Coal miners discover nobody will judge them in the bond market

afr.com:

Thermal coal miner New Hope is boosting returns from its enormous cash pile by turning to fixed income investing, after the producer decided it needed alternative places for its funds because banks won’t support fossil fuel borrowers.

It did not renew a $100 million term deposit this year.

The $4.4 billion listed group, backed by listed investment company Washington H Soul Pattinson, has for the first time placed funds with fixed income managers, underscoring how rich the sector has become from bumper commodity prices and a rapid deleveraging enforced by climate-sensitive lenders.

New Hope expects it will earn between 8 per cent and 11 per cent annually from the basket of bond investments.

New Hope is investing some of its cash with bond managers. 

“If we give it back we won’t get it again,” New Hope chief financial officer Rebecca Rinaldi said, referring to activist pressure on banks to cut off coal’s access to capital. “It’s such a volatile industry, we are really concerned with capital preservation and overall liquidity.”

New Hope, which operates coal mines in NSW and Queensland, returned $1.39 billion through dividends and buybacks to shareholders last financial year. It still has $646 million in net cash, but no obvious avenue for earning interest on that money.

The miner estimated it is investing about $120 million of that with fund managers, including in residential mortgage backed securities, European bonds and retail bonds.

In some fixed income products, an investor’s cash is callable in a matter of days, while others attracts a penalty for early redemptions.

New Hope is seeding a war chest now to ensure it “easily funds the rehabilitation when our mines close”, the CFO said. “We see this as being a responsible