The short story for this Sector Spotlight is “short-term gain, long-term gain.” You read that right: It’s a win-win situation at current levels for investors who own AE Portfolio Aggressive Holding New Hope Corp Ltd (ASX: NHC, OTC: NHPEF) before it enters its next “ex-dividend” period on Oct. 18, 2012.

When I wrote up New Hope’s fiscal 2012 (ended Jul. 31, 2012) final results for the Roundup section of the Sept. 18, 2012, edition of Down Under Digest, I was struck, first, by the fact that the thermal coal producer had declared yet another special dividend along with its regular final dividend announcement.

Second, and of particular note for investors looking to put money to work right now, New Hope’s shares won’t trade ex-dividend on the Australian Securities Exchange (ASX) until Oct. 18, 2012. That gives investors who haven’t yet established a position in the company to buy now and immediately realize a solid yield.

The special dividend is AUD0.20 per share, the final AUD0.05. Total dividends paid in respect of fiscal 2011, including a special dividend of AUD0.15 per share, were AUD0.2525. Including the AUD0.06 interim dividend in May for fiscal 2012 New Hope will have paid AUD0.31 per share, a 22.8 percent increase over total dividends paid in respect of fiscal 2011.

As of this writing, based on New Hope’s closing price of AUD4.69 in Sydney on Oct. 11 and the AUD0.20 special dividend and the AUD0.05 final dividend to be paid Nov. 6 to shareholders of record as of Oct. 24, new buyers will be up 5.3 percent. That’s the short-term gain.

The long-term gain is predicated on New Hope’s cash and short-term investment reserve totaling approximately AUD1.5 billion. That allows it to do things like top off payments to investors with what are becoming regular “special” dividend declarations coinciding with the announcement of full fiscal-year results; it’s done so each year since fiscal 2005.

The dividend payout ratio reported in How They Rate and the AE Portfolio Conservative Holdings table is 154.2 percent. This is the total amount paid, including the special dividend, relative to net profit after tax for the fiscal year.

New Hope has regularly paid back to shareholders from retained earnings that it hasn’t invested back into the business. It has reduced debt to zero over the past 10 years and is not borrowing to cover the payout. Fiscal 2012 interim and final dividends totaling AUD0.11 per share represented 53.3 percent of the AUD0.206 earnings per share New Hope reported on Sept. 18.

New Hope’s strong balance sheet will also enable it to take advantage of opportunities created by this downturn for the coal market. As CEO and Managing Director Robert Neale noted during the company’s conference call to discuss fiscal 2012 earnings, time is likely to be New Hope’s friend rather than its enemy.

New Hope’s primary activity is the production of thermal coal, also known as steam coal, which is used all over the world to generate electricity. Thermal coal prices have retreated from recent highs in US dollar terms, though current US dollar pricing levels aren’t unusual in a larger historical context.

And the long-term outlook for the commodity is positive.

The International Energy Agency (IEA), in its Coal Medium-Term Market Report 2011, forecast that consumption of and prices for thermal coal will continue to rise over the next five years, despite efforts to reduce its use as a primary source of energy.

In its first report about the commodity, released in December 2011, the IEA concluded that strong demand in China and India, particularly for electricity generation, will keep coal, if not in the kingly state it occupied in the global energy hierarchy from 2000 through 2010, at least among the world’s primary fuels until 2016.

From 2000 to 2010 global coal use grew by 720,000 metric tons per day. This pace of expansion will slow–to about 600,000 metric tons per day over the next five years, according to the IEA.

The IEA projects that thermal coal prices in Asia will rise from USD127 per metric ton in 2011 to USD138 by 2016. Prices ranged from USD40 to USD80 per metric ton in the early 2000s before hitting a record of USD200 in 2008.

Beijing was until four years ago a net exporter of thermal coal but since has become the world’s second-largest net importer, behind Japan. According to research and consulting firm Wood Mackenzie, seaborne demand from China is set to grow from 175 million tons a year in 2011 to 1 billion tons a year by 2030. And India will grow from 80 million tons of thermal coal used in 2011 to about 400 million tons a year by 2030.

