Miners embark on tough reporting season as commodities slump

view original post

Resilient pricing has been found only in lithium and thermal coal, with GlobalCoal reporting over the weekend that top quality NSW coal was fetching $US433.90 a tonne; just below the record of $US436.07 a tonne set on May 20.

Thermal coal prices are now nine times higher than they were two years ago, and Whitehaven managing director Paul Flynn will update investors at 10.30am on Monday as to how his company will spend the extraordinary cashflows that have risen from the global shortage of energy commodities.

Surplus pain

Owning shares in cashed-up coal miners such as Whitehaven, New Hope and Yancoal remains a dilemma for many sustainability-focused investors, who had spent the past 18 months flocking to producers of copper and nickel in the belief those metals would enjoy greater demand as the world moved to decarbonise.

Although decarbonisation remains a longer-term support for copper, Dr Lawcock warned that ASX-listed copper and zinc miners such as 29Metals and Sandfire could have earnings fall close to zero in the next two years amid a surplus of the red metal.

Dr Lawcock’s Barrenjoey team now expect copper to average $US3 a pound in the next 12 months – rather than $US3.63 per pound – on weaker demand and the arrival of new supply from big new mines such as Anglo American’s Quellaveco in Peru and Rio’s Oyu Tolgoi in Mongolia.


“Copper investment is coming through at the wrong time,” he said.

The commodity price crunch comes at a time of rising interest rates and increased costs for labour, fuel and crucial inputs such as caustic soda, which averaged $US274 a tonne in the first six months of 2021, but has surged to average $US675 a tonne over the past six months.

Veteran mining analyst Glyn Lawcock. 

Dr Lawcock downgraded 2023 earnings estimates for 29Metals and Sandfire by more than 80 per cent last week.

Similar downgrades were applied to earnings forecasts for traditional blue chip Alumina Limited, which Dr Lawcock said was making minimal free cash flow at a time of high gas and caustic soda prices.

Earnings estimates for BHP and South32 were downgraded by 20 per cent and 55 per cent respectively, while Dr Lawcock downgraded Rio’s 2023 earnings by 10 per cent.


“We have clearly seen the peak in this cycle, although I’d say coal and lithium are still in a boom at the moment,” he said.

Price provider Platts said iron ore demand in Asia would probably remain sluggish in the near future amid a surplus of the commodity in China, a slow recovery from pandemic lockdowns and poor steel margins.

Prices on the rise

The same weak conditions in the Asian steel sector have dragged prices for top quality Australian coking coal down from $US376 a tonne on June 20 to $US237.50 a tonne on July 15; a fall of 37 per cent in just 25 days.

But Dr Lawcock expects iron ore prices to average a relatively healthy $US110 per tonne in 2023 while coking coal is tipped to average $US200 per tonne.

“We see iron ore prices lifting into the end of 2022 on China stimulus and expectations of a better 2023 given the disappointment of 2022 in China due to lockdowns,” he said.


Dr Lawcock said low debt levels and frugal spending on projects meant the mining sector was generally doing the right things to ensure it could survive a period where uncontrollable factors were negative.

“The thing that strikes me most starkly this cycle relative to any other cycle I have been through is we come into this downturn with low [product] inventory and not a lot of projects under construction,” he said.

“We don’t come into this downturn with as much supply, so I don’t think we exacerbate the downside as much this time, and we are coming into a downturn with good balance sheets.”

Rare earths miner Lynas will also update investors on Monday while BHP will publish production data on Tuesday before gold miners Northern Star and Newcrest follow later in the week.