New Hope: Finding Growth In Aussie Coal

| About: New Hope (NHPEF)

In contrast to BHP Billiton Ltd’s (ASX: BHP, NYSE: BHP) diversity, New Hope Corp Ltd (ASX: NHC, OTCPK:NHPEF) is basically a single-product company. The appeal is its demand for that product–thermal coal–is extremely robust, and is set to remain so for years to come as Asia uses ever-more of it to power its emerging economies.

New Hope’s latest move is its now-completed acquisition of rival producer Northern Energy Corp Ltd. That will add properties under development in Queensland and New South Wales, complementing the company’s existing asset base there.

New Hope’s output suffered greatly earlier in calendar 2011 from Australia’s floods. See my report, Awesome Australia (.pdf), for more on this. Management has now advised production was fully recovered for the quarter ended July 31 and that it expected to report a second half fiscal 2011 profit of between AUD498 and AUD503 million.

That’s considerably better than many thought it would be able to pull off, after the company reported is first-half results this past spring. That interim profit was due almost entirely to the sale of the coal miner’s stake in Arrow Energy and management warned results would be affected by heavy rainfall, in large part due to damage to railroads needed to get its production to market.

The expected solid results for full-year 2011 are in no small part due to robust global coal prices. But operability of railroads will remain as important to profits. The construction of Queensland first user-funded coal terminal should help. But the company’s ability to weather conditions this year is even more encouraging.

The acquisition of Northern Energy demonstrates the ambition of New Hope management to grow in coming years. But with a market capitalization of just AUD4.192 billion and a price of just 1.79 times book value, it also has be considered a potential acquisition, particularly in the wake of the buyout of MacArthur Coal Ltd by Peabody Energy Corp (NYSE: BTU) this year.

The stock has mainly run in place this year, in large part due to concerns about the flooding and its impact on output and later to global economic worries. The fading of the first concern makes a solid gain likely when the global gloom lifts.

The stock did take a hit in 2008, falling from around $4 at mid-year to less than $2 by December. By September 2009, however, it had hit a new all-time high. Now about 15 percent off its July 2011 high, New Hope is again in a high-potential range for those who can handle some volatility.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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