Coronado Global Resources Inc. (CRN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Coronado Global Resources Quarter 2 2026 Investor Call. [Operator Instructions] There will be a discussion of results from the CEO and CFO, followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Interim CEO and Managing Director, Gerry Spindler. Please go ahead.

Good morning, everyone, and thank you for joining us. Before discussing the quarter, I would like to begin by addressing an important milestone for Coronado. As announced earlier this month, we are in the process of completing our leadership transition. Barrie Van Der Merwe, currently our Chief Financial Officer, will become Chief Executive Officer on 1 August, while Sandeep Deoji will assume the role of Interim Chief Financial Officer. Leadership continuity is critically important for any organization, particularly during periods of transformation. And I am pleased this transition is occurring from a position of improving stability and strengthening operational momentum. Barrie has been instrumental in concluding the new arrangements with Stanwell last year and developing and launching the operational and commercial reset program currently underway. In this period, he has played a central role in strengthening our focus on productivity, cash generation, operational discipline and reducing debt in the future. Sandeep has similarly been heavily involved in the company's financial strategy, liquidity initiatives, capital management and balance sheet improvement efforts. Importantly, there is a growing sense of positivity and momentum across the organization. Over the past several months, our teams have worked exceptionally hard to address operational challenges, improve reliability and build a stronger foundation for the future. While we still have work ahead of us, we are beginning to see tangible evidence that the reset is starting to have a positive impact and that the business is moving in the right direction. June quarter represents an important step in that journey with stronger production, lower costs, positive earnings and improving cash generation. With that, I will hand over to Barrie.

