Despite the sharp drop in profits, New Hope has maintained a commitment to returning capital to its shareholders, declaring a final dividend of 22 cents per share. Combined with previous payouts, this brings the total dividend for the full year to 39 cents per share. The company’s ability to sustain this level of dividend is indicative of its financial health, even in the face of revenue and profit pressures.

For shareholders, the 22-cent dividend is scheduled for payment on October 24, following the company’s efforts to balance operational challenges with shareholder returns. New Hope’s dividend policy is an important aspect of its capital allocation strategy, providing returns to investors even as it navigates a difficult pricing environment.

Operational Focus: Increasing Production and Low-Cost Assets

Despite the headwinds, New Hope continues to focus on the organic growth of its business, as highlighted by CEO Rob Bishop. The company remains committed to ramping up production at its New Acland Mine and sustaining increased output from its flagship Bengalla mine. Additionally, New Hope is involved in the development of Malabar's Maxwell Underground Mine, which is expected to be another low-cost, high-potential asset in its portfolio.

The ramp-up of the New Acland Stage 3 project is a key focus for the company as it looks to boost its production volumes in the coming years. The mine, located in Queensland, has faced regulatory challenges and delays in the past, but its continued development is critical for New Hope’s future output.

Meanwhile, the Bengalla mine in New South Wales remains a cornerstone of New Hope’s operations. Production at Bengalla has been increased over recent years, and the mine continues to provide steady output. New Hope’s focus on efficient, low-unit-cost assets like Bengalla helps the company maintain its competitiveness in an industry characterized by price fluctuations and high operational costs.

Rob Bishop emphasized that New Hope’s growth strategy is built around expanding production at its key assets while keeping a tight lid on costs. “Looking ahead, we remain focused on the organic growth of our business via the ramp-up of New Acland Mine, sustained increased production at Bengalla, and the development of Malabar’s Maxwell Underground Mine, all of which are low-unit-cost assets,” Bishop said.

Industry Outlook: Volatility in Coal Markets

New Hope’s results come amid a period of uncertainty and volatility in global coal markets. Coal prices surged to record highs in 2022 and early 2023, driven by supply disruptions and a spike in energy demand following Russia's invasion of Ukraine. However, coal prices have since retreated as supply constraints eased, and demand stabilized in key markets like Europe and Asia.

The milder-than-expected winter in the northern hemisphere in late 2023 contributed to lower heating demand, reducing the need for coal in power generation. This, coupled with increased inventories, has put further pressure on prices.

Looking ahead, the outlook for coal remains uncertain as the world continues to transition towards renewable energy sources. However, coal still plays a critical role in energy production, particularly in regions with limited access to alternatives. For companies like New Hope, managing production costs and maintaining efficient operations will be key to navigating the challenges posed by market volatility and shifting energy policies.

Bottomline

New Hope Corporation’s 2024 financial year results reflect the significant impact of falling coal prices, with profits halved and revenue sharply down. Despite these challenges, the company has continued to reward its shareholders with a 22-cent final dividend, bringing the total annual payout to 39 cents per share.

As the company looks ahead, it remains focused on increasing production at its key assets and managing costs in a volatile market. While the global coal industry faces significant challenges, New Hope's commitment to organic growth through low-unit-cost assets such as the New Acland and Bengalla mines positions it to continue generating value for its shareholders in the future.