BHP Group Limited (BHP) Earnings Call Transcript & Summary

Thank you, operator, and welcome, everybody. Nice to have you here this afternoon. My apologies upfront for starting this in the middle of the day or towards the over the half of the day. Obviously, we've got some exciting news today, which you've now seen being released. But just the logistics of the day in terms of getting approvals and so on a different time zones, meant that the release for BHP and ourselves have come out after midday and then the scramble, obviously to get you all to this call. So thank you very much for all making that effort. I appreciate it greatly. It is an exciting day for us at Whitehaven for sure. We have now executed the sales agreements with BHP and Mitsubishi to acquire Daunia and Blackwater mines, as you now know, and this is set to transform our business in a significant way. I expect to go about 30, 40 minutes through the presentation here explaining to the transaction, our strategic rationale for the transaction itself. And then we'll obviously have an opportunity for questions answer in the session afterwards. I'm joined here today with Kevin Ball, our CFO; Ian Humphris, our EGM of Operations; and Kylie Fitzgerald [indiscernible] from our Investor Relations team. You'll also note, of course, we brought forward the quarterly report, which was due on Friday. Given that we're announcing today, we brought that forward and we can ask questions -- have a question-and-answer session about that if you prefer. So I suspect most of you looking at that will realize that the quarter has been a good one following June. We're on track to deliver our plans. So September occurred as we expected it [indiscernible] of 5.3 million tonnes, 5% up on the June quarter. But of course, if you'd to ask any questions about that later on my hand. But I'd like to focus on the big announcement of the day. Now given that this presentation does have some forward-looking statements in it. I draw your attention to the disclaimer. So if you read that in detail, please, I think that will stand you in good stead for the context in which some of the statements are made later on in this document. So let me get over to the transaction overview. This is a very exciting day, as I said. It's highly attractive this acquisition. It's going to transform Whitehaven into a long-life, low-cost metallurgical coal producer. With agreed terms, as we said in the announcement today, our aggregate consideration is USD 3.2 billion. That's comprised by upfront consideration of USD 2.1 billion, which will be payable on completion. We're expecting that to be in the June 24 quarter. In addition to that, we've got deferred consideration of USD 1.1 billion, that comes in 3 separate tranches as it stands today. That's $500 million on the first anniversary, USD 500 million on the second and $100 million on the third anniversary, obviously spread out over 3 years. Now to the extent that there's a good pricing environment continues as we're seeing at the moment, we have agreed an upside sharing arrangement with BMA and that consists of contingent payments up to a cap of USD 900 million over a 3-year period. That is capped at USD 350 million per annum, and so it will be spread out over that period. So potentially USD 350 million, USD 350 million and then USD 200 million over a 3-year period. Now the basis of that upside sharing arrangement is struck on the basis of average realized prices being over the thresholds. Those thresholds are in the first year, USD 159 per tonne in the first full 12 months. And then for the second 12 months and the third 12 months at USD 134 per ton. And so of course, that's spread over a 3-year period as is the deferred. And so obviously, the NPV on both those streams is obviously much less than the face value of what you observed there. But I'd have to say, to the extent that, that $900 million gets paid in full, that would be fantastic for all our shareholders if that was to eventuate. Clearly, in the backdrop of prices that we're launching this announcement today, that looks like it's possible. But obviously, they will need to be discounted back to the time value of money as would the deferreds to get up to the NPV assessment that we gave it. So the funding is largely -- we've had cash on our balance sheet, of course, as you know, but we've got strong support and vendor finance and then future cash flows from the business will be paying for the balance. So it's a very attractive basis from which to purchase these significant assets. And of course, in addition to that, will we bring in a debt facility of USD 900 million. which we firstly have in place as a bridge facility first, and we will refinance that out for longer-term debt over the coming months. So the acquisition for us is an exciting prospect. It doubles the output of our business and without having to put additional equity from our shareholders into the business, quite a unique opportunity, and I'll cover across the strategic rationale shortly. Perhaps I'll just concentrate on what we're actually buying just for you briefly, and I'll get into the detail of that later. But briefly, both Daunia and Blackwater, obviously, metallurgical coal mines, both open cut located in the Bowen Basin arguably one of the best met coal basins in the world. Daunia in particular, obviously adjacent to our Winchester South development. Daunia relatively young mine, like Maules Creek, 2013 starts, got another 17 years. It's a truck and shovel operation, which is very similar to our own produced about 6 million raw tons per year, 80% of that being hard coke and 20% being low-vol PCI product. Blackwater is probably one of the largest mines -- coal mines in the country with a strike of some 80 kilometers. We've been operating for 50 years, but it's certainly got another 50 years in front of it, an enormous reserve resource base there, and I'll talk about it a little bit further. Slightly different stage -- style of mining there. It's got 7 draglines, a large fleet and the truck and shovel operation to complement that. ROM tonnes there, about 14 million to 15 million tonnes per annum. The product splits there, hard coke about 65% to 70% and 25% to 30% semi-soft coking coal. Historically, there's been a small fraction of thermal that may come out of that as well. But both mines export for the long term to customers in Asia, which is obviously a similar story to our existing business. And the export terminals that they used at Daunia are obviously through DBCT and in Blackwater through RG Tanna at Gladstone. The backdrop for the announcement is today, obviously, is a nice stating, if you like, moving into met coal and will be apparently met coal revenue business. And we look at the prices today [Audio Gap] split would be about 70-30, 70 met 30 thermal off the basis of spot pricing today, which is quite compelling. Split of reserves across the 2 basins, Gunnedah versus The Bowen Basin, about a half more or less. Now flipping over. If we think about a little bit of a history lesson of Whitehaven. If we look at the transition of our company over time, listed in 2007, Whitehaven have successfully grown its business through acquisitions and development over time. If we look at the period when we bought Vickery, say for instance, that was in -- from Rio Tinto 2011. Whitehaven Aston merged in 2012. Obviously, Maules Creek came with that, also purchased from Rio Tinto, 6 years later, Whitehaven purchased Winchester South from Rio Tinto. And in the meantime, we obviously ramped up