Before I get into it, I want to acknowledge and thank Gerry for his leadership and contribution to Coronado. Gerry started the business and has played a foundational role in building Coronado and guiding through both periods of growth and more challenging recent market conditions. On behalf of the Board, management team and all our employees, I'd like to thank Gerry for his commitment, passion and dedication to the company. We are grateful for helping us launch the reset program. I'm honored to be appointed as Coronado's Managing Director and Chief Executive Officer. The business has a lot of potential and great teams of people. The June quarter is a big improvement on March, which is a testament to the efforts of everyone involved. It's a first step in many to rebuild our credibility to deliver results. The reset program is a really exciting piece of work and its realization is of critical importance to restore profitability, cash generation and to reduce debt. I will talk you through the reset program, how we envisage it working and the benefits we're expecting to get from it. Let's start with safety, our highest priority, before we talk about the business results and plans for the future. As at 30 June 2026, the group's rolling 12-month TRIR was 1.34. This represents only a 3% improvement from 1.39 in the March quarter. The severity rate or the number of days lost at 200 hours worked improved more materially declining from 34 to 24 days. While the time lost due to injuries has improved, which is indicative of less severe injuries. We have a lot more work to reduce the number of injuries occurring at our sites as it remains at an elevated level compared to the past. We will continue to prioritize safety as the most important leadership responsibility, and we are committed to delivering long-term improvements that create a safer workplace for everyone. We recently started rolling out a new safety leadership program. This will bring together leaders from all levels of the business and initially, it will focus on frontline leaders. It's designed to reinforce accountability, improve hazard identification and risk intervention and strengthen the quality of safety conversations. The program aims to build a stronger safety culture founded on proactive risk management and shared ownership of safety outcomes. The initiative complements a range of ongoing actions, including continuing focus on critical control verifications and leadership-led safety interactions. I'll now turn to the operational performance for the June quarter. If we look at the group, we expect the group to achieve about $10 million of EBITDA for the June quarter. So that's a material turnaround from the March quarter and is about $100 million swing. It was driven by much improved mining rates and CHPP output at both sites and then improved realized pricing from a higher proportion of met coal sales. Cost was in line with plan despite the adverse impact of uncontrollably higher diesel due to the ongoing Iranian conflict and a stronger AUD exchange rate, and these 2 both impact Curragh's costs. Overall ROM production increased 18% quarter-on-quarter to 6.4 million tonnes and saleable production increased almost 40% to 4.1 million tonnes. During this June quarter, Buchanan achieved record ROM production and both Curragh and Buchanan achieved record quarterly CHPP operating hours, which enabled higher throughput, improved recoveries and increased saleable production. As I will discuss later on, CHPP performance, maximization of met coal production is a key value driver and the performance during the quarter is a credit to the effort and the commitment of both operational teams. Now turning to Curragh. The June quarter represented a significant recovery following the planned 2-week CHPP shutdown and seasonal operational disruptions during the March quarter. Mining activities normalized during this quarter, supported by stronger coal availability and improved overburden removal. As a result, ROM production at Curragh increased 74% to 3.9 million tonnes and saleable production increased 76% to 3 million tonnes. Open pit mining performance was good in both the North and the South for both waste and coal mining. While the output from the Mammoth underground mine doubled following the impact of the fatality in the March quarter, there remains opportunity for further improvement as the mining rate is still not quite what we originally planned. Mining cash cost declined 33% (sic) [ 33.5% ] quarter-on-quarter to approximately $99 per tonne, impacted by diesel and FX. While we are pleased with this progress, we continue to see substantial further opportunity, and I will talk more about what we are doing about cost and productivity. Using the maximum possible high-margin met coal at Curragh to drive stronger margins and cash flow is one of our top priorities. Therefore, a lot of effort is going into improving plant availability and throughput, and we are starting to see early evidence of the team's success in this area. During the June quarter, operating hours regularly started exceeding 150 hours per week. Average throughput rates have also improved and while variability can be expected as these initiatives continue to embed, the results reinforce our confidence that the plant improvement program is targeting the most important constraints. The plant improvement work we've seen as part of this overall reset program, and I want to talk a bit more now about its other elements. The focus at Curragh is to create stability and predictability. It all starts with the mine plan. During this June quarter, we developed and began implementation of a new open pit mine plan that reduces execution risk, over time, improve pit geometries and support better productivity and lower operating costs. Coal volumes are expected to be maintained and appropriate inventory buffers will be established across the coal value chain to support a more stable production system. When thinking about Curragh, and needs to remember that the North open pits represent the long-term future and sustainability of the operation. While what remains in the South has a much shorter life, large parts of that is a low strip ratio -- lower strip ratio than the north. This represents an opportunity to think about the complex a bit differently. In the South, the new mine plan maximizes and accelerates lower strip ratio of coal through terrace mining. This is better suited to truck and excavator fleets and the focus and efficiency of the mining method allows us to park in-truck and excavator fleets and the smaller drag line. This results in avoiding the upcoming major shutdown CapEx for that drag line and the associated operating costs for running in. The larger drag line that currently operates in the South will be walked to the North and there, it will help establish improve the geometries. Cost reductions and margin improvement driven by the South and lowering cost in the North will then enable us to fund the establishment of improved geometries in the North, long-term sustainable part of the mine. And this will accommodate 3 drag lines in this transition period. It will drive future costs down, will increase production over time, and it will help us establish the required inventory buffers across the complex to support system stability. The new plan, therefore, funds setting up the North for longer-term future and get in place the key things we need for stable operations. While this approach in the South does require the acceleration of developing expert, which is currently in feasibility phase to maintain the production profile beyond 2027, there's enough time to get that done. And the results of this reset program is expected to generate adequate cash to fund that development. It's also worth mentioning that developing expert will take priority of allocating capital if it's available to Mammoth 2 until such time as we consolidate and internalize all the learnings from Mammoth 1. At the upcoming half year results roadshow, we will share more details about exactly how all of this is going to work. On the back of the new mine plan, we are progressing a comprehensive review of our mining services arrangements for both the North and the South. Open pit mining services contracts represents about 40% of Curragh's mine cash costs, and we're working closely with our contractors to simplify contract structures, improve transparency, better align incentives and capture the benefits created by the new mine plans. Our objective is to establish arrangements that are lower cost, operationally efficient and support sustainable value creation for all parties. Alongside these mining initiatives, we continue to advance our plant improvement program that I discussed earlier, improve availability, throughput and maximize high-margin met coal. When we combine all of these savings with savings expected from indirect spend, other procurement contracts, the organizational simplification resulting from selling Logan and improvements across the Mammoth underground from a dedicated improvement plan, this forms an integrated reset plan to improve operational reliability, lower costs and increase cash generation. We're now reaching the end of the first phase of this reset, which entails coming up with the plans and targets as well as some early implementation actions, having supported by both AlixPartners and Odin partnership in this work and expect to be working with both these organizations in the next phase. We'll now move to full enablement of these initiatives to start yielding early benefits in the remainder of FY '26 and to be fully baked for inclusion into the FY '27 budget and guidance. We're making steady progress to stabilize Curragh and improve to safely and reliably deliver margin -- high-margin metallurgical coal to our export customers and thermal coal to stand well for 15% of Queensland's baseload electricity generation. Talking a bit about Buchanan now. Buchanan is a stable, profitable asset and our focus of Buchanan is optimization. Results continue to demonstrate why the expansion project was such a good investment and decision. Following completion and the successful return of both longwalls to production after first quarter relocation activities, Buchanan has now established a materially higher operating base. It also delivered CHPP operating hours among its strongest quarterly results in the past 3 years, reflecting the reliability and consistency of this operation. Buchanan delivered a record first half ROM production of 4.7 million tonnes, representing growth of more than 26% compared to the prior corresponding period. This higher production base has been achieved on planned cost performance. Mining costs during the quarter were approximately $91 per tonne. Operation generated approximately USD 63 million of earnings -- of EBITDA during the first half. More broadly in the U.S., we've now simplified the overhead structure, supporting the operation following the sale of Logan, ensuring the business is appropriately aligned to a single U.S. asset while maintaining the technical and operational capability required to support future performance. With expansion complete, capital requirements are materially lower and a great proportion of earnings can be converted into free cash flow. We, therefore, expect Buchanan to remain a primary contributor to group earnings, cash generation and balance sheet improvement moving forward. Sales volumes remained broadly stable for the group at 3.5 million tonnes during the quarter despite saleable production increasing almost 40% quarter-on-quarter to 4.1 million tonnes. The difference was primarily driven by the rebuilding of inventory buffers mentioned earlier as well as some shipment delays. Importantly, the quality of our sales mix improved this quarter. Met coal represented 80.4% of total group sales compared to 71% in the March quarter. Export sales increased to 77% compared to 74% in the prior quarter. This reflects improved operational continuity, better plant performance and a greater proportion of high-margin met coal products, which, as I said earlier, is a key focus and hence our focus on our performance. The improvement in product mix translated directly into stronger realized pricing. Group realized met coal pricing increased 3% quarter-on-quarter to $171 per tonne. The Australian realized met coal pricing increased 6% to $172 per tonne, while the U.S. remained strong at $168 per tonne. This improvement occurred despite benchmark PLV pricing remaining relatively stable quarter-on-quarter. Briefly on markets. The met coal market remained relatively stable throughout the June quarter. The benchmark PLV pricing averaged around $240 per tonne. We saw modestly improving pricing performance for the lower quality met coal products and the PCI coals during the quarter, supporting broader market fundamentals. Since quarter end, benchmark pricing has softened and is currently around $220 per tonne going into the usual seasonally softer September quarter. Despite this moderation, we continue to believe the medium-term outlook remains constructive. Producers do continue to face some pressure. However, steel demand outside China remains relatively healthy, particularly in India. Overall, we continue to believe met coal remains well supported over the medium term. Sandeep will now cover the financials, including our liquidity position and will outline what we have in place and what we are working on to ensure that we have some resilience for market volatility and operational disruptions until the full benefits of the reset program are realized into next year. With that, I'm pleased to introduce Sandeep Deoji, who has been with Coronado for many years. Sandeep was my right-hand man when I was CFO, and I know our money matters are in good hands with you. Thank you.

