Whitehaven Coal CEO says coal prices are on the up

Whitehaven Coal CEO, Paul Flynn, does not expect thermal coal prices to weaken further this year, defying the expectations of some analysts. Indeed, Flynn even believes prices will start to recover in 2016 just as the company is further increasing production at its new Maules Creek mine in northern New South Wales (NSW), Australia.

Flynn said the anticipated improvement in prices, along with the expected refinancing within months of Whitehaven's AUS$1.2 billion of debt, "starts to position the company pretty well" for the future. It was not entirely clear what Flynn was basing his beliefs – which currently fly in the face of most expert’s opinions – on.

Flynn said Whitehaven was well on the way towards refinancing the debt by the company's mid-2015 target, and well ahead of the end-2015 date when covenants in the terms of its existing debt could be tested.

Speaking on the sidelines of the official opening of the Maules Creek mine by NSW Premier Mike Baird on Tuesday, Flynn said that judging by the global supply and demand picture, thermal coal prices would probably stay around US$64 – 65/t tonne this year.

Bearish forecasts from Citigroup for prices to average US$55 were too pessimistic, he said, adding that if prices did fall that far it would only be very briefly given that would be lower than most mines' costs of production.

"2015 looks like the year balance is achieved" in global markets, Flynn said, adding that the market in 2016 looked as if it would see a "slight shortage".

The prospects for prices of metallurgical coal, which Maules Creek also produces, were slightly better, with the market likely to tighten this year already, he said.

According to the Sydney Morning Herald, some analysts have been predicting that Whitehaven will turn to the high-yield US bond market to refinance its debt, but Flynn said that was only likely in two or three years' time, with the focus in the immediate term on refinancing with the same group of 14 banks that provided the existing loans.

Terms for the new debt should however be less onerous, reflecting the reduced risks as Maules Creek completes construction and ramps up.

Discussions with existing lenders, which include major Australian banks, have revealed no evidence that they are pulling back from supporting Whitehaven, despite the noise around funding for fossil fuel projects, Flynn said,

"We haven't seen a skerrick of evidence that anyone wants to retreat," he said.

Whitehaven commenced rail deliveries of coal from Maules Creek near Boggabri in December, three months ahead of schedule.

The project, partly owned by Japanese companies Itochu and J-Power, is also expected to run about AUS$25 million under its AUS$767 million total budget.

Representatives of the Japanese partners at the opening ceremony said they were very pleased with the performance of the project so far.

The company are thought to be among the "half dozen" that Mr Flynn said had expressed interest to Whitehaven in participating in its next proposed new project, the Vickery venture, also in the Gunnedah Basin.

Vickery will cost less than AUS$50 million for its initial capacity of 4.5 million tpy, because it will not require the construction of a processing facility on site, or of a rail link until production increases beyond that level further down the track.

Edited from various sources by Sam Dodson

Read the article online at: https://www.worldcoal.com/coal/03022015/whitehaven-chief-optimistic-on-coal-prices-1838/