Weather and low coal prices blunt New Hope’s results

The 2013 full-year results for New Hope Corporation (ASX: NHC) came in as expected, affected by both lower coal prices, lower production and bad weather. Total revenue was down by 15% from $767.5 million to $652.1 million. Net profit fell sharply to $74.1 million, down 55.7% from $167.1 million in 2012.

The company explained the fall was due to several factors, first of all being that the lower thermal coal spot prices dampened revenue and sales. The year started out with July 2012 spot prices at around $95/tonne, hitting a peak in February 2013 around $101/tonne, yet since then have decreased steadily until the current price of around $82/tonne.

At its Jeebropilly mine, production was scaled back due to the lower spot prices making the mine’s extraction costs unfeasible to continue previous levels, but this mine only accounts for about 15% of total production.

The New Acland mine makes up 80.4% of all production, and was the source of the biggest decrease in production. Total volumes were down 7.8% or by 400,000 tonnes due to flooding conditions in early 2013 that closed off rail lines for delivery to port for three weeks, further causing a mine shutdown at the Easter site because of stockpile limitations.

At its QBH port facilities in Brisbane, the total amount of coal going shipped out was dead even with 2012 levels, which were at a record high last year.

Another reason for the dramatic drop in net profit came from the company’s completion of its acquisition of Bridgeport Energy. In September 2012 it announced the purchase of the remaining shares that it didn’t own already, and in the annual report recorded a payment of $44.2 million in their cash flow statement.

This acquisition was one step in its plan to diversify the business, not relying completely on coal. Bridgeport Energy is a small oil producer based in the Eromanga Basin, and produces about 8,000 barrels of crude oil per month. With the completion of its Cuisiner oil fields, another 8,500 barrels per month will be added.

The company is also developing coal seam gas production at different sites in Queensland.

Foolish takeaway

The share price is down about 6.7% since the results was released, and about 10% since last week. The market gets depressed on short-term downward profit surprises. Should the world economy begin to right itself though, demand for coal could go up. One of the biggest consumers, Japan, has been using more since the Fukushima nuclear disaster.

Another chief customer is China, and currently it is developing its nuclear power industry to reduce pollution, but until the proposed 30 or so planned power plants come online, it still need to power the country’s growth, even if it isn’t growing as much as it once was.

Always keep your eye on world supply and demand when assessing companies’ earning potential.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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