James Gruber: Jon, welcome.

Jon Mills: Good to be here, James.

Gruber: Jon, let's talk coal stocks today. There are investors out there that see coal as a sunset industry and un-investable. What are your thoughts on these concerns?

Mills: Well, we have a slightly different view on that. We think that demand for both thermal coal, which is the stuff you burn to create power, and also metallurgical or coking coal, which is stuff you can buy with iron ore to create steel via the blast furnace process. We think demand for those two types of coals is going to be pretty strong for incoming decades.

Gruber: In terms of that demand, India and China is where a lot of the demand is coming from, and we in the West tend to ignore that, don't we?

Mills: Yeah, that's correct. I mean, obviously, we in the West are concerned about ESG, and a lot of investors here in Australia in particular don't want to invest in coal companies. But that ignores the point you just made that—I mean, China is more than half of thermal coal production, and India is a big source of thermal coal production and obviously consumption as well, same with China. And basically, whatever we do here in Australia, it won't really matter. If you're looking at thermal coal, we burnt a record 8.3 billion tons last year around the globe, and we're probably going to hit another record this year. Half of that's in China, and it's simply because coal is useful, it works, and it's relatively cheap, and in the developing world, it's still a fundamental source of power. On the met coal side, we just think that these potential green steel technologies are unlikely to be economic at scale at least anytime soon, and that means consistent demand for high-quality metallurgical coal in particular for at least a couple of decades.

Gruber: Prices are still reasonably strong. They've come off peaks, and you've upgraded your price forecasts recently.

Mills: Yeah. So, we recently increased our long-term or assumed mid-cycle prices for both thermal and metallurgical coal. We assume around US$100 a ton for thermal coal and around $150 a ton for metallurgical or coking coal. I talked about the demand, but there's also supply issues. It's very difficult to—virtually impossible to bring on a new thermal coal mine in the West, and we saw recently increasing royalties that have been posed by the state of Queensland. And so, if you combine consistent demand, assuming we're correct, and restrained supply, that means longer or higher long-term prices.

Gruber: Yes. And in terms of coal stocks and how you get exposure to that coal theme, what are your favorite stocks in the Australian markets?

Mills: So, in Australia, our favorite is Whitehaven Coal WHC. So, it's a New South Wales-based thermal coal miner. It produces a very high-quality, so high energy, low ash thermal coal that basically exports all of it to the likes of Japan, Korea and other Southeast Asian nations. It's undervalued at the moment.

Gruber: And how does coal rank in terms of all of the commodities in your space?

Mills: Well, because of the reasons we've discussed, so consistent demand and restrained supply, it's, in our view, one of the most attractive commodities at the moment. 

Gruber: Thanks for your time, Jon.

Mills: No worries.