Bathurst Resources Limited (BRL) Earnings Call Transcript & Summary

Hi, everyone. Thanks for joining me on the update of the first half of FY '26. We'll just flip through the results, and then I'll give you an update on where we're up to with our existing operations and our projects. Usual disclaimers, please do your own research before you buy or sell our shares. About Bathurst. Look, anyone that's been following the company for a while knows the story, but if you're new to us or you want an update, we are an operating company. So we've got 4 operations in New Zealand: Takitimu, Stockton, Rotowaro and Maramarua. We'll show you in a sec where they are located within New Zealand. We've also then got the Buller project, which is an extension project of the Stockton mine. Tenas and Crown Mountain are both in British Columbia in Canada, and they are all development projects, which add to our story. So just where we're up to today. Well, at the end of December, we had a share price of around AUD 0.69, market cap of AUD 166 million and a very low enterprise value of AUD 32 million. So at the end of -- we had a NZD 155 million in the bank at the end of -- Kiwi dollars -- at the end of December. The team on your right is our Board. Peter, myself, Russell and Francois have been together since about 2015 when we restructured the company. And really that was based around the strategy, which I would like to take you through now. So it was always about getting stable operations -- stable, safe, profitable operations, which really centered around Takitimu and our Canterbury mine at the time and our one West Coast operation with the project of Escarpment as well. And obviously, the other add-on parts of the Buller projects, which we have held since 2010. With the addition of Stockton, Maramarua and Rotowaro in 2017, we really then escalated into the export business and also probably just as importantly, increase that base of domestic production. And it's really been a matter of ensuring those are profitable, ensuring that we're operating good safe, both in terms of our people, but also the environments we work in and then also looking for growth opportunities. So this manifests itself in some extension projects that we've got within New Zealand from existing operations, but also 2 projects in Canada. And really, the goal here is to have good capital returns. So the way we were structured to get into some of those operations has been less than ideal in terms of our interactions with joint ventures, but the path forward has us generating a lot more free cash 100% owned by Bathurst, and then that leaves then up to us as Directors to return that cash back to shareholders as we need to. So our products, we export steelmaking coal into the international market. We've got customers across Asia. We sell coal domestically into steel production. We sell coal to domestic electricity generation. In New Zealand, it's not baseload for coal. It's actually the last thing turned on when the first thing turned off. So it actually keeps the lights on when the wind is not blowing or the hydro schemes have got issues or if gas is not available. So it's actually the sort of the peaker, if you like, which is a little bit different to some jurisdictions. And also one of our important parts of our business, which has changed considerably over time is process heat, which is really providing energy for value-add to New Zealand prime production. And that's gone from being a large part of our business, 100% down to about 5% of our overall revenues now. So in New Zealand, we've got Maramarua right to the north. Just south of Auckland we've got Rotowaro in the historic Huntly coal fields, head office in Wellington. On the West Coast of the South Island, we've got Stockton with the Buller project right beside it, and we'll talk more about that. We've got our BT office and BRL office in Christchurch, distribution yard in Timaru and our most southern mine Takitimu, providing processing coal to the lower South Island. Each of these projects have got their own sort of reserve basis, own production profiles and very much based around the markets that they're in. So I mean one of the key strategies here has been making sure that we are reacting to changes with -- particularly within the domestic market. We're still seeing strong demand for our coking coal. Some of our customers have been taking this coal for 50 years this year. Some of the Indian market has been well and truly over 20 years. So that demand is not decreasing because of the low ash, high vitrinite leading to a lower overall fuel rate for those coke makers and steelmakers. That has been the mainstay of our New Zealand export business. And we are seeing a drop-off in demand for domestic coal, particularly for process heat as a number of strategies from New Zealand government has kicked in and business as well. But obviously, we've ameliorated our development plans to actually meet that same demand profile. So we're not going to end up with a stranded asset. So just looking at some of the financials for the half year. Revenue was pretty close, actually only about NZD 4 million down. We were pretty close, as we'll see with the export business, but it was all around volume, not so much price. So the price was quite a bit lower than what we experienced through FY '25, but we had an increased volume in the first half because, again, anyone that's been following the company, we had an issue on the main rail line going from Stockton through to Lyttleton with the Tawhai Tunnel that was out for a number of months. We had to truck around that. We were down about 150,000 tonnes for the quarter -- for the half, sorry, '25 versus -- half 1 versus '26 half 1. EBITDA is down mainly around increasing costs. I mean we're doing development cutbacks at Maramarua and Rotowaro, and we've had also an increase in strip ratio at Stockton. Cash in the bank has actually gone up. We did a capital raise in the first part of this financial year and -- sorry, last financial year, and that cash is still flowing through on a 100% basis into our accounts. Profit is down. Again, we're down on export revenues -- down on export EBITDA, sorry. And we are spending a lot of money on these various projects that we'll cover in a second. Just looking at the individual components, as I said, the actual production sales were up -- production and