The Whitehaven Coal Ltd (ASX: WHC) share price is in the red on Monday.
Shares in the S&P/ASX 200 Index (ASX: XJO) coal stock closed on Friday trading for $7.72. In late afternoon trade today, shares are swapping hands for $7.42 apiece, down 3.9%.
For some context, the ASX 200 is down 0.6% at this same time.
Now, here's why the Whitehaven share price could run 14% higher from here.
BHP mine acquisition could boost Whitehaven share price
On 18 October, Whitehaven confirmed its intention to acquire the Daunia and Blackwater metallurgical coal mines, owned by the BHP Group Ltd (ASX: BHP) Mitsubishi Alliance.
Whitehaven reported it will pay a total of US$3.2 billion in cash for the two coal mines. It will fork over US$2.1 billion on completion of the deal, expected in June, along with US$1.1 billion to be paid in separate tranches over the next three years.
There are also contingent payments of up to US$900 million over the three years, linked to revenue earned from the mines.
Management said the acquisitions will be funded via available cash, a US$900 million bridge facility, and future cash flows. As at 30 June, the ASX 200 coal miner had $2.65 billion of net cash on its balance sheet.
The Whitehaven share price closed up 11.5% on the day of the BHP mine acquisition announcement.
And Citi's analysts believe it has further to run.
As The Australian Financial Review reports, Citi expects the two mines will help increase Whitehaven's earnings per share by 93% by 2025.
Noting that it doesn't foresee much risk to the company's balance sheet from the acquisition, the broker increased its target for the Whitehaven share price to $8.45. That represents a potential 13.9% upside from the current price.
What is management saying?
Whitehaven chair Mark Vaile is clearly optimistic about the benefits of the deal.
"The increased scale delivered by the acquisition will consolidate Whitehaven's position as the leading Australian ASX-listed metallurgical coal producer," he said at the company's AGM last week.
Vaile added:
It is a highly earnings accretive acquisition from its first year, with considerable upside potential, which we expect will deliver meaningful returns to our shareholders from the outset.
If Citi has this right, those "meaningful returns" from the Whitehaven share price could be on the order of 14% for investors buying stock today.
