Australia’s big banks have turned their backs on the country’s largest pure-play coal miner, refusing to refinance a billion-dollar debt in a major rebuff that will force Whitehaven Coal to source loans offshore, sending a worrying signal to other large coal producers and potentially speeding up the demise of the sector.
Whitehaven revealed its funding problems in a quarterly update on Monday, saying it has managed to source credit for mine rehabilitation, clean-up costs, port, rail and other activities, but could not to get a $1 billion finance facility renewed.
The debt revelation will put pressure on Whitehaven’s ability to expand its coal mines, and surprised financial analysts who asked the company: “What went wrong here?”
The banks’ decision not to back the company’s thermal mines – where the most polluting form of coal is dug up to generate electricity in power stations – means Whitehaven will need to retain large amounts of cash on its balance sheet to operate the business while it looks for other loan sources.
“In your last production call, you stated discussions are ongoing and you were considering refinancing the company’s $1 billion credit facility. This morning we found out this isn’t happening. What went wrong here?” asked Stephen Henderson, an analyst at Shoreham Partners, in a conference call with executives on Monday.
“We didn’t renew our funding,” Whitehaven’s managing director and chief executive officer, Paul Flynn, confirmed. “Look, it’s hard yakka. That’s not news to anybody on the thermal [coal] side of things.”
“There’s no doubt that some of the banks have chosen not to participate in the refinancing as we go forward. Thermal coal has been less appealing from the bank’s perspective in terms of how they want to decarbonise their lending portfolios,” Flynn said.
The company’s chief financial officer, Kevin Ball, said the banks initially provided the $1 billion loan facility for the company’s newest and largest Maules Creek coal mine in NSW’s Gunnedah Basin, an open-cut project that started operating in 2015 and has enough reserves for 40 years of production.
“Anybody who’s in thermal coal is going to be facing similar challenges in mobilising funding from traditional sources,” Ball said. “It is increasingly difficult being a coal producer to attract external funding,” he said, adding that the miner was instead focus on sourcing loans from the US debt capital markets next year.
Ball said the company had substantial cash reserves to weather the lack of finance. “It’s fairly challenging when you go to a bank and say I’ve got $2.6 billion on the balance sheet and, ‘Sir, can I borrow some money?’ Because they’ll look at you and go, ‘Well why do you need that?’ ”
‘It is increasingly difficult being a coal producer to attract external funding.’Whitehaven chief financial officer Kevin Ball
Will van de Pol, the acting chief executive at activist investor group Market Forces, said the company’s loan dilemma raised a “red flag” for its investors. “Whitehaven is being forced to finance its operations with cash that could otherwise be handed back to shareholders,” van de Pol said.
“Banks have lost interest in funding Whitehaven’s financially reckless and environmentally ludicrous coal expansion plans in the midst of a climate crisis. NAB and Westpac have finally turned their backs on Whitehaven, which means none of Australia’s big four banks are funding the country’s biggest pure-play coal miner. Even Japan’s mega banks, some of the largest financiers of fossil fuels globally, have now ditched Whitehaven,” he said.
Shares in the coal miner went on a tear last year, rising more than 246 per cent and peaking above $10 as coal prices soared amid supply disruptions from the Ukraine conflict and rising demand after the pandemic. They were trading at $6.85, up 3 per cent, around midday on Monday after Whitehaven revealed its June quarter coal production was up 19 per cent from the March quarter and within its guidance range.
The company has previously told investors that the “structural change” of rapid decarbonisation will result in tapering demand for thermal seaborne coal through to 2050. It is increasingly having to tackle a vocal minority of shareholders concerned about its ongoing contribution to the global climate crisis.
Australia’s coal exports through the Port of Newcastle rose in the June quarter, but total exports for last financial year were about 132 million tonnes, significantly lower than the previous year, the result of significant rain events and labour shortages.
“We expect coal prices to remain subdued during the northern hemisphere summer period while high coal stocks at end user facilities and cheaper alternatives, including gas, are available,” Flynn said.
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Source: Thanks smh.com