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Rising coal prices fuel Glencore, Thungela and BHP shares

Despite the global move towards cleaner energy supplies, Glencore, Thungela and BHP have all recorded bumper profits and soaring share prices, thanks to the coal industry’s sudden surge off the back of the fuel crisis and Ukraine war.

Coal has seen a revival in fortunes amid the global energy supply crunch, lifting the share prices of key players in the industry such as Glencore [GLEN.L], Thungela [TGA.L] and BHP [BHP.L]. Seen as a controversial fuel thanks to its high carbon emissions and polluting potential, coal is often regarded as a market in decline.

However, demand for coal looks set to continue for now, according to Tyler Broda, head of European mining at RBC Capital Markets, as Barron’s recently reported. “Russia’s invasion changed the calculus in the global energy balance, and coal is a very key part of that, especially in Europe,” Broda said.

Producers across the globe, including those in China and India, have recorded rising demand, despite global calls for cleaner energy solutions. According to Trading Economics, the price of coal has risen by around 36% in 2022, reaching $422 per tonne at the end of August, and is up 146% over the past year. 

Glencore provides more optimistic outlook

Glencore is the world’s leading producer of coal. The UK-Swiss mining and commodity company, headquartered in Bern, posted record profits of $18.9bn in early August, more than doubling its previous performance. Nearly half of this came from its coal division, marking a huge increase from the $900m made in the first half of 2021.

However, Glencore’s CEO Gary Nagle has said: “We are not a coal company, we are a decarbonising transition company,” arguing the fuel is still required during the global energy transition, with plans to run down production over the next three decades, rather than just dispose of assets. The company also mines metals including nickel, cobalt, zinc and copper, which it says are needed for the batteries and infrastructure required for a lower-carbon energy system.

CFO Steven Kalmin added he didn’t think high coal prices would continue in the long term.

Year-to-date, the Glencore share price has rocketed 35.8% to the close on 31 August. It has forecast adjusted earnings for 2022 in excess of $32bn.

Analysts at Credit Suisse said Glencore was highlighting increased macro uncertainty in H2 for 2022, “but the tone is slightly more positive than we have seen from other miners”, reported the Financial Times.

The current consensus among eight analysts at MarketBeat is to ‘buy’ Glencore stock.

Thungela set to pay out large dividend

As coal prices continue to rise, in mid-August South-African coal miner Thungela announced it will pay out a large dividend equivalent to $3.68. The company, South Africa’s biggest exporter of thermal coal (coal burned to create steam), has reported a massive 4,000% rise in profits.

Thungela is a spin-off of Anglo-American [AAL], with a market cap of $2.1bn, and only launched its IPO on the Johannesburg and London stock exchanges in June 2021. Year-to-date its London share price has jumped a massive 366.4%, closing at 1,652p on 31 August, and 1,001% since its launch.

Last week, Bloomberg reported that Thungela’s Johannesburg-listed stock, which trades under the ticker TGA.JO, was the index’s top performer this year, up 317.2% year-to-date as of 31 August. Morgan Stanley analyst Brian Morgan wrote that “Thungela is by far our preferred coal exposure,” in a note seen by Bloomberg, citing its strong dividend and pattern of delivering shareholder returns.

BHP announced highest ever payout

In mid-August, Melbourne-based BHP — the world’s biggest miner — posted its highest ever full-year profits. However, year-to-date the BHP share price is trailing the other two coal producers, up a more modest 12.2% as of 31 August.

Its underlying profits reached $23.8bn in the year to 30 June, confidently beating analyst forecasts of $21.6bn. BHP’s coal business generated underlying earnings of $8.7bn before interest and taxes, up from a loss of $877m in the previous fiscal year. BHP cited higher coal and copper prices as two factors contributing to the higher profits. The company also announced a dividend of $1.75 per share, bringing its annual dividend to $3.25 — the highest payout in its 137-year history.

In June 2022, BHP backtracked on plans to exit its Mount Arthur coal mine, after soaring prices raised its value, and investors’ changed their attitudes towards the fuel. It now plans to keep facilities open till 2030. However, plans for new coal mines in Queensland are on hold. More recently, on 1 September the company announced it was buying Montreal-based Turquoise Hill Resources for $3.3bn.

At MarketBeat, seven out of eight analysts rate BHP stock a ‘hold’. However, on 17 August, following the company’s earnings update, both Credit Suisse and JPMorgan raised their price targets on the shares, from 2,200p to 2,300p and from 2,440p to 2,490p, respectively. Both analysts maintained ‘neutral’ ratings on the stock.

Disclaimer Past performance is not a reliable indicator of future results.

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2022-09-02 02:48:20

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