Guess which ASX 200 mining giant could crash 30%

Goldman thinks this miner's shares could be seriously overvalued.

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New Hope Corporation Ltd (ASX: NHC) shares could be in danger of crashing deep into the red.

That's the view of analysts at Goldman Sachs, which are feeling very bearish about the ASX 200 mining giant.

What is the broker saying about this ASX 200 mining giant?

Goldman has been busy running the rule over the coal miner's recent quarterly update.

In case you missed it, 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 was driven by a 23% increase in Bengalla production to 2,955,000 tonnes and a 55% jump in New Acland production to 710,000 tonnes.

The ASX 200 mining giant also delivered the goods with its sales volumes. It 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.

Goldman was relatively satisfied with the company's update. It commented:

NHC reported 3Q24 total saleable coal production and sales of 2.5Mt/2.4Mt, +21% QoQ (+5%/-6% vs. GSe) with the ongoing ramp-up of the Bengalla and the New Acland mines running slightly ahead of schedule. EBITDA for the April Q was A$219mn, broadly in-line with 50% of our ~A$400mn estimate for the 2H (end of July).

NHC finished the quarter with net cash of ~A$381m (incl. leases and cash held in fixed income assets), down only slightly from ~A$400m at end of Jan, and post the payment of the A$144mn interim dividend and A$80mn further investment in Malabar Resources.

However, it hasn't been enough to change its bearish view on the ASX 200 mining giant.

Goldman remains bearish

According to the note, the broker has responded to the update by retaining its sell rating with an improved price target of $3.60 (from $3.50).

Based on the current New Hope share price of $5.08, this implies potential downside of just under 30% for investors over the next 12 months.

The broker named two reasons why it is bearish on this ASX 200 mining giant. One is its valuation, the other is its belief that the thermal coal market will soon soften. It explains:

[W]e rate NHC a Sell based on: 1. Valuation & FCF: The stock is trading at ~1.35x NAV (A$3.67/sh) and discounting a long-run thermal coal price of ~US$100/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 ~5x vs. global coal peers on ~4.5x (median). We note that FCF yield is -3%/10% in FY24/25 on our ~US$132/113/t thermal coal price assumptions, and -2%/17% at spot thermal (both include benefits from hedging). 2. 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 (+50Mt) 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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