Narrabri and also Maules Creek. So we're no strangers to operating large-scale lines and bringing them on in our business. Now obviously, the advantage in this instance is that we're acquiring well-capitalized and well-run assets. So it's been very pleasing to see that these assets when our visits have been well constructed and very well maintained. So the stewardship of BHP and Mitsubishi in this instance puts us in a very good position to continue to enhance these assets. This is obviously the largest acquisition that the company has undertaken. But again, we've got plenty of history in terms of ramping up and managing large-scale assets. Looking at the business from a big snapshot here. You can see there's obviously significant diversification and change in our geographical footprint. But we'll continue to export through Asia, as I mentioned earlier. The acquisition does give us critical mass in the metallurgical coal space in terms of coming into metallurgical coal business, as I said before. Looking at a ROM basis, we're about to split between New South Wales and Queensland, about 20 million tonnes each side on a ROM basis. Recapping on the transaction details, $3.2 billion acquisition involved in -- with upfront consideration of USD 2.1 billion, USD 1.1 billion, as I mentioned in deferred payments and up to USD 900 million on the contingent revenue upside sharing arrangement. We have paid a USD 100 million deposit, which we deducted from the upfront payments on completion. As I said before, given the fact that the deferred payments and also the contingent payments are spread out over 3 years, the NPV of those obviously is much less than the face value of those just simply added up. We do expect the transaction to complete in the June quarter of '24. And so we'll be working very closely with BHP to make sure a smooth transition during that period. In terms of closing the transaction, we will be seeking regulatory approvals and merger control approvals as well, but we don't anticipate any particular hurdles in that regard. And of course, we'll be going to debt markets to replace the bridge, the USD 900 million bridge with longer-term debt arrangements. On the day of completion, we put this slide in here. So you can see what we're doing with the money. We have executed a binding acquisition facility with Bank of America and Jefferies for the $900 million and cash flows of the business is obviously going to be funding a significant portion of the vendor finance. And so we will replace that bridge over time with longer-term debt profile, which will be very good for our business rather than being currently equity funded as we are without any debt in the business at all. For those who've been watching the September quarter release, you will see that we had about AUD 2.45 billion on the balance sheet. And we will be -- when we close the deal, we'll be directing USD 1.47 billion, as you can see into the deal. And overall, setting ourselves up with what we feel to be a sensible, conservative and strong balance sheet. The gearing itself even including the USD 900 million facility, bridge, but then converted into a longer-term facility, puts us about the gearing levels about 20%. And our target leverage, as we've said before, about half a turn of EBITDA at the bottom of the cycle, but we are comfortable to extend that up to 2x EBITDA for short periods of the [indiscernible] acquisition. Importantly, in this particular transaction, we have had very strong inbound interest from parties wanting to join with us. So there is a very good and interesting joint venture opportunity that we will be pursuing over the coming months, and we see a strong, as I say, inbound interest from global steel producers wanting to -- well, they're expressing interest to team up with us. So we'll be looking at that closely. And of course, that will obviously take a fair load of the company in terms of meeting its overall funding requirements for the business, which is something we're very attracted to. In terms of the strategic rationale for the transaction overall, as I say, compelling and transformational is how we would describe this for us. We're pivoting to metallurgical coal. There's no doubt about that, which has been the core of our pillar of our strategy for many years now. And we're definitely going to have a better balanced business as a result, I said the backdrop of pricing at $360 for the met coal pricing, $140 for the thermal is exactly the right context, I think, in terms of why we think this change in our business is very positive. It's highly earnings accretive, which I'll go into a little bit further. And there's considerable upside not baked into this deal that we will also speak to a little bit further along. It strengthens our quality of our portfolio with more long-life assets in attractive locations, which gives us geographic and operational and product diversity and also scale benefits as well. And of course, our thermal business remains strategically important to us as we continue to provide the much needed products to support global energy transition and as our customers seek to meet their emissions reductions targets. So this is a highly attractive and immediately earnings accretive acquisition. And I think this graph describes this pretty well. If we look at the price that we paid here from a value perspective, if we look at EV to EBITDA based on 2023, we paid an implied transaction multiple of 2.5x. And if we look at the average for peers last year in FY '23, peers being met coal producers, that was 2.7x. If we look at this year, in FY '24, obviously, forecast for FY '24, and we look at our broker consensus position based on our implied transaction multiple, that's 2.9x. But if we look at the average of our peers at the moment, metallurgical coal companies as we listed there in the footnotes, it's 3.6x and I'll see a number of comments from brokers today on us in recent times, centering around the 2.5x to 2.7x for the Whitehaven -- the Whitehaven multiple. So we feel we've processed it at a very, very sensible position relative to where we've been. But the reality of it is we've changed ourselves into metallurgical coal company and the 3.6x should be the yardstick against which we're measuring ourselves. So on that basis, we bought this at a significant discount to the average of our met coal peers. Which is pretty exciting given that we haven't put any new equity into this at all. So that's really important. I think we've -- we're in the right neighborhood. We've been very disciplined on value, and we pay what we believe to be a very sensible price. And as I say, this is immediately accretive for our shareholders. So if we look at the acquisition and we look at the EPS accretion, you can see there that even on a relatively conservative basis on consensus pricing, this is going to be -- the accretion of 70%, which is pretty handsome in and out itself. Off the basis of spot pricing today, that obviously jumps up significantly to 160%. So quite extraordinary. But we have looked at this from many ways, not just EPS accretion and EPS accretion, and I suppose the valuation of the 2 things, EPS on itself, you could chase that. But if you pay the wrong price, then that's not a good answer. I think we've paid a very sensible improvement price and the accretion looks amazing, particularly when there's no equity in the business -- additionally have been put into the business. So aside from that, we think there's a range of different opportunities to make even better returns out of