Westshore Terminals is a leading coal export terminal in North America. It helps its customers ship to over 20 countries worldwide, with the largest volumes being shipped to Asia.
The company is part of a coal supply chain that extends from the mines to the railroad to its terminal. The company owns all the facilities and equipment in the terminal. It operates the coal storage and loading facility at Roberts Bank, British Columbia, the largest coal loading facility on the west coast of America.
As North America’s premier coal terminal, Westshore has contracts to ship coal from mines in British Columbia, Alberta and the northwestern United States. The coal will be delivered to the terminal on Canadian Pacific Railway, BNSF Railway and Canadian National Railway trains.
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Sales growth & market presence
Over the past 45 years of existence, Westshore has continued to develop both its customer base and throughput volume by customer. The company generates its income from loading coal onto ocean-going vessels. Its revenues depend on the amount of coal supplied by each customer and the contracted rate per ton. Westshore receives throughput volume processing fees from its customers. The company shipped products to eight different customers in 2020 and signed contracts with six of them in 2021.
Westshore shipped 29.3 million tons in 2020 compared to 31 million tons in 2019. It continued to operate during the COVID-19 pandemic as it was considered a key service provider. Although the prices of metallurgical and steam coal fluctuated during the pandemic, the company’s handling volumes remained stable. Of the tons shipped in the first quarter of 2021, 64% was steel coal and 36% steam coal.
Westshore estimates a total handling volume for all customers of ~ 28 million tons in 2021 and the average loading rate for 2021 at ~ 5% below the average rate in the first quarter of 2021. It expects a lower handling volume for at least in the next few years, mainly due to the Previous contract with Teck Resources, one of the leading 25 players in the global metallurgical coal market, expires based on 19 million tons annually.
Westshore has renegotiated the total volume of deliveries of at least 33 million tons. The company also signed contracts with two coal metallurgical companies planning to develop mines in Alberta and BC. Westshore has seen sales growth of 5% CAGR over the past decade.
Despite the pandemic, Westshore paid both regular and special dividends last year. It has a dividend yield of 4.3% and a reasonable payout ratio of 40%. Most recently, it increased its dividend by 25%.
The company also has a share buyback plan and has repurchased a total of 117,000 shares for $ 1.8 million so far in 2021. Westshore has seen EPS growth of 9% CAGR over the past three years.
Westshore continues to maximize throughput volume by attracting new coal customers and increasing throughput volume for existing customers. Customer contracts provide fixed volume commitments at fixed rates for a significant portion of the terminal’s estimated capacity. These contracts have a term of 2 to 10 years and are usually renegotiated and extended before they expire.
Westshore does not claim any of the coal it processes and therefore the associated risk is also low. The company is also well positioned to handle bulk cargo other than coal. The rail access, storage capacity and ship handling of Westshore are made possible by the unique location of the terminal.
Westshore customers compete with other coal mines in Australia, Indonesia, South Africa and Colombia. The company does not face any significant competition in Canada. High capital expenditures in the form of expansions and modernizations of large equipment and maintenance as well as environmental regulations represent enormous barriers to entry.
However, being heavily dependent on a handful of customers poses a major risk to the company. Two customers accounted for ~ 80% and three accounts for ~ 90% of Westshore throughput in recent years.
Trends such as decarbonization and climate change will continue to put pressure on Westshore profits over the long term. The use of hydrogen for climate-neutral steel production could also endanger future demand for metallurgical coal. Westshore expects the pandemic will not cause any significant changes in estimated throughput rates in 2021 unless the situation worsens.
The company continues to examine the possibilities of dealing with other raw materials. The increasing demand for steel, cement and other end-user industries should stimulate growth in the short term.