In this post I will dig into the fundamentals of Warrior Met (HCC) and discuss how this coal producer is different from it’s peers in quite a provocative way. I discussed Warrior’s operations in an early write-up (June 2021), linked below. If you quickly review that post you’ll be mostly up to speed on what’s going on down in Alabama.
Longtime subscribers will remember that HCC was one of my favorite coal stocks early, and I made many of my tremendous gains on the back of HCC in the second half of 2021 and early 2022. I thought the risk vs reward was skewed positively due to the strike. The UMWA strike knocked off a significant amount of production and the stock got hammered as a result. However, at the same time the met market began to wake up from it’s slumber thanks to the Chinese ban on Australian coal imports. So you had a situation where FCF was increasing, and if they resolved the strike it would increase even more. In my 2022 proforma I had forward met prices estimated at $155/mt - how quaint! We’re looking at met prices of $373/mt today.
To bring it forward to current day, the UMWA strike is still technically ongoing, and management has to been seen legally as “negotiating in good faith.” However, in the minds and hearts of everyone involved, it is very much a done deal. And the union, has very much lost.
I believe the Blue Creek mine development was in management’s long term planning during the strike period, and the fact Warrior Met’s management did not give-in to the hot met market of late 2021 and early 2022, to try to earn some quick profits, shows how committed they are long term value to shareholders. In my mind, management basically passed the marshmallow test. They could have settled with the union and boosted production when met prices were flying, but instead opted to get rid of the UMWA once and for all, in order to preserve the long term value of their world class assets.
Moreover, the fact Blue Creek was in their long term plans probably played a big role in their decision making at the time. No mining management team wants to bring on a new mine if its going to be a union operation.
Here’s the earnings calendar for US met stocks. These are the ones I’ll be able to cover this season, but I’ll add more as I develop detailed financial models for each coal producer in the US first, then I’ll start to tackle Australian producers.
Q3 Met Earnings Calendar:
Warrior - Wednesday, Feb. 15 PM
Arch - Thursday, Feb. 16 AM: write-up here
Alpha - Thursday, Feb. 23 AM: write-up here
This analysis is based on the Australian coking futures forward curve as of 2/6/2022. The Assumptions and Results are in the tables which follow.