this than what immediately implies from this slide, and I'll talk to that a little bit further. But we think this is a very sensible allocation of capital, the right decision for all our shareholders. So moving across, I just want to draw out a few themes here in terms of areas where we're focusing to deliver further value over and above what the base case implies for the acquisition. And I just wanted to list out a couple of areas where we're targeting for further opportunity to drive greater value and better returns along the way. If we look at Blackwater first, the optimization, there is latent capacity in the dragline fleet there. So we think there's further opportunity to add more pre-strip in there and use that latent capacity in the dragline mining part of the business. And advance the strip and then advance the coal and ramp up the volumes of product out of this business. So I think that is quite a significant change. There is the option obviously to increase the processing capacity then goes with that to up to 18 million tonnes ROM feed. And then also an opportunity to blend the products to become 100% met coal given that there has been a thermal fraction in this in the past. And then the integration of Blackwater South, which is another enormous area at the bottom of this chart, which is outside again is the value proposition we've paid for, but there's probably 20% to 30% of the resources of the total 1.8 billion pool of tonnes there that sits in that area, which is upside for us. At Daunia, I'll just cover off quickly. Obviously, with autonomous haulage there, those targeting further upside there 6,600 annualized production hours per truck is certainly what we will be targeting going forward, and they are doing well with their ramp up of the autonomous system there. Of course, Daunia is located adjacent to Winchester South. So there's a whole range of synergies there, which we've looked at, but not priced into this deal. Product lending, labor sharing, technical expertise, the autonomous haulage itself and obviously, the shared infrastructure would be areas that we'd be looking to drive further value. But this does transform Whitehaven into a met coal producer. As I said earlier, that spot basis as 70% of the revenue is going to be from metallurgical coal sales. It repositions us as Australia's leading ASX seaborne metallurgical coal company and really weights us significantly in that regard. So that 70-30 split is very compelling on the consensus pricing, as I mentioned, 63% to 37%. Historically, you can see where we've come from on the average of our 10 years. Our revenue share has been 17% metallurgical 83% sales, so a big change. From resources and reserves perspective, a massive jump in resources, less so in the reserves, but in the case of Blackwater, there's an enormous potential there to just put a few more drill rigs in there and convert more of these enormous resources that are there into reserves. So we will -- that will be a focus for us. Blackwater as I said, got a 50-year life that we believe, at least Daunia has another 17 years out to FY '14. But with Winchester South sitting adjacent to it. I think that 17 years is probably not the right way to look at it, given we've got a very good reserve sitting next door. So increases in both our footprint here and lots of long-life potential with these assets coming into our group. Of course, there's scale. Scale for itself is interesting, but not always to the answer and certain shouldn't do -- do a transaction just for scale. I'll just note these differences here. The doubling of our own production of 40 million tonnes is very significant. Our skill base in terms of the human capital we have in our business goes from about 2,750 up to about 5,300 people. There will be significant procurement benefits available to us off a bigger base. And of course, the autonomous haulage opportunity is there, not just for adjacent next door, but across the balance of our business potentially as well. And then there's geographic changes and then also commodity changes as well. So quite a big change for our business here with the addition of hard coke, semihard coking coal, low-vol PCI into our mix. We've never had those before, but now we have exposure to those markets. Of course, we've had semi-soft and Blackwater produces a very good semi-soft as well. So that part of the market we feel we understand. But it does bring new products into our markets and gives us more exposure to the growing areas of India and Southeast Asia, in particular. It spreads our risk. From a customer perspective as well, we've definitely got more exposure. We've got about 40%, 45% business involved in 3 customers currently in the business that we have today, but that will diversify greatly, which is a derisking attribute for all this deal for us well. And all of these products sold by Daunia and Blackwater have been subject to long-term contracts with high-quality customers. So that's, again, another important piece of the puzzle for us. In terms of derisking our logistics footprint, as you know, all our tonnes come from the Gunnedah Basin or through the Port of NewCastle good as that is, [indiscernible] all of your eggs in one basket. We're moving to 4 to 6 operating mines, and we're moving from 1 to 3 ports. So again, derisking our business. And then there's some financial markets benefits as well. I'll skip the page. Right. So diversification as well through our business here. Metallurgical companies definitely do trade at premium to thermals as I mentioned there. I think we all understand that. This transforms us into a metallurgical coal company. We know from our existing stakeholders that banks and institutions, are all strongly motivated by a greater weighting to metallurgical coal in considering their ESG considerations around us, and we think that this change in our business drives fast improvements to our synergies. That means better funding optionality, it means an increased pool of equity investors potentially and a lower cost of capital for us as well. So I think our ESG credentials broaden out, which is a very positive thing here. And we'll continue to do the things we've done in terms of supplying our high-quality, high CV thermal product, we'll keep growing that business as people shop out old house stations for new. But then we have this new dimension to our business now supporting greater economic and development through the supply metallurgic coal into these high-growth regions and segments that we've not been deeply penetrating in the past. And so as the business continues to grow, this is going to be an attractive proposition for us. As everybody knows, metallurgical coal is critical to steelmaking. And the steel market has been growing and is predicted to continue to grow and will only grow further and the pressure on price grew higher, has greater demand for metallurgical coal, not just for the normal things we expect still to be used for. But of course, all the construction of renewable energy infrastructure required with our energy transition will drive further consumption of metallurgical coal. And as we know, the hard coke market, in particular, is certainly constrained. It's structurally constrained in terms of the capacity that can come on to respond to the anticipated demand. And that couples nicely, if you look at our thermal business has been, we are in the most structurally constrained component of the thermal market as well. So that gives us 2 exposures to very structural constrained elements in the coal