Japan, China and Taiwan are New Hope’s three main export markets. Volumes with customers in those markets are generally booked under long-term contracts. The company does set aside 80,000 to 160,000 metric tons for what it calls “new market development,” and during fiscal 2012 it shipped quantities to South Korea as part of such an effort. Most of its coal is sold quarterly on a fixed- or negotiated-price basis, some monthly on an indexed-price basis.

Operating numbers were solid, particularly in light of consistently declining coal futures prices over the course of New Hope’s fiscal year.

The day management announced results New Hope stock surged AUD0.37, or 8.8 percent, on the ASX. It’s now back, ever so slightly, in the green since the Sept. 26, 2011, debut of Australian Edge; it’s one of the “Eight Income Wonders from Down Under” that comprised the original AE Portfolio. Through the close of trading in Sydney on Oct. 10, 2012, the stock had generated a total return in US dollar terms of 3.11 percent.

Shortly after our initial recommendation in the debut issue of AE, the board of directors, responding to “approaches from a number of parties,” opted in early October 2011 to essentially begin a formal auction process to find out what those parties were willing to pay for New Hope’s assets.

This process ended in early March 2012, as “discussions with interested parties did not produce a definitive proposal which appropriately reflected the strategic value and growth prospects of the company.”

New Hope closed at AUD5.02 on Sept. 26, 2011, on the ASX, bounced to AUD6.54 by mid-October then traded consistently above AUD5.50 into March 2012. After the auction ended with no deal announcement the share price drifted lower, along with declining coal prices amid rising concerns about global growth prospects. New Hope reached a low of AUD3.83 on Jul. 13.

Operating results, however, continue to suggest a strong underlying business. There’s no question that lower coal prices in the short to medium term present challenges. But management has demonstrated its ability to control operating costs, even as it negotiates an increasingly burdensome tax regime Down Under.

Management has re-focused the expansion of its core coal operations toward low-cost, efficient operations and continues to improve coal-chain logistics. A company update on these efforts will be provided in November, with another review in February 2013.

Coal prices have declined faster and to a greater magnitude than management previously forecast, and global volatility and government uncertainties are likely to delay its project development schedule. But work will continue on the Acland extension project in Queensland, which has been hampered by local opposition based on potential impact on adjacent farmland.

The New Acland deposit is a “tier 1” asset with “highly competitive” operating cost projections.

New Hope is engaged in mine planning for the expansion project and continues to address government and community concerns. It describes as “constructive” the talks it’s having with local parties, as it has taken extensive steps to demonstrate “effective mining and agriculture coexistence.”

And moves to develop additional energy resources, including its oil and gas interests via Bridgeport Energy Ltd and Westside Corp Ltd as well as its non-conventional efforts, will soon complement the cash flow generated by its still-strategic thermal coal assets.

Bridgeport Energy has operations in the Eromanga and Otway Basins. These assets, which include three operated fields, are currently being integrated to the portfolio. Bridgeport could triple oil production over the next three years, and New Hope is also reviewing onshore Australian oil and gas assets for potential acquisition. The idea is to add to its energy portfolio in the same manner it built its coal portfolio during the 1990s.

Westside with its coal seam gas assets is well-placed to benefit from the export of liquefied natural gas as well as the increasing use of gas for electricity generation in Australia.

New Hope’s carbon-to-energy and coal-to-liquids programs continue to progress well, with the “proof of concept” indirect coal conversion plant expected to be delivered to the Jeebropilly mine site by the end of the 2012 calendar year.

Work on the direct coal liquefaction process also continues to progress well, with the commissioning of a 1 metric ton per day “proof of concept” plant underway in the US. Diesel production from the liquids will be evaluated over the next six months. New Hope’s research and development program into carbon-to-energy and coal-to-liquids remains on-budget, despite some delays caused by design modifications and equipment availability.

Fiscal 2012 (ended Jul. 31, 2012) final results showed a company that continues to meet its production estimates and beat sales expectations.

