La Nina dampens Yancoals spirits

Wet weather and Covid have forced coal miner Yancoal Australia (ASX:YAL) to slash its 2022 output forecast just as it is enjoying record prices, revenues and earnings.

The cut could see the company miss out on more than $1.5 billion in revenues over the rest of 2022 with the cut in guidance that could be as high as 7 million tonnes or more than 20%.

The Chinese controlled company – which is still the subject of an oddly priced (too low and badly explained) takeover bid from its Chinese parent, revealed the cut in its June quarter production and sales reported filed with the ASX well after trading finished on Wednesday.

Yancoal also warned that rising inflation and costs are becoming an increasing worry – something gold miner, Newcrest mentioned inits June quarterly report on Thursday.

News of the cut in 2022 guidance saw Yancoal shares lose more than 4% on Thursday, closing at $5.70.

Yancoal said the heavy rain since April, and especially early this month in and around the Hunter Valley, has left its mining operations in limbo. At the same time the company said it also needed to revise a longwall mining sequence at its Moolarben mine in the central west of NSW which would also see output cut.

Yancoal said it now expected 31-33 million tonnes of attributable saleable coal production for the full year, down from an earlier forecast of 35-38 million tonnes

The company now expects cash operating costs excluding royalties of $84-$89 a tonne, up from $71-$76 a tonne earlier because costs would be spread over four to five million fewer tonnes.

The company has already revealed that it will pay $801 million off a loan earlier than expected because of its surging revenues, cash flows and earnings. That will see it become debt free.

The average coal price tells the potential damage to the company’s revenues. – Yancoal said its average realised price in the first half of the year was $314 per tonne, more than three times the $94 per tonne it booked a year earlier.

If the 2022 output cut is five million tonnes, that will mean Yancoal will miss out on more than $1.5 billion in extra revenues at the 202 average price.

Yancoal and and rivals like Whitehaven (as we saw on Monday with a forecast for ebitda for the June 30, financial year of a record $A3 billion) are benefitting from the surge in the price of thermal coal prices in particular (soft coking coal prices have also jumped sharply, but are now falling).

“Yancoal’s lost output is part of the sector-wide supply-side disruptions that, along with global energy uncertainty, continues to underpin prices in the international coal markets,” CEO David Moult said.

“While there may be price volatility, we anticipate coal prices to remain well supported through the end of the year,” he said.

Yancoal reported a $791 million profit for fiscal (Calendar) 2021. Just on the average price it could earning three times that figure in 2022 even with the forgone revenue from the cut in output.

In its June quarter report, Yancoal pointed out that it paid $930 million in dividends in April, and still increased its cash holding by $850 million during the quarter; cash generation was almost $1.8 billion in three months.

“The Company is on track to achieve another record financial performance in 2022 and achieve a zero net debt position in July,” Yancoal said.