Why the Whitehaven Coal Ltd share price rocketed up today

Whitehaven Coal Ltd (ASX: WHC) saw its share price jump 9.8% to $1.62 in early trading today, after the coal miner reported record coal production for the 2016 financial year (FY16).

Whitehaven says full year production was 20.5 million tonnes (Mt) up 30% over the previous year. The miner says it sold 20.127 Mt of coal in FY16, 44% higher than the previous year, with 84% of that consisting of thermal coal and 16% metallurgical coal.

Thermal coal is used for power generation, while metallurgical coal is used in steelmaking. However, Whitehaven says the percentage of metallurgical coal will increase progressively over the next four years.

The company also says it achieved an average price of US$63.20 per tonne in the June quarter for metallurgical coal. Thermal coal achieved an average price of US$51.94 a tonne for the quarter.

Whitehaven appears to be a bit shy about specifying exactly what its all in sustaining production costs are, but did say that “costs” for the FY16 year were likely to be $1-$2 per tonne lower than the $58 a tonne experienced in the first half of FY16.

Whitehaven generated a net profit of $7.8 million in the first half from revenues of $574.3 million. That came from sales of 7.3Mt of coal during the six months to December 2016. The increased production and lower overall full year costs should see Whitehaven post a decent profit for FY16 of somewhere around $20 million.

Whether the company starts paying dividends is an unknown factor though, and appears unlikely given its monster debt load.

At the half year, Whitehaven had $925 million of net debt (and just over $1 billion of interest-bearing liabilities). The company will need to find the funds to pay not only the interest but also make principal repayments.

Foolish takeaway

Whitehaven’s share price has soared since early February when the share price hit 35 cents, but shares could be regarded as expensive at today’s price given the prospective P/E ratio of ~20x for FY16.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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