Stanmore Resources mines metallurgical coal in Queensland's Bowen Basin and sells it to steelmakers across Asia. At A$2.81 versus a probability-weighted fair value of A$5.57 (US$3.90), the stock is undervalued by approximately 98%. The key driver is a coal price recovery already underway — spot prices have rebounded from a four-year low of US$133 per tonne to US$218 per tonne — but the market has not yet priced in a return to mid-cycle earnings.

Stanmore is best suited to the value investor. The thesis is simple: a proven low-cost operator is trading at a trough-cycle multiple while spot prices have already begun recovering. The margin of safety is substantial, the balance sheet is clean, and the primary requirement is patience while the coal price closes the gap to mid-cycle. Those comfortable with commodity exposure and governance trade-offs will find the risk-reward compelling.

Stanmore Resources mines metallurgical coal — the grade used in steelmaking, not power generation — from three operations in Queensland's Bowen Basin. It sells the coal directly to Asian steelmakers at floating market prices, meaning earnings rise and fall with a single number: the quarterly benchmark price for premium low-volatility coking coal.

FY25 was the worst pricing year in four years. The average realised price fell from US$168 to US$133 per tonne, and the resulting revenue decline of 22% pushed EBITDA down 46% to US$385 million and produced a statutory net loss of US$47 million. Underlying operations held up well — the company still produced a record 14 million tonnes despite severe Bowen Basin flooding — but the price collapse overwhelmed those gains.

The investment case rests on one observation: spot coal prices have already recovered to US$218 per tonne, yet the share price remains anchored to trough earnings. If prices sustain near current levels, EBITDA more than doubles by FY27. The Isaac Downs Extension project, pending regulatory approval in mid-2026, provides additional production upside from FY28. Against this, Queensland's progressive royalty regime captures much of the upside above US$175 per tonne, and GEAR's controlling stake limits institutional demand.

At A$2.81 versus a probability-weighted fair value of A$5.57, the stock is undervalued by approximately 98%.

What happened?

FY25 results were defined by one factor: a coal price at a four-year low. The US$35 per tonne decline in the average realised price cost Stanmore roughly US$490 million in revenue before royalties. Operationally, the company delivered — record production of 14 million tonnes, costs held at US$88 per tonne despite significant weather disruption, and debt reduced to negligible levels. The statutory net loss of US$47 million reflected high depreciation charges (US$401 million) on the BMC acquisition asset base rather than cash destruction; underlying free cash flow remained positive at US$297 million.

What's next?

FY26 will be a transitional year. Production steps down to around 13 million tonnes as the Isaac Plains Complex reduces output ahead of a planned extension project, and the higher strip ratio at that mine lifts unit costs modestly. The partial coal price recovery embedded in our FY26 forecast (US$152 per tonne average) drives EBITDA back to US$471 million — a meaningful improvement, but well short of mid-cycle.

The pivotal event is the Isaac Downs Extension Environmental Impact Statement, expected to be submitted in the second quarter of 2026. Approval would unlock production continuity from FY28 and add material volume to the existing reserve base. A decision is unlikely before late 2026 at the earliest. Meanwhile, the FY27 earnings recovery to US$637 million EBITDA is essentially arithmetic — it assumes coal prices average US$170 per tonne, which is already below current spot. The primary risk to that forecast is a reversal of recent price strength rather than any operational shortfall.

The single biggest risk is a failure of coal prices to sustain their recent recovery. Our base case assumes a mid-cycle realised price of US$170 per tonne — already below current spot of US$218, so this is a conservative assumption. But if China's structural steel demand decline accelerates faster than India's growth can offset it, prices could revert to the US$130–140 per tonne range that characterised FY25. At US$140 per tonne, our bear case values the stock at A$2.80 — essentially the current market price, implying the market is already pricing an extended trough rather than a recovery. Every US$10 per tonne movement in the realised coal price changes fair value by approximately A$0.93 per share, making this the only number that truly matters for Stanmore shareholders. Queensland's progressive royalty regime compounds this sensitivity: above US$175 per tonne, the government captures an increasing share of incremental revenue, capping the upside that reaches shareholders even in a strong price environment.