A Brief History of Yancoal Australia (ASX: YAL)

Origins and Ownership
Yancoal Australia was established in 2004 as the Australian operating arm of Yankuang Energy Group, one of China’s major coal producers. The company was created to acquire and operate coal assets in Australia’s resource-rich regions.

Expansion Through Asset Acquisitions
Over time Yancoal expanded primarily through acquisitions, most notably the purchase of the Coal & Allied portfolio from Rio Tinto in 2017. This transaction significantly increased its production capacity and established it as a major exporter of thermal and metallurgical coal.

Current Position
Today Yancoal is listed on both the Australian Securities Exchange and the Hong Kong Stock Exchange, operating several large mines across New South Wales and Queensland while maintaining majority ownership by its Chinese parent.

Coal Types and End-Markets

Thermal Coal

Used mainly for electricity generation in power plants. This is the dominant product in Yancoal’s portfolio and is exported primarily to Japan, Korea, China and Southeast Asia.

Metallurgical (Coking) Coal

Used in steelmaking to produce coke, which acts as both a fuel and reducing agent in blast furnaces.

Coke Production

Yancoal itself does not operate large coke plants. Most metallurgical coal is sold to steelmakers who convert it into coke.

Key Mining Assets

Yancoal’s production is concentrated in several large mining complexes in New South Wales and Queensland. Moolarben, located in New South Wales, is the company’s largest asset and produces primarily thermal coal through both open-cut and underground operations, with annual production typically around 15–17 million tonnes. Hunter Valley Operations (HVO) is another major asset producing thermal coal as well as some semi-soft metallurgical coal, generally contributing around 10–12 million tonnes per year. Mount Thorley Warkworth, also in the Hunter Valley, is largely a thermal coal operation with output of roughly 8–10 million tonnes annually. Ashton Mine produces a mix of semi-soft coking coal and thermal coal with production typically in the 3–4 million tonne range. In Queensland, Yancoal holds a joint venture interest in the Middlemount Mine, which produces metallurgical coal used for steelmaking, contributing roughly 3–4 million tonnes per year.

Production and Sales Profile

Across its portfolio of mines, Yancoal typically produces around 50–60 million tonnes of saleable coal annually. The majority of this output—roughly 40–45 million tonnes—is thermal coal destined for power generation markets. A smaller portion, approximately 8–10 million tonnes, consists of metallurgical or semi-soft coking coal used in steel production. Because the company does not operate dedicated coke facilities, virtually all metallurgical coal is sold directly to steelmakers rather than converted into coke internally.

Coal Reserves and Mine Life

Based on publicly reported estimates, Yancoal holds approximately 1.2 to 1.3 billion tonnes of proved and probable coal reserves across its Australian operations. At a current production level of roughly 50 million tonnes per year, this implies an indicative reserve life of around 20 to 25 years. In practice, however, mine life can often be extended through additional exploration, reserve upgrades and operational improvements.

Revenue vs Coal Price Cycle

Between 2021 and 2022, the average Australian coal price surged from about $138/t to nearly $345/t, driven by the global energy crisis following the Russia–Ukraine war. This extraordinary price spike pushed Yancoal’s revenue from $5.4bn in 2021 to $10.6bn in 2022, while operating income jumped to more than $5.2bn.

However, as coal prices normalised through 2023–2025, falling from $345/t to roughly $108/t, Yancoal’s financial performance declined accordingly. Revenue dropped to about $6.0bn by 2025, and operating income fell sharply to around $630m. The company’s earnings therefore closely track movements in the global coal price.

Margin Compression

The same cycle is visible in margins. During the 2022 price spike, Yancoal’s gross margin reached almost 70%, an exceptional level for a mining company. As prices retreated, margins gradually compressed to about 44% by 2025, reflecting weaker realised coal prices while production costs remained relatively stable.

Key Takeaway

Yancoal is essentially a pure play on coal prices. When global coal prices spike, profits expand dramatically; when prices normalise, earnings decline but generally remain positive thanks to relatively low production costs.

In short: price drives everything in this business. The mines change slowly, but the market price of coal can double or halve in a year, and the income statement follows it almost mechanically.

Balance Sheet Strength

One of the most notable changes over the last five years is the dramatic reduction in long-term debt. Long-term borrowings fell from $3.27bn in 2021 to effectively zero by 2023, reflecting aggressive deleveraging during the coal price boom. As a result, the company now operates with a very conservative capital structure, a rare feature among resource producers.

Liquidity

Yancoal holds about $2.1bn in cash (2025) with total current assets of $3.2bn versus $1.39bn current liabilities. This implies a current ratio around 2.3x, indicating strong short-term liquidity.