sales were up for the half versus the '25 half due to the tunnel being in '25, but the pricing was quite a lot lower. So revenue was slightly higher, but we have incurred higher costs. So our EBITDA is down a little bit versus where we were in first half of '25. We are expecting though to come on strongly with the forward curve at the moment going out to about USD 240 by the end of the financial year versus our budget or forecast of around USD 200. Rotowaro, again, we're still in quite a large cutback phase. We're just a bit under 5 million bcm for the half year against 4 million bcm for the same period in '25. We have had elevated costs, mainly around plant hire and labor to try and make up some of that -- the shortfall we were experiencing. We've had some quite large equipment outages, which has then led to increase in hire plant. And again, we are getting towards the end of that quite large hill of overburden and then we'll get in a position where we'll be back to more steady-state overburden removal and coal sales. So that coal is all fully sold into our 2 major markets, which is steelmaking and electricity generation in the North Island. Maramarua, we are seeing quite a significant change in our market here, pretty much just aligning with those 2 larger customers, as I was sort of saying before. The process heat market is disappearing quite quickly in the North Island. But again, it was not unknown and we've reacted to that. The next part of that review process is that we'll be moving from a 6-day week back to a 5-day week single shift. That will be occurring in the next couple of months. Rotowaro is actually going through a similar phase where we're going from 7-day operations back to 5-day operations, but we'll have the gear available and maintenance crews available on the weekends to try and increase the overall liability and availability of that equipment and try and reduce some of the plant hiring costs. Takitimu, we've had quite a significant shift here from last year. The original plan was that we would maximize production and rehabilitation through this financial year '26. In reacting to the market, we've seen some more coal come out, but we've actually have got more coal in the pit than what we originally anticipated. So we are going to continue on, on a full basis for FY '26 and into FY '27, but we're also accelerating some of the rehabilitation work. So the idea is we will generate slightly less cash this year than what we're anticipating, but we will then generate cash in the next financial year at about the same level while we complete the rehabilitation. It's probably a better situation in some ways, in rather than trying to do a complete stop at the end of June this year and then going into a full rehab mode. So even though we are down a little bit on profit, we are still a significant part of the New Zealand's economy, about NZD 350 million pumped in the economy for FY '25. We've got about 700 employees. We're paying about just under NZD 90 million a year. Taxes, royalties and government fees are down a little bit. Obviously, a lot of that's profit driven. And we are seeing, as we've shown, our profits are down from where they were at in subsequent years. This is a number that some of our opponents quite like to concentrate on. But of course, they like to ignore the fact that we are actually then pumping about NZD 260 million into New Zealand-based suppliers, whether that's diesel, explosives, parts, all the myriad of things that you've got to keep supplying to be able to keep operating. Health and safety is very much at our forefront in everything that we do, whether it's existing operations or moving into our projects and as we are assessing our projects. We've had a number of low-level incidents over the last 6 months, a lot more than we're very happy with. It's led to a number of minor injuries and some sort of high potential incidents during that as well, which have really required attention. So we've strengthened our field leadership program. We see that as being when we have really concentrated on that program in the past, we've seen a significant drop off in the number of injuries and incidents, and we're working on it again. One other thing that came out through significant either incidents or reviews, audits is that our training recordkeeping and our compliance to our training plans wasn't always the best. So we've done a full rollout of a comprehensive training system, and that's now being completed across all the operations and all of our offices. The other next sort of really important part of that whole program is then looking at our critical risk program. So this is looking at making sure that we've got adequate controls that are high enough in the hierarchy of control to mitigate for catastrophic type risks with -- that have got high consequence and may have low probability, but if they occur, you could end up with multiple fatalities. So there's a large program that's just been kicked off at Stockton and at Rotowaro, and we are moving forward with that across the whole of the company over the next 12 months. So looking ahead in terms of our guidance, we're sticking to what we said at the start of the year. We're going to generate in a range of NZD 35 million to NZD 45 million EBITDA over the -- by the end of June. We're down a little bit on -- in export, as we've already explained. The pricing is quite a bit lower than what we had in the last couple of years. North Island is going to be slightly higher, a combination of some -- as we drop off in the overburden plus some of the corporate costs, and we are seeing a reduction in our South Island as I already explained with the reduction of sales tonnes coming out of there, but we will see that go forward for another year and pretty much no change with the expenditure in Telkwa or Crown Mountain. Just sort of put this up, anyone that's familiar with us in these presentations have seen this graph before. But I think it's important to note, we have always been cash positive through basically the life of our enlarged company since we took over the [ Exxon LNG ] assets back in FY '18, but highly dependent on the international coal price. The red wriggly line that you see running through the middle of the graph. And as we're seeing at the moment, we are seeing that graph rising. But I think the important thing is that sort of mix between