We expect much stronger earnings in the second half as the thermal coal price strengthens due to the Middle East conflict and the effective closure of the Strait of Hormuz.

  • This is curtailing liquefied natural gas flows to Southeast Asia, with the likes of Japan and South Korea likely to crank up thermal coal purchases as they switch to coal from gas to meet their energy needs. Additional potential supply cuts from Indonesia—the world’s largest coal exporter—also support prices.
  • Cuing off the futures curve, we raise our assumed average thermal coal price from 2026 to 2028 to about USD 135 per metric ton, up from around USD 115. However, we maintain our USD 110 midcycle price from 2030 based on our estimate of the marginal cost of production.

We increase our fair value estimates for no-moat New Hope, Whitehaven Coal, and Glencore by 8% to $5.70, 3% to $9.50, and 6% to GBX 530 per share, respectively, driven by higher assumed near-term thermal coal prices.

  • Currency movements since our last update partially offset for New Hope and Whitehaven, but contribute for Glencore. New Hope and Whitehaven shares are moderately undervalued, while Glencore shares are close to fairly valued.
  • We also lower Whitehaven’s Morningstar Uncertainty Rating to High, from Very High, on what we expect to be a rapid improvement in the company’s balance sheet due to strengthening thermal coal prices.

Whitehaven (ASX: WHC)

Whitehaven Coal offers exposure to global energy and steel demand via thermal and metallurgical coal production. Its mines are in New South Wales and Queensland. Salable coal production expanded from 10 million metric tons in fiscal 2014 to about 14 million metric tons in fiscal 2022, largely due to the ramp-up of Maules Creek and the expansion of the Narrabri mine. It purchased the Blackwater and Daunia metallurgical coal mines in Queensland from BHP and Mitsubishi in April 2024, but it sold a 30% stake in Blackwater to two Japanese steelmakers in March 2025. Equity output is expected to grow to 31 million metric tons by fiscal 2030, split roughly 60% coking coal and 40% thermal coal.

Favorable coal prices are critical to generating excess long-term returns, but on this front we’re circumspect. Poor coal prices in response to the global recession caused by the coronavirus along with production difficulties at Narrabri saw the firm’s balance sheet quickly deteriorate. However, from losses in fiscal 2021, elevated coal prices in the wake of the Russia-Ukraine war saw the company quickly repay debt and move into a net cash position. After purchasing Blackwater and Daunia, it is once again in a net debt position, but we expect it to return to a net cash position over our forecast period.

Whitehaven is a price-taker, meaning maintainable competitive advantage requires low capital and operating costs and long-life mines. Its early mines had relatively high operating costs and produced mainly thermal coal. Narrabri and Maules Creek in particular have reduced group cash costs and increased semisoft metallurgical coal production. Its Queensland mines are higher cost but also higher margin than its New South Wales mines, given their production is predominantly metallurgical coal that attracts a premium to thermal coal.

However, coal mining is a capital-intensive business and some assets were acquired through relatively expensive acquisitions, the cost partly assuaged through the use of overvalued shares. We forecast midcycle ROIC below its WACC, supporting our no-moat rating.

New Hope (ASX: NHC)

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high-quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity sales of thermal coal to rise to about 13 million metric tons in fiscal 2030, up from roughly 10.5 million in fiscal 2025, driven by the ramp up of New Acland Stage 3.

Asia will likely remain the relative bright spot for demand for the high-quality (high energy, low ash) thermal coal produced by New Hope, driven by the region’s fleet of young, high energy low emission coal-fired power stations. Both Bengalla and New Hope remain in or around the lowest quartile of the thermal coal cost curve. As such, we think companies higher up the cost curve that produce lower-quality coal are more likely to be affected by likely falling demand for thermal coal in coming decades.

As a commodity producer, New Hope is a price taker and needs low-cost mines with long lives and a low installed capital base to support persistent longer-term excess returns. We forecast midcycle ROIC similar to the company’s WACC, supporting our no-moat rating.

The firm has substantial additional resources elsewhere in Queensland and a 26% stake in Malabar Resources, which owns the Maxwell metallurgical coal mine in New South Wales. The mine commenced production in 2023 and likely has a mine life of more than two decades, with unit costs in the bottom quartile of the industry cost curve. It provides modest diversification into metallurgical coal.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years.