The company’s profitability should also improve from a higher production profile from its nearby Narrabri longwall mine, which should lower unit costs of production in a low coal price environment, according to Foster.
“While current thermal coal prices remain depressed, the company is benefiting from the fall in the Australian dollar,” Foster said in a report.
“The development of Maules Creek and ramp up of Narrabri longwall and moisture issues should lower WHC’s unit costs, as well as increase its coking coal exposure in 2014/15.”
While Whitehaven is the largest leveraged coal producer that will continue to benefit from a falling $A and any uptick in coal prices, the downside risks include further delays to Narrabri ramp-up, coal moisture issues, possible construction delays to Maules Creek and received coal prices.
Foster said that corporate issues around Nathan Tinkler’s ownership of the stock had depressed valuations of the company, but this could change now that the former mining magnate sold out of the company for an estimated $600 million to repay debts.
“Together with the recent sell-down of the Tinkler stake, we view Whitehaven as a trading buy now that two-thirds of key catalysts holding back the stock have been resolved,” Foster said.
“The final hurdle in unlocking value for WHC is the ramp up of Narrabri clearing the way for the market to focus on operations and not the corporate issues surrounding the stock.”
Whitehaven saw its price soar to $2.42 before closing at $2.30 at the end of last week.
Whitehaven announced that Maules Creek would start construction with first coal sales anticipated in the 2HCY14.
“Incredibly, this approval has taken three years, with the project approved to mine and rail up approximately 13 million tonnes per annum,” Foster said.
“Funding for the development will come from existing cash and debt facilities. We see no reason for an equity issue with the falling Australian dollar assisting margin expansion.”
Of the $767 million capital costs, approximately $160 million has been spent to date, largely on CHPP and land purchases, leaving approximately $607 million to spend.
Whitehaven’s share of the capital costs will be funded by existing facilities and ongoing cashflow.
Initial site preparation, including fencing, storage and access roads, will start next week.
The most critical element of the construction phase is the rail spur and loop. The contract for the design and construction of the rail infrastructure is in the final stages of negotiation prior to execution.