the domestic and the export business, the export basically underpins particularly the growth profile, but also the corporate costs and overheads. So just looking ahead, we've seen a bit of an uplift in the coking coal pricing, the benchmark price. There was obviously some after effects of Cyclone Koji had some effect on some of the Queensland production, which led to a high of around about USD 252 per tonne recently. It's dropped back to around USD 240 at the present time and the forward curve sort of has us going back to about USD 220 by the end of the financial year. Sorry, I might have said USD 240 before. So the overall forward curve, if you look at the longer one, the TSX, for instance, has us going out to about somewhere around USD 230. So I think there's still a lot of confidence in the market that we are going to see demand coming back, particularly out of China with some of the innovations that have been put forward there. But we're not seeing a hell of a lot of future growth in supply. So coming back to strategy. In our existing operations, we are -- we've got positive and consistent EBITDA within the realms of what we control. Obviously, we don't control the export coking coal price, but we do control the costs that underlie it. We are generating cash. We're experienced operators, both in terms of project development and operation, but also our operators and our people that support us. And these operations are stable. We've had a very little changeover in personnel at any level, whether that's Board level, my senior leadership team or down into the mine site teams. So we've got a solid base to work from. The idea then is we've got some extension projects within New Zealand, so that's really to continue that positive EBITDA and to also, over time, as we'll show you in a second, extend the Bathurst cash generation. So Maramarua has got the M2 project, which we are in the final stages of getting consents for. And we've got the Buller Plateau coal project, which is the combination of Buller and the existing Stockton operations. And that's really taking that Stockton infrastructure hub and then supplementing coal into that supply chain as we deplete the resource out of Stockton. And then to follow that up further, we've got growth projects in British Columbia with the Tenas project, 100% owned greenfield project and Crowd Mountain, which we own 22% of through a joint venture with Jameson. So the idea there is that we then increase the EBITDA generation, increase the cash generation in a stable jurisdiction of British Columbia, Canada. So looking at the Buller project, very much centered around Stockton. Stockton holds the infrastructure hub. Obviously, we've had the Buller project, which is to the south of the Escarpment Extension part. Since 2010, we've done a lot of work on that project over the years. We've had a pre-feasibility study out since 2017. We've updated that at various times. And then we updated the whole project PFS in October last year. So we know a lot about that area. We actually have started mining there. We've got the Cascade mine, which just sits off the plateau, and we've also got the Escarpment mine, which was commenced in 2014 and unfortunately put in care and maintenance in 2016. The key thing there was it needed NZD 200 million to NZD 250 million worth of expenditure in capital to replicate all of the capital that's sitting within Stockton infrastructure areas. So that was part of the purchase sort of philosophy that we went into when we sold energy assets that were available. So we've got that infrastructure now. The key now is to join the 2 plateaus together with a haul road, which then also allows access into Mountford South, which is another development area which is jointly held between BT Mining and Bathurst 100%. So 65% owned by Bathurst and BT and 100% owned by Bathurst with the other mining permit applications. So we're going to use Fast Track to try and bring all this together. The reason we're using Fast Track is not to try and usurp any environmental management or anything else. It's just that, that gives us the opportunity of getting all of the consents, all of the authorizations, all of the permits that we require to go mining through one single process. Whereas traditionally, we would have had to go and get land use consents, wildlife permits, access arrangements with various landholders, crown landholders and heritage orders. So each of those have a slightly different test. They have a slightly different time frame and most of those time frames aren't locked in. So there is an open-ended process. The thing about Fast Track, though, is it's very much front-end loaded. You get a very short period of time. If there's issues come up during the assessment period, you need to be able to answer them straight away. So we are taking a bit longer than what we anticipated but because we are extensively consulting with the people that matter. So regional council, district council, our landholders, both between LINZ and DOC and just as importantly, our communities. So we're actively communicating with them as we speak today. We've got a range of community meetings going on in the small towns that support our operations that will be concluding tonight. So it's all about listening to those concerns, modifying the project, if we have to, to try and meet them or explain to them why we can't meet them. And that's where we're intending them to have that completed by the end of March. We'll have an application ready to go. And we will then be in a position to go into an assessment period starting in April. So just go back one. I mean the profile of production, the orange on this graph is the remaining coal within Stockton. We then look to supplement that with coal from Buller and then supplement that further with coal from Mountford South, which is the area sitting between the 2 sort of larger mining areas. And the beauty of this project is it basically utilizes capacity in the Stockton washery system and coal handling, which gives us access to the coal load out and rail and then access to existing logistics path through the Port of Lyttelton through to the markets and the markets already exist as well. So this is the same quality coal being fed into the same markets to the same customers. And we're looking at around about NZD 104 million to bring it in stream at the present time. Tenas. So