We believe the suspension of Grosvenor metallurgical coal mine (owned by Anglo American [AAL LN, NR]) in Queensland, Australia, following the underground fire in late Jun, would last for several months. We estimate the suspension will result in ~0.8% reduction of global metallurgical coal export volume, which will likely translate into higher met coal price and serve as a positive catalyst for Yancoal (YAL). We expect higher spot prices will boost YAL’s ASP in both 2H24E and 1H25E when some contracts are to be repriced over the coming months. We revise up our 2024E/25E earnings forecast by 7%/9% after revising up our ASP forecast. Our NPV-based TP is revised up to HK$45 from HK$40. Trading at 6.5x 2024E P/E and 7.7% yield, we believe the stock is attractive for investors who seek margin of safety and high dividend. Maintain BUY.
　　Incident. A fire broke out underground at Grosvenor met coal mine as a result of methane gas ignition on 29 Jun. Given a serious damage made, it’s likely to take several months before the mine operation can be resumed. Grosvenor mine has an annual capacity of 5mt. The mine produced 2.8mt of met coal in 2023, which was equivalent to 0.8% of the global met coal export in 2023 (349mt).
　　Coal price stabilising. The benchmark semi-soft coking coal price (SSCC) price dropped ~28%/~9% YoY to US$152/US$140 per tonne in 1Q/2Q24. We expect the pricing to stabilize following the incident. We revise up our 2024E/25E met coal price assumptions by 11%/8% for Yancoal (pricing impact generally lags behind by a couple of months).
　　Key risks: (1) further decline in coal price; (2) rebound of unit cost; (3) unfavourable weather that affects production