Thank you, Barrie. I'm also pleased to be stepping into the role of Interim CFO. Having been closely involved in the company's finance and capital management initiatives, I look forward to supporting the execution of our strategy, strengthening the balance sheet and helping drive sustainable shareholder value. Operational improvements Barrie described translated directly into materially stronger financial results with high-quality revenue, materially lower costs and improved cash flows quarter-on-quarter. Our total sales volumes remained broadly stable at 3.5 million tonnes, revenue quality improved significantly due to the higher proportion of metallurgical coal sales and increased export exposure. Group realized metallurgical coal pricing increased to approximately USD 171 per tonne. At the same time, group mining cash costs declined nearly 28% quarter-on-quarter to approximately USD 98 per tonne, a substantial reduction delivered as operating leverage returned with volumes despite external cost pressures, including an adverse FX rate, higher fuel prices and inflationary impacts. The combination of stronger pricing and lower costs returned the business to positive earnings, a material improvement on the March quarter and drove materially improved free cash flow. During the quarter, higher production ran ahead of shipping timing and logistics, which increased sellable coal inventory and will support stronger shipments and cash generation through the second half. It's also worth being clear on our reported results. Our half year earnings include approximately USD 30 million of losses from the Logan complex, which was idled in the first quarter, together with noncash impairment charge recognized against the assets. With Logan sale expected to complete shortly, that drag will be removed, improving group's earnings and cash flow profile. On liquidity, we ended June with approximately USD 98 million of available liquidity in the form of cash. Subsequent to quarter end, we continue to advance a number of marketing and working capital initiatives with key counterparties that are expected to provide additional liquidity and financial flexibility. Discussions remain constructive, and we expect these arrangements to be completed in the near term. In parallel, we have access to a range of working capital optimization initiatives across the business, including customer arrangements and other trade finance structures that can be utilized as required. Together with improving operational performance and strong cash generation through the second half, these initiatives provide additional flexibility to support execution of the operational reset and management of liquidity. All our major growth capital programs are complete, particularly following the Buchanan expansion project delivered last year. As a result, capital expenditure requirements are materially lower than in recent years. Going forward, our focus is on maintaining momentum and converting operational improvements into sustainable earnings and free cash flow, strengthening liquidity and balance sheet flexibility and ultimately creating the capacity to reduce leverage over time. The June quarter represents a significant improvement in both operational and financial performance and provides a much stronger platform from which to execute our plans for the remainder of 2026. As a reminder, our quarterly financial statements will be lodged with the SEC on the 11th of August with our Form 10-Q. Thank you, and I will now hand over to the operator to open the line for questions.

