What: Coal miner WHITEHAVEN COAL LIMITED (ASX: WHC) today posted a net loss after tax of $38.4 million as costs, low coal prices and ballooning debt levels took their toll on the business.
On the bright side the company said it saw record production from its existing Werris Creek, Tarrawonga and Narrabi mines during the year with saleable coal production reaching 8.2 million tonnes, 23% higher than the preceding year.
However, the company has invested heavily in the success of its Maules Creek project for almost no return so far and net debt has risen to $685.2 million, which is more than seven times 2014’s operating earnings of $90.4 million.
What now: The numbers look worrying for Whitehaven shareholders as does the outlook because Whitehaven’s management has chosen to try and significantly expand operations just as the price of coal has been weakening. You don’t need an MBA from Harvard to understand this is not a classically good move and the project has also been hit by delays and legal challenges. While the additional debt taken on to fund the project has added to the losses this financial year. However, the chief executive said the project is now on track with first coal to be railed by March 2015.
What of the outlook: Above and beyond its own strategic decision making, Whitehaven also has to face the fact that it has no control over the price for its key product of coal. If prices are weak and below the cash cost of taking the the coal out of the ground to sell then the business will be in trouble.
While no one can say for certain exactly what the short, medium, or long-term outlook is for coal prices, given Whitehaven’s debt and the fact there are plenty of alternative investments in the resources sector, I think it looks one to avoid for now. Interested coal investors could consider BHP Billiton Limited (ASX: BHP) or if you want to take on a bit more risk to chase big returns then look to other commodities that are seeing rising prices like oil, copper and nickel.
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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned.
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