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The London hedge fund campaigning against Whitehaven Coal’s proposed purchase of two BHP mines is planning an advertising and letter blitz targeting shareholders, urging them to strike down the company’s remuneration report and executive Paul Flynn’s pay plan.
Bell Rock Capital Management is upping the tempo of its campaign for Whitehaven to ditch its growth plans by acquiring BHP’s coking coal assets and instead focus on handing out generous capital returns to shareholders, writing to shareholders and advertising in newspapers and on the internet.
Coal miners are facing intense investor activism as they struggle to fund new projects.Credit: Peter Braig
In a letter to all of Whitehaven’s shareholders ahead of next fortnight’s annual meeting, Bell Rock urges them to vote against the company’s remuneration report and managing director Flynn’s performance-based share plan.
It says Whitehaven has, for the first time since 2011, dropped a key metric, total shareholder returns (TSR) – used by many ASX 100 companies including BHP, Rio Tinto, New Hope and Newcrest – from its management remuneration structure. Without it, the company could destroy the share price, cancel or reduce dividends, stop the share buyback, and still pay its managers a healthy bonus, Bell Rock’s letter argues.
At its last annual meeting, 92 per cent of votes backed Whitehaven’s remuneration approach and the company’s incentive structure hasn’t changed this year, a spokesperson said. The miner delivered total shareholder returns of 154 per cent in 2022, ranking it first out of the top ASX 100 companies, and in the 2023 financial year similar returns were 52 per cent.
“Whitehaven will always look to make decisions in the best interests of all shareholders, rather than just a few,” the spokesperson said.
Whitehaven confirmed last month it was participating in the sales process for Blackwater and Daunia, two Queensland coking coal mines being offloaded by BHP and its partner Mitsubishi that are worth an estimated $US3.5 billion ($5.5 billion). Coking coal is used in steelmaking blast furnaces and is a major export commodity for Australia.
Whitehaven suspended its generous share buyback program three months ago to consider acquisitions that will broaden its output beyond the thermal coal mines, used to generate electricity or heating, that it currently operates. Thermal coal is facing an uncertain future as the world rapidly transitions to less carbon intensive energy in an effort to halt dangerous global warming.
Others are also interested in buying BHP’s mines, including Coronado Global Resources, Stanmore Resources and Indonesian firm BUMA.
Coal miners are facing intense investor activism as they struggle to fund new projects, with banks increasingly reluctant to back carbon-emitting activities.
Activist investor group Market Forces is pushing against Whitehaven’s bid to expand its existing thermal coal mines, Winchester South and Narrabri. Detailed modelling by the group suggests the company’s proposed new coal mines aren’t resilient to even small shifts in coal price forecasts that are consistent with a 2.5 degree global warming scenario.
“With just a 10 per cent drop from these prices, in line with implementing existing climate policies, constructing the proposed new mines would not add shareholder value compared to simply running off existing assets,” the group claims.
Bell Rock’s Mike O’Mara said that without the total shareholder returns metric Whitehaven’s remuneration structure incentivises executives to focus on top-line growth through acquisitions, a strategy that may not be beneficial to shareholders.
”By dropping TSR from its performance scorecard, Whitehaven are introducing a misalignment between the interests of management and shareholders,” O’Mara said. “How can you be sure management is acting in your best interests?” he asks.
The letter also claims Flynn is paid three times his peers following an 85 per cent remuneration boost in 2022 and a further 26 per cent pay rise this year. Conversely, it cites Bloomberg data which suggests that adjusted for dividends, the company’s share price has slumped by 28.35 per cent over the past year. Peers, such as New Hope, rose 8.37 per cent while Yancoal fell just 0.45 per cent over the same timeframe, it says.
“We fear it is unlikely the buyback programme will return, with future dividends potentially put on the chopping block if Whitehaven proceeds with this acquisition,” O’Mara said.
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