[Operator Instructions] Your first question comes from Daniel Roden with Jefferies.

I wanted to -- just first off, I wondered if you could maybe just walk us through a bit of a cash bridge for Q2, specifically, touching on some potential working capital mechanisms that you may or may not have utilized, including receivable financing? And I guess, how much Stanwell liquidity was drawn in Q2 as well in terms of prepayments? What's the balance of Stanwell today? Sorry, there's a bit in that, but I was just wondering if you could kind of walk through a bit of a cash bridge and where the balance sheet sits today?

Yes. So from a working capital lever perspective, there weren't many levers that we did pull in Q2. In fact, there's probably about $20 million of supply deferrals that we executed at the end of the quarter. When you look at the cash flow for the quarter, we obviously were negative $23 million in the quarter itself. And to answer your question, about $40 million of that was contributions that were made by Stanwell from the prepayment mechanism that we executed last year. And it is also important to note from a cash flow perspective and as we mentioned in our quarterly results that there was a significant amount of inventory that we built at the end of the quarter, which was really because of shipment and coal shipper issues that we faced, particularly in Australia, which means that there was about 430,000 tonnes of inventory that we built at the end of June, which will obviously convert into cash when we sell that in July. In fact, we've actually sold all of that by now. So if you exclude the impact of that inventory build, our cash flow -- free cash flow rather would be around breakeven or slightly positive. So yes, that's what I've got to contribute.

Daniel, just maybe to add. If you reflect back on the working capital levers we said we've got available when we did the full year results presentation or the last Q actually, most of those are still available. So we've not used those. And we're working on a couple of things as well. I think the liquidity pending realization of the full benefits of this reset program, I think we're in a fairly good position there.

And I just wondered if you could touch very quickly on the price realization specifically from Curragh have been declining to benchmark, even though you've got thermal contributions, there are still, I guess, normalized. What are you seeing on -- I guess, is that a quality thing? Is it just lagging benchmark based off of sales timing? Like how are you -- how are we looking at realizations at the moment? And, I guess, how do you foresee those realizations going forward? Should we be expecting that?

Look, look, I think the Curragh realizations, obviously, it's a reflection of the average sales mix coming out of that operation. Now as I said, we're working hard to maximize met coal production. There's a lot of focus on the plant. So there's a physical piece of work around effectively driving up the sales mix more towards met coal and then balancing the mine and the plant better. You don't end up having to bypass coal create thermal, which then doesn't really provide a good economic return. And all of that is wrapped up in the reset program. So I'd expect us to get a better realization as a result of that. The rest of it, I think, is quite consistent with what we've had in the past, Daniel, that we need to know that Curragh produces quite a bit of PCI, the PCI index has not done what the PLV index has done. If you look at it kind of year-on-year in particular. And then the LV index is up quite a bit, but that's kind of the rest of Curragh's production. So it's against that LV index. So when I look at it year-on-year, we've seen the realized price. It's the group, but Curragh is close to this. The group increased from about $150 to $168. So we've seen pricing up about 12% and that's to be expected for our mix outside of the work we're doing on improving plant uptime and throughput, which should see us doing a bit better. Does that help?

Yes. and I'd be remiss if I didn't ask this, I guess, last question. There's been a bit of media speculation that you're looking at and assessing a potential sell-down of Curragh specifically. So I just wondered if you could comment maybe, are you seeing anything in that process? Is there any progress there? And, I guess, if that was to transpire, like what does pro forma company look like?

Yes, Dan, I think you used the key word there, which is it's media speculation. The impression, I mean, [ keep that ] I guess that article is someone's got it on all to repeat and it comes out every 6 weeks. It is just speculation. And I think if one considers what we're doing at Curragh currently with the reset program, I think it flows from that, that we complete that work or get it kind of quite embedded before one would look at it. So that's pure speculation.