Why did this ASX 200 mining stock jump 7%?

This coal miner's shares had a great session. But what got investors excited?

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It was a good start to the week for the New Hope Corporation Ltd (ASX: NHC) share price.

The ASX 200 mining stock was up over 7% to $5.05 at one stage before closing the session at $4.95.

Why were investors buying this ASX 200 mining stock?

The catalyst for this strong gain was the release of the coal miner's quarterly update, which revealed strong production and earnings growth.

According to the release, for the three months ended 30 April, New Hope delivered a 28% quarter on quarter increase in ROM coal production to 3,665,000 tonnes. This reflects a 23% increase in Bengalla production to 2,955,000 tonnes and 55% jump in New Acland production to 710,000 tonnes.

Also increasing strongly were the ASX 200 mining stock's sales volumes. New Hope reported a 21% quarter on quarter increase in coal sold to 2,358,000 tonnes. This was achieved with an average realised sales price of $179.78 per tonne, which was flat on the previous quarter.

And with the Bengalla Mine achieving an FOB cash cost (excluding state royalties) of $73.4 per sales tonne for the quarter, which is a 7.8% reduction, New Hope's underlying EBITDA increased by a sizeable 21.6% quarter on quarter to $218.8 million.

This ultimately led to the ASX 200 mining stock ending the period with a cash balance of $381.3 million. This is post-payment of the interim fully franked dividend of $143.7 million and Malabar equity raise commitment of $79.7 million.

Should you invest?

The team at Goldman Sachs doesn't appear to believe that investors should be buying this ASX 200 mining stock right now.

While the broker has not yet responded to this update, so its recommendation could yet change, it currently has a sell rating and $3.50 price target on its shares. This implies significant downside potential of almost 30%.

Goldman believes that its shares are overvalued at current levels compared to peers. It explains:

The stock is trading at ~1.3x NAV (A$3.58/sh) and discounting a long-run thermal coal price of ~US$95/t (real) vs. our US$83/t estimate (based on our view of long run global marginal costs). NHC is also trading on a NTM EBITDA multiple of ~4.5x vs. global coal peers on ~3.0x. We note that FCF yield is -4%/11% in FY24/25 on our ~US$140/115/t thermal coal price assumptions, and -4%/18% at spot thermal (both include benefits from hedging).

Thermal Coal market to soften further in 2024: our global commodity team forecasts a ~40Mt surplus for 2024 due to decreasing global import demand, largely driven by a weakening in China hoarding demand (-80Mt) and high inventory levels, and growing export capacity (+47Mt) from Indonesia, Australia and Russia and we expect marginal costs to fall to US$100/t in 2024. We forecast US$130/t for 6000kcal NEWC benchmark in 2024.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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