Perfect storm approaches for coal miners

The dark clouds on the horizon are not just the mark of a long hot summer drawing to an end, but also a reflection of the trouble brewing for Australia’s coal mining operations resulting from sinking coal prices and the high Australian dollar.

Brisbane based energy producer and port operator New Hope Corporation (ASX: NHC) announced yesterday a drop in profit of more than 31% for the first half of the 2013 financial year.  Revenue from ordinary activities was down 16.9% for the half, with net profit attributable to shareholders down 31.9% to $68.8 million.  The average revenue per tonne of thermal coal sold was down 8.1% as the combination of dropping in coal prices and the high Australian dollar eroded value.

New Hope maintained its interim fully franked dividend of 6cps and has introduced an extensive cost cutting program to try and maintain margins, but is certainly not the only producer to be hit by what could be the coal industry’s equivalent of a perfect storm.

The storm has already touched down and wrecked havoc with two other coal producers Xstrata (LSE: XTA) and Rio Tinto (ASX: RIO).  Both companies have announced job losses as a result of the conditions.  Xstrata is closing the company’s Brisbane office at the cost of about 100 jobs, while Rio is also cutting around 100 jobs in an effort to cut costs.  This will add pressure to other coal producers including Whitehaven Coal (ASX: WHC) and YanCoal Australia Limited (ASX: YAL).

In New Zealand, the same factors have resulted in the demise of state-owned coal miner Solid Energy which is laden with debt and forced the redundancies of 450 employees in November last year.  The company was set to be publically listed in 2013 as part of the New Zealand governments plan to sell state owned assets.

Foolish takeaway

The two biggest factors impacting all these companies – unfavourable currency rates and lower coal prices – are elements coal producing companies have very limited control over.  What the companies do have control over is how they respond, and investors should pay close attention to management decisions around debt levels, cost controls and dividend payments which will help the companies to hunker down and ride out the storm.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.