sector. So just over to the assets, and I'll just go over these, give you some highlights here as well. Daunia 170 kilometers from Mackay, about 160 kilometers away from DBCT, as you know, it's in the Bowen Basin. It's a very well-built well-capitalized asset in visiting it. You can see that. That's obvious when you get there. I spent USD 1.5 billion in building it. And now as I say, it's attached to DBCT, which is a port we've obviously been attempted to get our way into from Winchester South. So now we will have a position there, which is very good strip ratio of 7.4:1. CHPP yield 80% and as I say, 17 years of life there. Now for each of the 2 assets, we're going to give you some data here which reflects in the past and also the recent past, but also average of history pre those 3 years. But we're also going to give you some forward-looking numbers as well. We think that's important. So you can get a bit of sense as to how we think about these assets now that we've done our due diligence on them over the last months. We feel that's been very thorough, and we know these assets a little bit better. So as you can see, we've given you 3 years in terms of '21, '22, '23 actuals, the average of the 5 years preceding that, which is FY '16 to '20, so you can see where these assets were prior to those 3 years. And what we're giving you there is our expectation the 5-year average at the top here from a ROM coal perspective, saleable coal production, unit costs on a cash basis and CapEx. And so we're going to cover off those things for you so you can use these in your models. So if I get in to Daunia's -- so you can see that ROM coal and saleable coal production have been below their historical averages over the past 3 years. There's been a number of reasons for that. COVID impacts both direct and indirect as we all understand, labor constraints as I think we all understand as well. And notably, also in this instance, there's certainly been significant weather to contend with, and we're also familiar with that from our perspective. And so -- and in particular, in this instance, what's also been there is that during the '22 and '23 year, the full deployment of AHS here, that's seen the dip that came from the first implementation that right across the pit, but you can see them improving there now and ramping up further this year, which is very positive to see. Over to the products here. You can see the Daunia hardcore products command a price of around 90% of the premium overall hard coke price and the PCI product is about 97% of the overall PCI index. On an average basis, if you looked at the spot today, there's a blended outcome there of about USD 270, USD 280 per tonne. 80% of the volumes go out, as I say, under term contracts with index linked pricing mechanisms and we expect lower unit cost production as the AHS from other efficiencies roll out. So we think it's going to be about the $122 million level on a 5-year average basis. And we factored in about $100 million relevant terms of CapEx there. And part of that will go to the extension into the Pandora pit, which will happen during that 5-year outlook period. To say well capitalized, good infrastructure. And the autonomous haulage system here at the mine is very interesting. It has had a lot of money over and above the construction cost spend over. So USD 2.3 billion in total, including USD 100 million just on the autonomous haulage itself, that looks very prospective for us. And so we feel that we've got very good infrastructure here with these assets to be able to ramp it up further, including optimizing that AH system and extracting more hours out of the fleet. [indiscernible] this too much. Obviously, DBCT got contracts of 4.7 million tonnes. Of course, we were chasing our presence there with Winchester South, but this brings this to us quickly. Over Blackwater. A little bit of some numbers here. The 70 kilometers more or less away from the town of Emerald. You've got hard coke and semi coke soft products there. Strip ratio there's about 12:1, CHPP yield 86%. There's a significant, as I say, resource base here, quite a significant 1.8 billion tonnes, 212 million tonnes of reserves. We will be drilling that out to put more of that into the reserve bucket. But plenty of life left in this asset for, we believe, another 50 years. Over to the stats on the page, no surprise that you'll see that recent past performance hasn't been reflective of where it has been further behind those couple of years disruption with the COVID-related impacts in labor. On top of that severe weather, as I say. And so those are the impacts we believe can be overcome. And certainly, those difficulties at the Blackwater mine in particular, from COVID and Manning had manifested sell through lower inventory, if you like, strip ground. And so Blackwater is dealing with that in this current year. So we'll watch that closely during the period of the signing to settlement just to make sure that when it gets to the completion data gets handed over in the form at which we expected to be. But I think certainly getting back to the 5-year averages historically, would be very positive, but it's slightly below that given what we can see in the current mode of operations. So moving just across the semi-hard coking coal -- or gets about 85% of the premium low vol hard coke index, and the semisoft achieves about 75% of that same index. Now we all know those can vary from time to time. The average of the product fits today and spot will get you about the USD 280. The cost expectations around volumes will certainly see that come down, but we do acknowledge the inflationary impacts that are embedded in both these mines, no different from any other in the industry at the moment. And we've given you a CapEx number there. It's about an average of $168 million per year over the next 5 years. There's about $100 million to $130 million in sustaining, but there is some development CapEx in there as well. Port infrastructure going through Gladstone and RG Tanna, 350-kilometer distance to get to port, still less than what we shipped from the Gunnedah Basin down to Newcastle. So having placed long-term contracts here with port and rail with Horizon, Horizon doing both pits. Both contracts for those will be novated across to us. Now importantly, we did want to just make some comments just here on rehabilitation. We know that there's been a focus on that -- we certainly put a lot of focus during the due diligence phase, particularly in Blackwater, given its age, the site itself having been and have a look around is certainly well managed and well cared for. So there's -- even though there's a fair bit of work to do based on the fact that it's been operated for so many decades. We feel that it's in good shape, and we've taken a very detailed look at what we think the expectations are for a rehabilitation going forward. The current estimated rehabilitation cost there is that $640 million. That's the ERC number. We have received a confirmation from the Queensland government that will be able to enter the Queensland government scheme there, and get the full $450 million, which covers both, by the way. So in our instance, we've got 642-plus at Blackwater plus Daunia at 92. So we'll be able to offset, to some degree, absorbed in the system, the $450 million available under the scheme, and the balance of that we'll find through our normal financial guarantee package with more traditional finances. So with that, I'll hand over to Kevin to lead us through capital allocation strategy.

