The ongoing debate over fossil fuels and climate change is having a drastic impact on Whitehaven Coal as its share price tumbles below $1 but prospects are still optimistic for the wider mining sector.
The company was subject to activist activity from Market Forces campaigners who said the company should disclose a plan on how it would meet certain goals of the Paris Agreement on climate change.
The stock had fallen 64% since the start of the year but Janine Cox, senior investment analyst, cautioned investors on trying to time the market and buy the stock “at the bottom” as it could fall further. Back in February 2016, the stock traded as low as 34 cents and it had lost 77% over the last 10 years.
“The stock is trading below $1 and a lot of funds won’t look at a stock below that price. It has fallen 84% since June 2018 and I would warn opportunists from trying to buy when it is low as it could still go lower. If anyone has been following it then they would never have bought it as it has been giving off so many negative signals.
“It is unlikely to do much better than $1.50 in the next 12-18 months as it would reach a range bound. If it gets below 80 cents then that will be a real problem and it will likely keep falling, the share price is in decay.”
Currently, there was only one Australian-listed fund that held the stock which was Lazard Select Australian Equity with an allocation of 7.4%, which made it its fourth-largest holding.
In its latest commentary, Lazard said it had been a detractor from performance in August as its underlying earnings were down 95% year-on-year due to the weaker coal price. Nevertheless, Lazard said it remained in a ‘solid position to recover’.
“We believe the business is in a solid position to recover […] the sharp reduction in the share price has been disappointing. However, in spite of some modest reassessment of our medium-term forecasts, we believe that Whitehaven remains an attractive value opportunity.”
The Lazard Select Australian Equity fund lost 19.9% over one year to 31 August, 2020, versus losses by the Australian equity sector of 2.3%.
Despite her negative outlook on Whitehaven, Cox said she was optimistic on the mining and materials sector in general as she believed it was a “solid foundation” for the Australian market. However, she said she would like to see a slight pullback as share prices had got ahead of themselves.
“BHP and RIO Tinto have both got ahead of themselves. In the short term, the share price could go higher but that would be a worse scenario than we have now. I would rather have a pullback. There is potential for them to go up a further 5%-10% but I would rather see them soften before going up as that is safer for investors.
“It is like walking on a tightrope and getting further away from the edge.”
Shares in BHP and Rio Tinto have returned 0.2% and 3% since the start of the year to 23 September versus losses of 9% by the ASX 200.