Revenue from ordinary activities rose 15.9 percent to AUD767.5 million, as coal production was up 11.5 percent to a company record 6.29 million metric tons and sales grew 10.6 percent to 6.25 million metric tons. Of this total 5.83 million metric tons were exported and 0.42 million metric tons were for domestic usage. On-site operating costs increased by 0.5 percent from the previous year, reflecting New Hope’s ongoing and successful focus on cost management.

New Hope’s 100 percent-owned Queensland Bulk Handling (QBH) facility exported 8.67 million metric tons of coal on 120 vessels during the 12 months ended Jul. 31, 2012, a 33 percent increase on the 6.52 million metric tons shipped on 88 vessels in fiscal 2011.

Management continues to evaluate new throughput efficiency opportunities at the facility, which has designed capacity of 12 million metric tons on an annual basis. Discussions are ongoing with Port of Brisbane Corp officials regarding potential incremental coal ship-loading capacity expansions, with the objective to get port capacity at or above current rail capacity.

New Hope posted net profit after tax (NPAT) of AUD167.1  million, 66.8 percent lower than fiscal 2011, as last year’s result benefitted from a AUD369.7 million non-recurring gain from the sale of interests in Arrow Energy and its Lenton project. NPAT before non-recurring items was up 16.5 percent to AUD171.1 million from AUD146.9 million a year ago.

The company said in a statement that the current market is under significant negative pricing pressure, which it sees as a normal cyclical feature of the industry.  It also noted that “New Hope is well-placed to ride out this phase of the cycle being a comparative low-cost producer.”

Management is reviewing its suite of development projects in light of recent and projected coal prices. New Hope’s AUD1.5 billion cash cushion allows for development of these projects when economic conditions improve. And the company “continues to review the industry for further acquisition opportunities which are becoming more prevalent in the current depressed market.”

As for fiscal 2013, management noted in its earnings-release statement that “New Hope is poised to deliver another year of solid operational performance.”

New Acland “is well-placed to achieve similar levels of production in the current year,” while production from West Moreton “will be similar in 2013 to levels achieved in 2012.” The closure of New Oakleigh in January 2013 should be offset by increased production from Jeebropilly. QR National continues to perform rail services at or above contract levels, while the QBH port facility has the capacity and demonstrated monthly performance to handle up to 10 million metric tons in 2013.

All of New Hope’s budgeted fiscal 2013 production is contracted under multiyear, long-term contracts. Despite a near term unfavorable economic and coal outlook, New Hope remains in an enviable financial position to take advantage of future opportunities. New Hope’s energy business continues to provide diversification and also a number of opportunities to add incremental cash flow to offset the impact of lower prices on its existing coal assets.

New Hope is a buy under USD6 on the Australian Securities Exchange (ASX) using the symbol NHC and on the US over-the-counter (OTC) market using the symbol NHPEF.

New Hope’s fiscal year runs from Aug. 1 to Jul. 31. The company reports full financial and operating results twice a year; it typically posts first-half results in mid-March, with full fiscal year numbers out in mid-September.

As noted at the outset of this article, New Hope’s board approved and management declared a final dividend of AUD0.05 per share on Sept. 18, 2012. It will be paid Nov. 6, 2012, to shareholders of record as of Oct. 24, 2012. Shares will trade “ex-dividend” on this declaration as of Oct. 18, 2012. New Hope will pay a special dividend of AUD0.20 according to the same timing.

An interim dividend of AUD0.06 was paid May 2, 2012, to shareholders of record on Apr. 17, 2012. It was declared Mar. 20, 2012, when New Hope reported fiscal 2012 first-half (ended Jan. 31, 2012) results. Shares traded ex-dividend on Apr. 11.

Dividends paid by New Hope are “qualified” for US tax purposes. The Australian government withholds 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, four rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are four “hold” and one “sell” ratings on the stock at present. The “best consensus” 12-month target price among the six analysts that provide such a number is AUD5.34, with a high of AUD7.10 and a low of AUD4.45.