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FY20 result: New Hope (ASX:NHC) announces big loss

Coal miner New Hope Corporation Limited (ASX: NHC) has announced its FY20 result which showed a big loss.

The numbers

New Hope reported that its FY20 revenue fell 17% to $1.08 billion. The coal miner sold 11.5 million tonnes of coal. The increase in production and sales was driven by a full year of ownership of the 80% stake of the Bengalla joint venture.

The coal miner reported profit before tax and non regular items dropped 69% to $119.5 million. Net profit after tax (NPAT) before non regular items also dropped 69% to $83.9 million.

However non regular items for the coal miner amounted to a cost of $240.7 million. That saw the company report a statutory net loss of $156.8 million.

However, New Hope generated operating cash of $298 million before acquisition costs, interest and tax, which was a decrease of 42%.

New Hope dividend

The New Hope board decided not to declare a final dividend. That means that the full year dividend amounted to 6 cents per share, a 65% reduction.

What happened?

Aside from the effects of the global pandemic, a number of factors impacted the business over FY20 including lower revenue in US dollars due to market index pricing conditions and increased costs as the Acland Mine nears the end of the stage 2 life.

The non regular items of $240.7 million related to impairment of its coal production and exploration assets, impairment of goodwill, impairment of oil production and exploration assets, New Acland ramp down costs, redundancies and ERP implementation costs.

Management said that Newcastle coal prices were resilient until March but fell around 33%, or A$36 per tonne, from between March 2020 to July 2020 driven by weakening demand and a weakening US dollar. However, the company is “beginning to see some signs on the supply and demand sides that should help stabilise coal prices.”

Summary

Stage 3 of the New Acland Coal Mine continues to be delayed as the company waits for final approvals. It still requires mining leases and an associated water licence.

New Hope expects coal markets to continue to be volatile in the near term. However, demand for high quality thermal coal remains strong across Asia.

The coal miner predicts that for most Asian countries, thermal coal will continue to be a significant component of their energy mix for many years to come, underpinned by continued investment in new coal power fired power stations.

I think the best time to buy cyclical businesses is when they’re at the bottom of the cycle. This could be the low for New Hope, but coal seems to have a poor long term outlook – I’m not sure what would send coal prices surging. For that reason, I’d prefer other ASX dividend shares. For starters, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) offers a lot more diversification.

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At the time of publishing, Jaz owns shares of WHSP.

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