Why some super funds have reassessed their coal exposures

While some superannuation funds have been the subject of criticism for increasing their investment exposure to coal mining companies, new analysis from Morningstar substantially explains their motivations.

The latest Morningstar Commodity Price Update covering the third quarter of 2024 specifically nominates coal miners Whitehaven and New Hope as being amongst the cheapest on Morningstar’s coverage list.

It said that the two companies were trading at around 23% and 20% below fair value, respectively.

The analysis said this was probably owed in part to many investors having an aversion to investing in coal.

“However, demand for the high-quality (high energy, low ash) thermal coal produced by both companies is likely to be persistent for at least the next decade, particularly from Southeast Asia. It helps countries such as Japan and Malaysia provide cheap and reliable power for their populations while also reducing emissions in line with their obligations under various international treaties,” the analysis said.

“We also like Whitehaven’s recent purchase of no-moat BHP’s Blackwater and Daunia metallurgical coal mines. With alternative green steel technologies unlikely to be economic at scale for decades, metallurgical coal demand is likely to remain solid for use with iron ore to create steel via the blast furnace process.”

“On the supply side, ESG concerns are also likely to constrain supply of both types of coal, benefiting existing producers such as Whitehaven, New Hope, and Glencore,” the Morningstar analysis said.