Commodities: New Hope Warns Of Thermal Coal Price Cuts

Queensland coal miner New Hope has become an early warner among Australian coal exporters after telling shareholders yesterday that current talks in Japan on thermal coal contracts could impact earnings in the coming years.

For readers of Air that shouldn't be a surprise as we pointed out last Friday and the week before, that global coal prices are under increasing pressure from slow down and the glut of thermal and coking coal caused by the rapid growth in the US gas production.

That has seen US coal consumption fall, especially in the power industry, leading to mine closures, production cuts and the dumping of excess coal stocks into the Atlantic Basin markets, which has dragged down spot prices in Europe and Australia (at Newcastle).

Already we have seen 2012-13 contract prices settle around the $US105 - $US110 range in early deals, around 30% under what they were a year ago when they were boosted by the wet weather in Queensland and Indonesia, two of the world's major suppliers.

Prices for the current contracts are around $US126 a tonne.

New Hope said in yesterday's profit statement that while demand for thermal coal within Asia was firm, with Japan considering the future of its nuclear power industry and China facing higher costs for domestic supplies, the outlook wasn't as promising.

Current talks about thermal coal contract prices are underway in Japan, with the outcome uncertain, according to New Hope.

''However, benchmark contract prices for thermal coal are currently under negotiation in Japan and the outcome of these negotiations may affect the company's second-half profitability, along with changes in the Australian dollar, US dollar exchange rate,'' New Hope said.

The warning came as New Hope revealed its net profit for the half year to January 31 fell 75% from $407.4 million in the previous corresponding period, thanks to the huge first half result last financial year being boosted by a $326.3 million gain from the sale of Arrow Energy shares.

Stripping out the gain, New Hope's 2011-12 first-half result was 24.7% higher at just over $101 million, compared with the $81.06 million posted in the previous corresponding period, as forecast in late December.

Revenue from continuing operations rose to $388.5 million from $336.2 million.

New Hope said it had increased production and exports, and benefited from higher export prices in US dollar terms.

That helped offset the impact of increased transport and production costs and an adverse Australian dollar-US dollar exchange rate.

Coal production volumes rose to 3.2 million tonnes from 2.8 million a year earlier, when operations were affected by those heavy rain and floods.

New Hope said a number of third parties had undertaken due diligence on New Hope up until February 29, but no definitive proposals had been received.

"With the conclusion of this process, New Hope continues to focus on its strategy to grow the company and to create shareholder value," New Hope said.

The miner said it was monitoring the push to develop new coal mine projects in Queensland.

"The high capital cost of new mines and associated infrastructure in combination with delays in approval processes is dramatically increasing the cost of new supply,'" New Hope said yesterday.

"More importantly, the timetable of any new coal mine development is under pressure from intensified approval processes and any new supply may not be as forthcoming as has been predicted.

"New Hope continues to monitor these trends for any potential impact on its own asset portfolio. However, the company believes it remains well-positioned to grow due to its low cost of production, strong balance sheet and project pipeline.'"

New Hope declared a fully-franked interim dividend of 6c a share, up from 5.25 cents.

That higher dividend tells us that whatever happens in the current contract talks, they won't do too much damage to the company's second half earnings.

The shares eased 6c to $5.92 yesterday which was hardly a major fall and a sign the market is comfortable about the outlook for the company, and is also keeping it in mind for a renewal of corporate activity in the months ahead.