Yes. Look, thanks, Paul. And I'd start out by saying that our strategy has always been to own and sustainably operate large, long-life, cost-efficient mines that support the economic development and the global energy transition. So we've been seeking to increase our exposure to metallurgical coal over time. And this transaction is actually in one step, helps us achieve that strategic objective. We constantly monitor markets. We've been looking at this for quite a while in how met coal works and how met coal trades relative to thermal. And we think in our business, the met coal will smooth out some of the volatility that thermal coal brings to our earnings and give us longer terms. And we're pleased with the strategy and are pleased with the progress we're making to deliver on the strategy because we think this acquisition is the right investment for the long term. To very good, well-capitalized, well-run long-life assets in the heart of Queensland, best coking coal basin. So we think that's good. The Board really went through this with great effect took probably the best part of this process started when BHP announced it back earlier in the year, and the Board has been involved in this process for a long time. We've looked at the risks and the rewards of this transaction versus stasis and came to a conclusion that diversification and growth in this part was not only aligned to strategy, but was the right thing to do for the business in terms of the risk of the business moving forward. And in all of that, Board and management will well attuned to the conversation around capital allocation framework. As a group, we've been talking about capital allocation since we came out of the COVID crisis in 2020. We've been very aware of stewarding cash in the business and providing returns to shareholders, creating a strong balance sheet. And if I take you to the next slide. Well, you can see the capital allocation framework, you can see how we work this. So we say we want to keep our business solid, so maintain and optimize operations. We want to retain cash to make sure we've got balance sheet strength because that's important. We want to give returns to shareholders in the form of dividends and buybacks. And during this payment period, we expect to maintain franked dividends within the targeted payout ratio of 20% to 50% of NPAT generated from White Hagen's New South Wales business. That's our existing operations. The bridge facility we've got in place expires on 30 June 2024. So we're in play seeking to replace that expeditiously, but it does have a restriction on dividends and distributions, while that bridges in effect, and we're motivated to change that into something more long term. Similarly, our buyback is on hold during this period. But I'm confident the Board will reconsider both of those things once we've bedded this down, and we've brought that financing and sort of that financing out. So what I would say is the other thing you should really consider when you look down to using surplus capital is that the addition of these 2 assets into our portfolio will cause us to look at all of the projects that we've got going. And over the next period of time, we'll be looking at that capital expenditure and reassessing allocations to that as you naturally expect us to do. Of course, you should also recognize that we did not consider raising equity for this acquisition. And that makes perfect sense not to do that given we've just bought back 20% of the stock. So I think the deal structure here with vendor provided finance, the price participation, I'd be delighted to pay BHP the $900 million. I really would be because it would mean that the prices we received in the 3 years of this is well and truly above the conservative prices that we've used in assessing this valuation. So if I turn the page, let's talk a little bit about that. What you see here is metallurgic coal prices for prime level of hard coking coal and semisoft coking coal. You can see where they are today, and you can see where long-term pricing is. So throughout this analysis, we've had a look at an awful lot of providers. We've been through a bunch of analysts that provide information. We've looked at broker consensus. So in the September quarter, the met coal complex plants price averaged $166, which was down 9% in the quarter due to the steady supply of Russian coal right below we're seeing strength in October. The prices for premium grade met coal and for PCI coal are holding up here really strongly. So Prime level of hard coking coal index averaged $264 in the September quarter, 9% higher than June. So what you have seen in the [indiscernible] versus the hard coking coal market is more reversion to what we've seen historically and relationships and ratios between [indiscernible]. Now what I would say them was that owning a met coal and -- earning 2 met coal mines in Queensland with great access to port and rail and quality products exposes us to a higher margin, probably exposed this is not the right word, but is the opportunity for access to higher margins over the coming years. So we're confident in the market dynamics of the met coal market for the reasons Paul talked about, and we're very confident of those same reasons for the thermal coal market. And as this transaction completes, we'll be well placed to leverage those coal markets and really deliver long-term value for our shareholders. So having said that, I'll go back to Paul. Paul close this out and move on.