Tenas project is in middle BC. It's very close to the Port of Ridley, which is at Prince Rupert, which is really the top of the coastal strip that actually belongs to Canada. The rest that comes down from the U.S. is belonged by the U.S. And the other project is down in the sort of Southeastern British Columbia in the Elk Valley, that's the Crown Mountain project. So just looking at Telkwa, we've had an update to the DFS last year. I mean it's showing the continued profitability of this project. We, obviously, had a significant update in costs, but also, we had a significant update in the underlying coal price or the expectations around coal price. So we're looking at a start-up capital around USD 140 million, an operating cost of around USD 80 per tonne on or about. Based on the long-term coal price decks, we're looking at around about an average price received of USD 175 per tonne and leads to a post-tax NPV of about USD 270 million. So a good greenfield project. There is no other coal mines in the area. That can be a little bit scary for the local communities. It got little bit of uncertainty, because mining is certainly not unheard of in the area and also a lot of people that live in the local area actually work in mines that have to fly in and fly out. So the attraction for them is having a mine on their doorstep. In terms of taking this project forward, we're going through the environmental assessment office process at the present time. We've had significant information requests, which have been answered over the last -- well, a couple of years, actually, that's sort of culminating in this quarter. The effects assessment, we're looking to get into the final stages of that over the next 2 quarters. And then we'll then commence the mining permit documentation and then the approval phase. Now that can be a little bit of a piece of string in terms of timing. Some get through in 6 months, some take 2 years. So we're being conservative. We're saying 12 months compiling this thing and then 12 months getting through it. So I think, again, it's putting a level of conservatives on the book. There is some prework that we are -- once we get further through the effects assessment phase, we'll then be prepared to put some more money into some of the prework, which will then lead to the detailed design around the coal handling plant, things like the maintenance workshops and also the access road and rail load out. So we've got some more concrete plans as we lead into the -- once we get the final permit will lead into the civils and mining. And then we're aiming for first coal in and around October 2028. So we're looking to produce around 0.75 million tonnes out of here. There's plenty of rail capacity, there's plenty of port capacity. And generally, in the area, we've got good support. Now the key to these projects, as it is in probably most other jurisdictions now, is the traditional owners, the First Nations. We've been working very closely with them since we took the project over a couple of years ago on a number of levels. Obviously, at the land ownership level, we are working very closely with a couple of the individual houses there. But also the at larger and more regional area looking to try and partner with First Nations to take this project forward and most certainly listening to what their main concerns are, which isn't a lot different to what the main concerns we've got in New Zealand with water, rehabilitation after the mine is actually completed or during the mine completion. That's something that hasn't been well done in British Columbia from our observation, and that's something that gets brought up quite constantly with our discussions with local community, but also with First Nation Group. So very important that we get these various partnering things in place prior to us actually moving -- trying to move forward with the project. Otherwise, we do risk having the sort of that situation turning against us. So just coming back to a snapshot of the business. We've got NZD 150 million odd sitting in the bank. We've got no debt apart from some minor lease finance for some yellow goods. We're going to generate somewhere between NZD 35 million and NZD 45 million EBITDA again for this financial year, and we've got a net asset backing at the end of December after going through the audit process of around NZD 1.49 per share in New Zealand dollar. So if we translate that into Australian dollars, yes, we're looking around AUD 1.28. We've got a share price today of about AUD 0.79, and we've got a cash backing on that of AUD 0.56 as well. So I know CEOs always say they're undervalued, but I think it's pretty clear we're undervalued. I mean one of the things that has affected our share price has been ongoing litigation. We had litigation since 2016 with L&M. We fought that through every court in the land through the Supreme Court and won. That has now concluded, as far as we know, anyway, at the present time. And now we've got an action being taken by our joint venture partners, the Talley's. That's directed at Directors. That's a personal attack on Directors. It's not an attack on the business. In fact, one of their things is they're looking to try and take over and operate as Bathurst. So this is what we're trying to resist, but it really doesn't affect the underlying business. And I said right from the start the strategy has always been good, consistent operations that generate cash, aren't hurting people and aren't damaging the environment. That then gives us the right to be able to grow out of those businesses and then take on further growth into other jurisdictions, utilizing our experience and our teams and the support from our shareholders to take those projects forward. So we've got profitable operations. We hold good cash. We've got fast track process to be able to use for the Buller project. The PFS, which came out in October shows that this is a good profitable project. DFS is being worked on as we speak. We have got the Fast Track Act to work under. Metallurgical coal is on the New Zealand critical minerals list, as it is on the U.S. and the European list. And we are taking forward under a DFS and with confirmation of reserves of our Tenas project. So thanks very much, everyone. Any questions can come through the website. I'd be more than happy to answer those. So thanks very much, and thanks for your attention.