Whitehaven Coal Ltd (ASX: WHC) released its results for the half-year (HY21) and it doesn’t look pretty. Despite the subdued results, the WHC share price recovered from a dip in the morning.
Whitehaven Coal is Australia’s leading producer of premium thermal and metallurgical coal. This coal is used to generate electricity, make steel, and in nickel smelting.
It has mines in New South Wales and Queensland, exporting coal products to Asia, mainly Japan and Korea.
Lower coal prices spell lower earnings
Whitehaven Coal experienced a downward trend across all its key metrics relative to the prior corresponding period, HY20 (PCP). Both revenue and EBITDA fell by 21% and 79% respectively relative to the PCP. As a result, Whitehaven Coal recorded a net loss after tax of $94.5 million compared to a net profit after tax of $27.4 million.
The company said the earning loss is attributed to the reduction in coal prices. However, management notes this was partially offset by an increase in sales volumes and a decrease in costs.
Given the significant contraction in coal prices, the board determined an interim dividend will not be declared.
Management on defence
Whitehaven Coal Managing Director and CEO, Paul Flynn, focused on the positives in light of the challenging environment, “We have closed out H1 FY21 with strong levels of liquidity, strong banking support and we are focused on retiring debt against the backdrop of the improving price environment.”
“With future savings targets identified and coal markets rebalancing in response to demand signals we are optimistic about achieving stronger outcomes through the second half.”
My summary
I like to take a long-term view when considering investments. In the case of Whitehaven Coal, I think it will face structural headwinds brought on by the growing shift towards renewable energy sources.
Also, you can see how much of an adverse impact a swing in coal prices can have on Whitehaven Coal’s bottom line. This is something I prefer not to be exposed to as an investor. For potentially better ideas, take a copy of our free stock report below.