Thanks, Kevin. So I think the corollary of all that is that we believe that this is an exciting and compelling proposition that transforms the company for all our stakeholders. And we'll be delivering excellent value for our shareholders, not just now but into the long term. As Kevin mentioned, we have focused very much on all the alternative uses of capital relative to what we believe to be an excellent deal that's not just a very prudent value, which is immediately accretive, but it's compelling way to deploy the capital of the company as well. We're looking very much to bringing Daunia and Blackwater teams into Whitehaven's business and becoming a contributing and reliable member of the local communities up in Queensland through what is going to be long-lived assets where we can create real relationships and partnerships over time. We've done a lot of work already to ensure a smooth transition and an efficient completion of this transaction. And we thank our shareholders for their ongoing support and also thank Whitehaven's team, our team of people who worked very hard on this transaction to bring it about, including the team, our professional advisers and the very strong support from our Board and management. With that, I also like to thank BHP and the BMA team, in particular, and so BHP and Mitsubishi, who have worked with us during this process and thank them also for their stewardship of these 2 very good assets. We're very pleased to be able to sign up today. So with that, I'll bring the discussion to a close and we'll move into the Q&A session. Thanks, operator.

[Operator Instructions] Your first question comes from Rahul Anand with Morgan Stanley Australia.

Thanks for the call and congratulations on completing the transaction. Especially the financing side looks pretty good. So congratulations. Look, I just had a few follow-ups. You talked -- perhaps if I take the first one up, Paul, you talked about rehab and how you've been able to confirm the numbers with the Queensland government and also sign up to that $450 million facility there. I just wanted to check, in terms of assumptions, are you able to provide any sort of color in terms of how these numbers might look different once they come on to your balance sheet? That's the first one. And I'll come back with another couple if that's okay.

Yes. I'll talk with some of the assumptions as you say, Rahul, thanks for that. Look, this is clearly an area which is important to us. And look, I'll contain this discussion to Blackwater because Daunia is a new mine. It's only [indiscernible] Maules Creek. So I think the issues there when you put that to the side, it's a much smaller piece of the puzzle relative to Daunia. As I said, Daunia [indiscernible] very impressed us. Clearly, there's quite a lot of open ground. There's no doubt about that, but it's been well maintained. And so that was also happening to see. We look very closely at the rehabilitation efforts now. The best thing to say is that they are subject to 2 vastly different rehabilitation frameworks. One being a legacy mine from a different era in a sense in terms of different regulatory era whereas Daunia is very much subject to the contemporary sort of rehabilitation framework, which we recognize with our more recently constructed mines. So there is a bespoke set of arrangements for Blackwater, which has allowed them to operate consistently in terms of their rehabilitation efforts. When we looked at what they were wanting to do and are required to do under their regulatory framework now that applies to that mine. We looked at that and we thought, well, let's just be a little bit more conservative than that because things can change over time. And just because you've been allowed to do X amount of work in previous years, it doesn't always mean that you're going to be allowed to do the same pace of work in the future. So in that instance, we took quite a conservative position. And in fact, we've taken -- we took a position that will actually increase the rate of rehabilitation work they do by multiple 4 as it turned out. And so that was quite a big change over and above what they were planning to do. But that was just our perspective on that. Whilst that's not because it's required. It's just that we wanted to build into our assessment, a buffer for risk if things change. But there's a new existing framework there. They're operating within it. And we look forward to getting on the ground and operating it in a way that we would like to do that. But there's no issue with the environmental management to date. It's just that it's a big mine, and it will take some time, but we've got plenty of life with such a big mine to build the rehabilitation into the run of mine process rather than just spending money as an ad hoc exercise and adjunct to the operations at the mine as a whole.

Okay. Sure. And then the second one was around -- obviously, you pointed out the vast resource base available at both mines. I just wanted to [indiscernible] in perhaps on Daunia, just given the average run rate there highlighted is 4.9 million tonnes. You've contracted 4.7 million tonnes. I just wanted to understand, is there any volume upside here that you can bring into both these assets? And if that's possible, then why be under contracted in terms of your rail import. Obviously, I believe that's related to take-or-pay. But a bit of color there would be great in terms of optionality.

Yes. What we've done there for you, Rahul, is we're just -- we've obviously given you what we think you need some forward-looking information. So we've given you an average you're referring to the saleable production there. And obviously, that's well aligned, as you say, to the port considerations being on a product basis. So the average of the next 5 years under our stewardship, we're saying 4.9, but they will have port capacity there at 4.7. What we've highlighted there, in particular, as it relates to the product numbers is which is not baked into our existing model and the price that we paid is clearly one of the upside aspects here for us is to run that fleet harder. I mean they have done the hard work in implementing AHS there. And it's a compelling proposition. And we acknowledge having been through this ourselves. We understand the challenges implied in that. And when you first launch it on a site-wide basis. And so we can see that there's been the production challenges that come from that during that transition phase. But they are ramping up pretty well. And so we think rather than, say, for instance, 5,500, 5,600 hours per truck, and if you get it up to something in the order of 6,500, 6,600 as we quoted, there's significant upside, which then relates to obviously significant upside volumetrically product as well.