Cash Flow Overview

Operating cash flow surged during the 2022 coal price spike and has since normalised as coal prices declined, though it remains solidly positive. Rising capex reflects ongoing reinvestment required to sustain mine production.

Depreciation vs Capex

Depreciation and capital expenditures are broadly similar in scale, meaning free cash flow closely tracks operating profit. This also suggests the company is reinvesting roughly enough to replace depleted reserves and maintain operations, implying production levels are likely sustainable around current levels in the foreseeable future.

FY2025 Production and Realised Pricing

In FY2025, Yancoal produced approximately 67Mt of ROM coal, which translated into 50.8Mt of saleable production, with 38.6Mt attributable to Yancoal shareholders. The company achieved an average realised price of about $146/t, including roughly $136/t for thermal coal and $203/t for metallurgical coal.

FY2025 Cost Structure and Cash Margin

Cash operating costs were around $92/t, with an additional $15/t in royalties, resulting in an implied cash operating margin of roughly $39 per tonne. Even after the normalisation of coal prices, this cost structure allows the company to maintain a solid operating margin.

Valuation and Dividend Snapshot

Yancoal trades at around 19x earnings, with revenue near $6bn and net profit about $440m, reflecting earnings that have normalised after the coal price boom. The stock shows a price-to-free-cash-flow ratio of ~6.8x and a free cash flow yield of about 14.7%, indicating strong cash generation relative to market value.

The company also pays a fully franked dividend, currently $0.122 per share with a yield near 2.9%, providing additional income for shareholders.

FY2026 Scenario – Assuming 10% Coal Price Increase

With a 10% increase in realised coal prices, revenue would rise from about A$6.0bn in FY2025 to roughly A$6.6bn in FY2026. Given the largely fixed operating cost base, operating income could increase from around A$630m to approximately A$1.2–1.3bn.

Assuming net profit moves broadly in line with operating income, earnings could reach roughly A$850–900m, which with 1.32bn shares outstanding would imply an EPS of about A$0.65–0.70 per share.

Valuation

Coal producers typically trade at low-to-mid cycle multiples because earnings are highly cyclical and depend on volatile commodity prices. Given Yancoal’s strong balance sheet and low debt but exposure to coal price swings, a 10–12x forward P/E appears reasonable for a mid-cycle valuation.

Using an estimated FY2026 EPS of about A$0.65–0.70, this implies a fair value of roughly A$6.5–8.0 per share, with a midpoint valuation around A$7.2 per share under current assumptions. This means YAL is undervalued at the current share price of A$6.33, in our assessment.

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Technical Trend (Weekly Chart)

The stock is currently trading above both the 50-week (~A$5.56) and 200-week (~A$4.77) moving averages, confirming a medium-term uptrend that began in 2022. The rising slope of the 200-week average suggests the long-term trend has also turned positive.

Key Support and Resistance Levels

The A$5.5–5.6 range (around the 50-week moving average) now acts as the first key support, while A$4.7–4.8 near the 200-week average forms the major long-term support zone. On the upside, the stock faces resistance around A$6.5–6.8, with a potential breakout opening the path toward the A$7 level, which previously acted as a supply zone.

Yancoal Australia (ASX: YAL) share price forecast — *Source: TradingView*

Key Risks

The primary risk for Yancoal is coal price volatility, as earnings are highly sensitive to changes in global energy and steelmaking coal markets. Additional risks include regulatory pressure on coal exports, environmental policies in major importing countries, and potential cost inflation in mining operations such as labour, diesel and royalties.

Potential Catalysts

The main catalysts would be a recovery in global coal prices, particularly if energy demand rises in Asia or supply disruptions occur. Stronger steel production and higher metallurgical coal prices, along with continued disciplined capital management and shareholder distributions, could also support improved earnings and investor sentiment.

FAQs about Yancoal Australia (ASX: YAL)

1. What does Yancoal Australia produce?

Yancoal is a major Australian coal miner producing mainly thermal coal for power generation and a smaller volume of metallurgical coal used in steelmaking.

2. Where are Yancoal’s mines located?

Most operations are in New South Wales (Hunter Valley) with an additional metallurgical coal operation in Queensland.

3. Who owns Yancoal Australia?

The company is majority owned by China’s Yankuang Energy Group, while the shares trade on the Australian Securities Exchange (ASX) and Hong Kong Stock Exchange.

4. How sensitive is the company to coal prices?

Highly sensitive. Changes in global coal prices have a large impact on revenue, margins and cash flow due to the operating leverage typical of mining businesses.