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New Hope coy on buying Wesfarmers' stake in Bengalla as coal price lifts earnings

New Hope Corp, the coal mining arm of investor Washington H. Soul Pattinson and Co, has refused to rule out buying Wesfarmers' stake in the Bengalla coal mine, as it continues to review acquisition opportunities in the coal industry.

New Hope, and Wesfarmers, the conglomerate with interests ranging from Coles and Bunnings in retailing, through to chemical and fertiliser manufacturing, each hold a 40 per cent stake in the Bengalla mine in the Hunter Valley.

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A year ago, New Hope paid Rio Tinto $865 million for its 40 per cent shareholding in Bengalla, just before the price of coal surged, which has helped to rewrite New Hope's fortunes.

"The timing of the Bengalla acquisition has been pivotal to the result," New Hope's managing director Shane Stephan said when commenting on his group's profit surge in the six months to January, which was released earlier on Tuesday.

"There is no shortage of assets on the market at the moment," he said, while refusing to comment on any interest he has in acquiring the Wesfarmers stake in the Bengalla mine.

Wesfarmers is believed to have its coal interests in the market, which include its stake in Bengalla and full ownership of the Curragh mine, which produces coking coal and steaming coal.

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Mr Stephan said his company is only interested in acquiring open-cut mines, and not underground mines.

New Hope is also seeking approvals to begin development of the New Acland mine in southern Queensland, a $900 million development that could be in production within 18 months of receiving all government approvals. Much of the capital cost of this project would be incurred in the latter stages of its proposed development.

The surge in the coal price since mid-2016, coupled with the purchase of the stake in the Bengalla mine, has pushed the earnings of New Hope sharply higher in the six months to the end of January. In February, it flagged a January half net profit of $50 million – $54 million, with an extraordinary profit of $14 million after tax to lift earnings to $64 million – $68 million.

The outcome was to exceed the top end of the forecast, with a net profit after extraordinary items of $68.4 million, up from $2.7 million a year earlier. Earnings were boosted by a $13.9 million refund on rail charges.

Earnings a share surged to 8.2¢ for the half, up from just 0.3¢ a year earlier, enabling the interim dividend to be doubled to 4¢ a share, after it was forced to dig into reserves to finance the pay-out last year.

Soul Pattinson will pocket $19.8 million thanks to its controlling 60 per cent shareholding in the coal miner.

In March, 2016, the benchmark spot price for Newcastle steaming coal was around $US51 a tonne, rising to $US70 a tonne by the middle of last year. The price has continued to firm, to $US81.75-$US83.00 a tonne in recent dealings according to McCloskey/IHS data.

New Hope's Mr Stephan said Chinese government policy appeared to be aimed at holding the price of steaming coal stable at around $US75-$US85 a tonne as it seeks to shut down uneconomic domestic mines and lift its reliance on renewable energy sources, along with nuclear energy.

In the latest half, saleable output hit 7.4 million tonnes, up 45 per cent with tonnes sold rising 47 per cent to 3.95 million tonnes.

And the outlook is for continued strong earnings, thanks to the elevated coal price, the company said.

Pointing to the shift towards higher efficiency, lower emissions coal-fired power stations in north Asia, New Hope said this will "attract ongoing premiums to alternative lower quality coals in the future", it said, highlighting the outlook for its output from mines in southern Queensland and the Hunter Valley.