Excellent. That's really good color. Look, just one final one from me is around the JV partnership potential. Now obviously, you've had that model across assets in your portfolio. So I guess, just curious to know whether you've had any sort of initial conversations with any of your parties at the moment? And what type of interest level are you seeing in that? Obviously, perhaps also get some of the new parties involved from India given the ramp-up there as well that's required for steel production?

Yes. Look, I think you've almost answered, you are trying to question there, Rahul. It's -- the inbound interest has been strong. Obviously, this process involves 2 well-established mines that have high-quality customers and those high-quality customers with a change of control we're obviously interested in securing the volume. So the inbound inquiries have been very good in prospective. We like that model, as you know. And so we will be looking very closely at it. And it does, as you say, traverse jurisdictions, which are outside where we've had equity participants in the past. So we're keen to explore that further. So Obviously, today is a very important day. It puts us in the right position to be able to have those discussions. So we'll circle back around and explore that in more detail. But the interest levels have been very strong.

Your next question comes from Paul Young with Goldman Sachs.

I guess first point is good to get this deal done. Paul, first question is on the EPS accretion and the multiples, which look pretty attractive. But I'm curious around what price to NAV do you think you might be paying with the improvements? Because obviously, EPS accretion is a good metric, but I know you guys think on an NPV basis selling when you're stacking up projects. So consensus long run, what price in NAV that do you think you're paying with the improvements and -- and also what payback do you think you can achieve a consensus long run as far as number of years are concerned?

Look, I think all those questions are a very good question, Paul. The challenge there is, obviously, when you're trying to bridge the gap with the purchase, how do you bridge that gap with them. And that's why we put the contingent upside sharing in there. So as you can see, you can see that we paid what we believe to be a very reasonable price of conservative pricing. We haven't stuck our necks out here on price at all. And I'm pretty sure with the information you can -- we've given you here, you can back solve into the price deck that we've used. And so in terms of your analysis and focus on NAV, when the value here, I think it's -- if you look at overarching price that we paid, we paid well under the comps for our comparative companies or our peers, being anybody in this space that's 50% plus revenue from a met coal perspective. And we're well inside that as you're going to see a 20% discount to the comps that we've lined up here in those presentations. We've quoted them in the footnotes of the slide for you. So I'm pretty sure you can see from the accretion without program consensus pricing, which we all acknowledge is very conservative, is looking very good at 70% on today's spot is [ $160 ]. But we think it's a compelling deal. And from a price perspective, we've -- I think we've been very disciplined. We're certainly, from the feedback, not paid the highest. And I think it's a broader proposition of providing a simple, clean exit to the vendors that put us in a good position to win the day.

Okay. I'll walk through those numbers on NAV. Next question is around maybe what Kevin alluded to as far as capital allocation and maybe rejigging the growth pipeline? I mean huge opportunities to invest further in both of these assets, brownfields growth, obviously very high returning. And if I look across your portfolio and look at Vickery being more greenfield, the [indiscernible] Narrabri Stage 3 with a big CapEx increase recently, which I just struggled to get the numbers to stack up on Narrabri Stage 3, particularly with the risk profile of those longer panels, Paul. So I mean, I think -- I know the deal doesn't close for another year, but surely, this puts -- raises the question mark around Narrabri Stage 3 and actually pulling back on capital there and just doing the [indiscernible] there. Just curious around your thoughts around how you're rejig the pipeline from here?

Yes. Yes. It's a good point of focus, Paul. What this does, firstly. I mean, there's only 5 months closing, firstly, just so it's -- so it's not very far away. So we've got to get our skates on and making sure that we have effective -- an efficient and seamless transition. But the reason with the scale, the business has jumped significantly in funding scale. So our capacity to do the things you've mentioned will grow considerably. And so as we would say, I mean, it's -- we're doubling the business and on a spot basis, I think our EBITDA triples, which is quite considerable. But we're not suggesting that those prices remain forever, of course. But the funding capacity of the businesses and its ability to invest is significantly stepped up. Both those opportunities you mentioned, both Vickery and Stage 3. They're there both compelling proposition. So perhaps we need to circle back with you and have a look at how your view in Stage 3 because that is an important development. But -- our first priority is to make sure that we: bed down this acquisition. So we will look at all those opportunities. We've obviously got early mining going in Vickery. And so that's -- we're very positive with that. That will continue on. But we reassess the priorities once we've had a look at the competing needs for capital in the business, and we'll make sure that the ones with the greatest returns get the love essentially. And the only other point that I'll make to you there is that we have the flexibility to run early mining at Vickery for some years, and that's the way we put it together. But the Vickery proposition is a very good blending opportunity across our business, particularly with Narrabri. So that may be some of the areas that your modeling may need to look at, but we can work with you on that at some later date.

And I'll probably just add 1 more thing to what Paul said. Then we get through the period of retiring the vendor finance consideration. And I think the opportunity for -- we'll continue the dividends to shareholders through this period out of the existing Whitehaven business. That's what's in that commitment there. On top of that, you get through the vendor financing and the return -- the opportunity for returns to shareholders are quite exciting. So Paul, I'll look at this when I go, I think it's a lovely deal where you get access to 20 million tonnes of met coal, pretty much where a portion of that is financed by a vendor who has handed these assets in or put them into the hands of people who they're confident is going to look after those assets in that basin, will go for those assets with the people look after those assets in that community.

