Coal news and updates

Whitehaven Coal chief executive Paul Flynn does not expect thermal coal prices to weaken further year this year, defying the expectations of some analysts, and says prices will start to recover in 2016 just as the company is further increasing production at its new Maules Creek mine in northern NSW.

Mr Flynn said the anticipated improvement in prices, along with the expected refinancing within months of Whitehaven's $1.2 billion of debt, "starts to position the company pretty well" for the future.

Concerns around the debt refinancing and weak global coal markets have been weighing on sentiment around Whitehaven's stock, meaning it trades at a discount of about 40 per cent to some analysts' valuations.

But Mr Flynn said Whitehaven was well on the way towards refinancing the debt by the company's mid-2015 target, and well ahead of the end-2015 date when covenants in the terms of its existing debt could be tested.

 

Speaking on the sidelines of the official opening of the Maules Creek mine by NSW Premier Mike Baird on Tuesday, he said that judging by the global supply and demand picture, thermal coal prices would probably stay around $US64-$US65 a tonne this year.

Bearish forecasts from Citigroup for prices to average $US55 were too pessimistic, he said, adding that if prices did fall that far it would only be very briefly given that would be lower than most mines' costs of production.

 

"2015 looks like the year balance is achieved" in global markets, Mr Flynn said, adding that the market in 2016 looked as if it would see a "slight shortage".

The prospects for prices of coking coal, which Maules Creek also produces, were slightly better, with the market likely to tighten this year already, he said.

Some analysts have been predicting that Whitehaven will turn to the high-yield US bond market to refinance its debt, but Mr Flynn said that was only likely in two or three years' time, with the focus in the immediate term on refinancing with the same group of 14 banks that provided the existing loans.

Terms for the new debt should however be less onerous, reflecting the reduced risks as Maules Creek completes construction and ramps up.

Discussions with existing lenders, which include major Australian banks, have revealed no evidence that they are pulling back from supporting Whitehaven, despite the noise around funding for fossil fuel projects, Mr Flynn said,

"We haven't seen a skerrick of evidence that anyone wants to retreat," he said.

Whitehaven commenced rail deliveries of coal from Maules Creek near Boggabri in December, three months ahead of schedule.

The project, partly owned by Japanese companies Itochu and J-Power, is also expected to run about $25 million under its $767 million total budget.

Representatives of the Japanese partners at the opening ceremony said they were very pleased with the performance of the project so far.

The company are thought to be among the "half dozen" that Mr Flynn said had expressed interest to Whitehaven in participating in its next proposed new project, the Vickery venture, also in the Gunnedah Basin.

Vickery will cost less than $50 million for its initial capacity of 4.5 million tonnes a year, because it will not require the construction of a processing facility on site, or of a rail link until production increases beyond that level further down the track.

 

 

Source: http://www.smh.com.au/