Whitehaven Coal has revealed a plunge in first-half earnings and slashed its payout to investors due to cheap Russian coal flooding the market and a major acquisition.
The NSW exporter, which sends much of its coal to Asia, on Thursday posted an 86 per cent decline in net profit for the six months to December 31 to $257.6 million.
Chief executive Paul Flynn told a conference call there had been subdued demand for thermal coal in the half. Coal from Russia, being offered at cheap prices, had been a factor.
Thermal coal, used to generate electricity, made up 90 per cent of Whitehaven sales. The commodity fetched an average price of $A220 per tonne.
During this period, Whitehaven announced it would purchase two mines in central Queensland: Daunia and Blackwater.
This means $114.7 million in acquisition costs have also hit the bottom line.
Shareholders will receive a fully-franked interim dividend of seven cents per share. This time last year investors received a fully-franked payout of 32 cents per share.
Mr Flynn explained the change for investors.
"We have cash outgoings planned shortly with settlement of this important, strategic transaction," he said.
Excluding the acquisition costs, Whitehaven's underlying net profit fell 79 per cent to $372.3 million.
On the ASX, investors were concerned. Shares were down 3.2 per cent to $7.27 by noon (AEDT).
Japan was Whitehaven's top market and responsible for 52 per cent of sales. While China is an important market for many miners, it is not a big one for Whitehaven.
There was greater coal production (10.3 million tonnes) and sales volume (8.8 million tonnes) compared to the previous corresponding period. More favourable weather and labour supply helped.
Looking ahead, Mr Flynn had a positive outlook.
He said demand for thermal coal was strong, including for electricity generation in established and emerging Asian markets.
Mr Flynn said there was a shortfall in supply in the seaborne market for thermal coal.
This would continue, he said, due to underinvestment in new supply and the depletion of existing mines, which in turn would support strong long-term prices for thermal coal.
Whitehaven plans to step up its production of metallurgical coal, used to make steel.
While this accounted for only 10 per cent of first-half revenue, the business in October announced it was buying the two mines in central Queensland.
Mr Flynn said there was a growing shortfall in hard coking coal production to supply Asia that would help prices over the long term. The two Queensland mines could capitalise on this.
Whitehaven will pay up to $6.4 billion to a BHP-Mitsubishi Development joint venture for Daunia and Blackwater.
Chief financial officer Kevin Ball reiterated the benefit of a $1.4 billion bridge facility to fund the deal.
"The beauty of this transaction is it doubles the size of the business without tapping equity holders," he told the conference call.
Mr Flynn said he expected the purchase to be completed in early April.
