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Why the Whitehaven Coal Ltd share price tumbled 7.5% lower today

It certainly has been a disappointing day for the Whitehaven Coal Ltd (ASX: WHC) share price.

In morning trade the coal miner’s shares sank as much as 7.5% lower to $4.34.

While they have since recovered slightly, they are still trading 4% lower for the day at $4.51.

What happened?

This morning Whitehaven Coal provided the market with an update on its December quarter.

Although it delivered a strong first-half, the market appears to be very disappointed that it has downgraded its full-year production guidance.

The good.

Run-of-mine (ROM) coal production came in at 5.4Mt during the quarter, bringing its first-half production to 11.2Mt. This was a 2% lift on the prior corresponding period.

Saleable coal production was down slightly for the quarter, but up 7% to 10.9Mt for the half. This led to a 10% increase in quarterly total coal sales and a 16% increase in total coal sales for the half.

The bad.

Due to unforeseen issues with the roofing at its Narrabri operation, the company was forced to divert labour away from production to assist with the installation of an additional secondary roof support.

As well as impacting Narrabri’s operating costs by about $2/t over the remaining mine life, it has led to a production guidance revision in FY 2018. Production at the site is now expected to be in the range of 6Mt and 6.5Mt ROM coal.

As a result, the miner has reduced its company-wide FY 2018 production guidance from the range of 22Mt to 23Mt to a new range of 20.5Mt to 21.0Mt. This is approximately 7% to 9% lower than its previous target.

Should you buy the dip?

Whilst I expect that the company’s production will be much stronger in FY 2019, there’s no guarantee that coal prices will be as favourable then as they are now.

In light of this, I would stay clear of Whitehaven for now and consider more diversified miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) instead.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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