When it comes to commodity prices, Goldman Sachs is bullish on metallurgical coal and bearish on thermal, which goes some way to explaining its latest ratings on these two ASX coal shares.
Let's investigate.
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ASX coal shares: Buy one, sell the other
Why Coronado Global Resources Inc (ASX: CRN) shares are a buy
Goldman has a buy rating on this ASX coal share with a 12-month share price target of $1.80.
The Coronado Resources share price closed steady on Thursday at $1.18. Thus, the price target implies a potential 52.54% upside for investors who buy the specialist metallurgical coal miner today.
The broker explains its buy rating as follows:
We are Buy rated on: (1) Strong forecast FCF & Div yield in 2H 24 & 2025, (2) Supportive met coal market in 2024 on strong Indian & China demand, and ongoing supply risks (Aus & Canada).
However, due to 3m pricing lags wet weather and the ongoing waste stripping catch-up at Curragh, strong FCF is likely only from 2Q24.
However, the broker outlines some downside risks for the ASX coal share:
Weakening steel demand, lower met coal prices, trade issues/tariffs Unforeseen technical and operational issues, cost increases, higher taxes/royalties, stronger AUD.
Goldman is expecting Coronado to report 4.2 Mt of metallurgical coal sales in the March 2024 quarter, up 13% year over year (yoy). It expects a realised metallurgical coal price of US$187 per tonne, down 4% yoy.
The latest official forecast from the Federal Government is for metallurgical coal market spot prices to average US$289 per tonne in FY24, up from US$277 per tonne in FY23.
Why New Hope Corporation Ltd (ASX: NHC) shares are a sell
The top broker has a gloomier outlook on specialist thermal coal miner, New Hope Corporation.
Goldman has a sell rating on New Hope with a 12-month share price target of $3.50.
The New Hope share price closed up flat at $4.82 yesterday. Thus, the price target implies a potential 27.38% downside for investors who buy the ASX coal share today.
Goldman explains:
… remain Sell rated on relative valuation trading at ~1.4x NAV discounting a long-run thermal coal price of ~US$100/t (real) vs. our US$83/t estimate, and our view of the thermal coal market to soften further in 2024.
Recently reported 1H FY24 results in-line with GSe and Visible Alpha Consensus Data.
However, the broker can see some upside risks on this ASX coal share:
Weaker AUD, higher coal prices & better price realisations, supply disruptions, lower opex/better production, higher than expected shareholder returns, New Acland Stage 3 ramp-up.
The broker expects New Hope to report 2.51 MT of thermal coal sales in the March quarter, up 17% yoy.
The Federal Government expects thermal coal market spot prices to average US$135 per tonne in FY24, down from US$302 per tonne in FY23.