[Operator Instructions] Your next question comes from Christopher Drew with Jefferies.

[indiscernible] for me on this as well as a fantastic transaction. Just as a follow-up to the prior question here on the subject. Does this reprioritize Winchester South for you relative to Vickery? Is there anything there that you can do to perhaps accelerate that project? And is there any more detail you can give on perhaps, I guess, sort of development synergies with Winchester South, now that Daunia is in the mix?

Yes. That's a good question also, given that we're an opportunity-rich company. Look, naturally, Winchester South probably has at least a couple of years in front of it. Now we are very close we feel to receive all the evaluation report from the Coordinator-General. So we're anticipating that before too long. And so we'd like to see that squeeze out quickly. And while I'm talking about in the next month or so is what we're expecting. But inevitably, approvals in Queensland. You have to allow some time for some court time associated with people who don't necessarily view coal mining the way we do. And then, of course, there's the EPBC overlay as well, which needs to be pursued. And that also has its own nuances from that perspective. So if you sum that up naturally to us that has a couple of years before we're fully approved and able to go if that was the decision of the Board. That period gives us plenty of time to reconsider all the priorities that we're talking about here and the competing uses for capital and the returns that we'd like to generate for our shareholders. And of course, as Kevin has mentioned, meeting the commitments that the vendor finance arrangements require which, by that time, 2 years' time, you'll have repaying that into finance will obviously increase the equity base of the company considerably by doing that. But that will allow us plenty of time to make sure that the choices that you're alluding to can be considered in the light of a bigger and more financially stable and robust business.

Okay. And then perhaps the second question is on the cash cost guidance. pointing to quite a material step down from recent years for that guidance sort of 20%, which probably isn't really what we're seeing elsewhere. Can you help us kind of bridge that gap? Is that -- is it sort of a smooth down trajectory? Or is it just a big step down quickly as the volumes recover and there's a lot of royalties in there or perhaps just help us bridge that gap in terms of that cost guidance versus the FY '23 numbers?

Yes. Look, that's a good question. I mean, we anticipated some of this and that's why we've given spread it out the numbers the way we have. We don't think -- of course, the recent time with COVID is a fair backdrop to which to be assessing how either of these assets are going to perform, particularly in the case of Daunia as well. It's not just COVID, it is the IHS rollout, which has caused the immediately past years to be depressed from a value perspective versus where they go. And the volume, obviously, as you know, volume begets -- better volume begets lower cost normally. And we think there's plenty of opportunities to bring those costs down further in this business. So obviously, we're -- how do I describe it? We hopefully relatively view it as a relatively efficient miner. And certainly, we know in our business in our existing business within the mine gate, we are very competitive relative to our peers. We obviously have a burner of distance getting from our pits to port. But in that sense, we're pretty good inside the mine gate. Obviously, BMA has their own approach in terms of how they manage these assets, but pulling them out of that big business into ours, I think there's definitely going to be opportunities for savings. And so -- and we can see quite a bit of that when we -- when we've gone through the numbers, and in fact, when we went up to site and what did what we thought -- a very productive site tools to see whether those opportunities were realized. So we feel pretty confident that there are cost savings in here. But the volume is going to be a big driver there.

Simply there, Paul, and I would say, Christoph, we are going to take these assets over with the employees that are coming across. So that gives us a full workforce. Our expectation is that we will manage those assets, the cost of these assets down over time. So I wouldn't be expecting to see a major step down on day 1 simply because that would be inconsistent with the manner which we've contracted to acquire those assets. I would expect us to do better in terms of being a little bit more leaner and more nimble. I'd expect less corporate overhead in the organization. And I expect as we unlock some of these capacity constraints that we see in the business, we'd expect volumes to grow and therefore, unit costs to come down. So I'd be thinking this takes time, doesn't take [indiscernible] to begin with.

Yes. No, I think that's right. And I'll just finish off my comment there. Just on the other hand. So Daunia, we can see, certainly, that's had to hit from the implementation that will continue to ramp up. So more volume -- more hours will be getting more volume and more sales, fantastic. At Blackwater, the biggest issue there we can observe there is they have plenty of capacity, plenty of good gear, but you -- but our observation is there that in recent times, the effective [ COVID mining ] and so on, certainly has had seen them stripping less than what they would have liked. And so in this period, we know well, not because of the sale, they were in any event, addressing that issue themselves, in fact, on a very good trajectory to try and recover a lot of that ground to put the mine in a more balanced position over time. And so we were tracking that very closely in this ensuing signing to completion period to make sure that, that work leads the mine in a balanced position that we would prefer to see it. Then we have some -- and we have some arrangements in place between us to make sure that those considerations that they are motivated to deal with those things through the course of these next 5 months. So we think that will return back to a normal. So the cost distortion that you see there or that you may be inferring there, if you're looking at their numbers, although their group together might be hard to discern on a one-by-one basis. But we see that putting the mine back in a position with that cost, the balance between stripping and product will be better aligned.

Your next question comes from Glyn Lawcock with Barrenjoey.

Paul, I'm just a little confused on the timing. You sort of said you'll close in 5 months, but you say deal completion in June quarter. Are you just thinking early the June quarter? I'm just trying to bridge what happens between now and deal closure? And I assume who owns the cash? Do you get access to 100% of the cash once the deal closes, even though you've got trailing payments as well? Just if you could help me understand .