Investing in the right stocks is crucial for success in the financial market. One company that has caught my attention is Whitehaven Coal (OTCPK:WHITF). In my previous articles, I rated Whitehaven Coal as a Buy due to its strong fundamentals, but now I am upgrading my rating to a Strong Buy. This is because the company is still undervalued, coal prices are expected to rebound, and Whitehaven has made a significant acquisition that expands its size and scope. I believe that WHITF shares are poised for significant gains, and as an investor, I am increasing my position in the stock.
Global Coal / Gas Prices Stabilizing
The global coal and gas prices have been on the rise since the COVID-19 pandemic, and they show no signs of coming down. This is due to a fundamental supply and demand imbalance in the coal industry, as well as negative perceptions surrounding coal as an energy source. Global financiers have been reluctant to fund coal investments, and major mining companies like BHP and Glencore have committed to reducing or abandoning coal investments. This reduction in supply, coupled with increasing demand, has caused coal prices to remain elevated. This trend is expected to continue, making Whitehaven Coal an attractive investment opportunity.
Recent data shows that the price of coal is trending higher, and there are several indicators that suggest further price increases. The volume for the front Newcastle Coal contract has been increasing at current prices, indicating strong demand. Additionally, positive divergences on the Money Flow Index (MFI) and Relative Strength Index (RSI) indicators are further evidence of the upward momentum in coal prices. These factors indicate a bullish trend in the coal market, making it an attractive investment opportunity.
Transformational Transaction: Acquisition of Daunia and Blackwater Mines
In a transformative move, Whitehaven Coal announced its acquisition of the Daunia and Blackwater metallurgical coal mines from BHP for up to US$4.1 billion in cash. This acquisition not only strengthens Whitehaven’s position in the coal market but also aligns with the company’s long-term vision. The deal was done at below market multiples and is immediately accretive to earnings per share, making it a favorable transaction for Whitehaven Coal and its stakeholders.
Furthermore, this acquisition shifts Whitehaven’s production mix from a primarily thermal coal producer to a significant metallurgical coal producer. This strategic shift reduces the risk associated with thermal coal, as demand for metallurgical coal is projected to remain strong in the steel industry. It also doubles Whitehaven’s annual coal production/sales, solidifying its position as the leading ASX met coal producer. This increased scale and diversification will help Whitehaven maintain its bargaining power and margin profiles as the coal market evolves.
When analyzing the technical aspects of Whitehaven Coal’s stock, there are positive indicators that suggest further upside potential. The stock has been making new highs in price, Money Flow, and TSI indicators, indicating a strong upward trend. There are also positive divergences in all three indicators, suggesting that buyers are accumulating the stock at higher prices. The volume profile shows that WHC has broken through its significant volume resistance levels, indicating potential for further price appreciation. Overall, the technical analysis supports a bullish outlook for Whitehaven Coal.
In conclusion, Whitehaven Coal presents a compelling investment opportunity. The company’s strong fundamentals, the potential for coal prices to rebound, and the recent transformative acquisition of Daunia and Blackwater mines make Whitehaven Coal an attractive investment option. As an investor, I am confident in the long-term prospects of WHITF shares and have increased my position in the stock. However, it is essential to conduct thorough research and consider your risk tolerance and investment goals before making any financial decisions. Investing in securities that do not trade on a major U.S. exchange carries additional risks, so it is essential to be cautious and seek professional advice when necessary.