The flooding in Queensland is a blow to many – but not all – Australian coalminers. And even those affected will have some of the financial impact offset by higher prices for their product due to a global supply shortage.
NSW coalminers will be among the beneficiaries, as will southern Queensland miner
Gloucester Coal produces about 40 per cent semi-hard coking coal and 60 per cent thermal coal.
UBS analyst Daniel Morgan is recommending that clients buy shares in Gloucester as the best way of playing the supply crisis, calling it “one of the lower-risk plays in the Australian marketplace".
Another option for investors is Rio Tinto subsidiary Coal & Allied. About 20 per cent of its production is semi-soft coking coal, while the remainder is thermal coal.
The thermal coal price has also risen strongly in recent weeks. Queensland supplies more than 50 per cent of global seaborne coking coal, but it also supplies 10 per cent of global thermal coal.
Wet weather at thermal coalmines in South Africa has compounded supply issues in the market for the power station input.
New Hope primarily produces thermal coal but has not faced as many problems from wet weather in Queensland as its peers to the north. Credit Suisse analyst Matthew Cross said New Hope looks cheap compared with its peers as it trades at only 82 per cent of its discounted cash-flow valuation of $5.75.
The biggest losers from the rains are likely to be mining companies heavily exposed to flooded areas.
The levee at Cockatoo Coal’s Baralaba mine did not hold and the pit has been flooded – a more severe situation than at other mines where the water in pits is from direct rainfall overhead and nearby run-off.
Other affected miners include
After flooding in 2008, the coal price rose enough for the miners to compensate for the lost production. But the lack of stockpiles at most mines due to early wet weather this time around means that will be difficult to achieve.
However, the coking coal price is expected to rise strongly in the second quarter and will have some mitigating impacts on earnings for the miners worst hit by the storms.
Citigroup estimates a one-month outage due to flooding would be neutral on BHP’s earnings due to price offsetting the volume impact, while a two-month outage would lower earnings by 1 per cent. Rio would experience a 0.7 per cent rise in earnings from a one-month outage and a neutral impact from a two-month outage.
The Australian Financial Review