Purchase of Whitehaven Coal (ASX: WHC)

10th May 2024

Across the Australian equity component of investor portfolios (Income Tilt), we have bought Whitehaven Coal (ASX: WHC).

Whitehaven Coal is a high-quality coal producer servicing the Asian seaborne market for inputs into steel production and power generation. The company operates in the Gunnedah Basin of NSW producing thermal coal used for electricity generation and in the Bowen Basin of QLD following its recent acquisition of Blackwater & Daunia from BHP producing metallurgical coal which used in the production of steel. Approximately 70% of Whitehaven’s revenue expected to come from metallurgical coal and 30% from thermal coal.

We are attracted to Whitehaven Coal for the following reasons:

Strong cash flow generation
Strong full franked dividends
Improving balance sheet strength as acquisition financing is paid down

Whitehaven has three key levers for value creation that we would like to highlight:

The acquisition of Daunia and Blackwater have allowed the business to double production and diversify mining operations from 2 producing mines to 4. This shift also sees greater customer diversification and introduces a new outlook for the business servicing a growing sales channel into India and Malaysia, markets which Whitehaven previously didn’t have significant exposure to;
Existing operations are complemented by two near-term and large-scale development assets being Vickery in NSW and Winchester South in QLD as well as the existing Narrabri extension projects;
High levels of cash generation provide the company with numerous options to return capital back to shareholders through share-buybacks, special dividends, debt repayment and highly accretive M&A opportunities.

We have funded the purchase of Whitehaven Coal via the de-weighting of several portfolio holdings.

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.