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

Thank you for standing by, and welcome to the Coronado Global Resources Half Year Results Presentation. [Operator Instructions] There will be a discussion of results from the CEO and CFO, followed by question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Douglas Thompson, Managing Director and CEO. Please go ahead.

Thank you, Ashley. And whether you've been following Coronado for some time now or new to our business calls, we appreciate you taking the time to be with us today as we present our performance for the first half of 2025, share updates on our plans and discuss what's ahead for the remainder of the year. As is widely known, the met coal environment over the past 12 months has presented significant challenges from persistently low prices and uncertain global demand to sustained cost pressures and political uncertainty. In today's presentation, we'll talk you through how we've navigated this environment and the adjustments we've had to make and the steps we're continuing to take to remain competitive through the cycle. You'll see that our team has remained focused on operating safely, reducing costs and protecting our balance sheet so that we can come out of this difficult cycle in a stronger manner. We'll also talk about the long-term cash flow improvements, including the completion of our growth projects and provide deeper insight to our financial performance. And then we'll close the session with Q&A. And as always, we welcome your questions. So with that, let's get into the presentation. I'll begin with a quick introduction. Coronado is a globally diversified producer of metallurgical coal, which is essential in steelmaking, which in turn is used in the infrastructure, automotive and manufacturing industries. We operate large-scale assets in the Australian Bowen Basin in Australia and in the Central Appalachian regions of the United States. And these assets include the Curragh complex, which has 2 large open cut mines and a bord and pillar mine, and the Buchanan complex, which has 2 longwall mines and Logan complex, which has 4 bord and pillar mines and 1 presently idled open cut mine. So in total, we have 3 open cut mines and 7 underground mines with more than 20 years of life across these assets. And we have targeted high-return growth investments, both in the United States and Australia that are now generating cash and that are scalable. Our product suite attracts premium prices and has well-regarded characteristics. And we returned over $1.5 billion of free cash flow to investors since our IPO in 2018, while funding significant economic contributions to the countries where we operate and Queensland's electricity needs. Our financial position is expected to improve rapidly in the foreseeable future due to the expansion of projects that are now completed in production phase and starting to generate cash from the second half of this year. And the Stanwell rebate is ending in early '27, together with a new coal supply agreement that has better pricing, albeit still well below market, will increase cash flows to about $150 million, and Barrie will elaborate and provide more insight on this in his address later. And our continued productivity-driven cost reduction programs that will see Coronado in the second quartile of the cost curve. Our liquidity improved by up to $300 million this year, and we have no major maturing debt over the next 3 years. Moving to the next slide. Our organic growth projects, Mammoth and Buchanan will deliver higher sustained return to shareholders over time. Both projects are now delivering additional production. And by the end of the year, they will be on planned run rate for an additional 3 million tonnes per annum. These projects were delivered on time and within budget, which is a testament to our people and the planning that went into these projects. We anticipate increased salable production, higher margins and lower costs for our business as a result. And the costs for these growth projects are in the second quartile and their multiples are better than recent industry transactions and the payback period is very short at less than 3 years. So we are looking forward to enjoying the benefits from our achievements that will be delivered in the second half. As we move to the next slide, you'll see that we have more options available to us for growth. As a team, we remain focused on value-accretive options that align to our business and experience in metallurgical coal. And we are currently advancing options on Phase 2 and Phase 3 of Mammoth and further capacity at Buchanan. Collectively, these options offer more than 3 million tonnes per annum, and our open cut mines offer flexibility and scalability. And we have further long-term options in the pipeline, namely Russell County and Mon Valley. And as Barrie will show later, assets have inherent cash-generating ability to support these investments even at today's low prices. Investments going ahead will, however, have to be balanced with the requirements of other stakeholders, particularly in Queensland, where our direct contribution to the economy through revenue royalties and discounted coal supply for electricity generation has an impact on the overall economics of the Curragh complex and far exceeds the requirements set by our U.S. operations. In the near term, both the subdued met coal market and the level of state royalty in Queensland makes progress in these projects difficult. Until we are ready, capital discipline remains our priority. We will continue the technical work, and we'll be ready when the timing is right. Ultimately, our ability to fund and deliver growth starts with strong operational performance. So let's turn to that. Turning to our first half performance. We've made good progress. We've achieved significant cost and productivity gains. We've achieved a $200 million lower operating cost on prior year. And after the $100 million in 2024 that were reduced at the Curragh complex, we've continued to go further with another $80 million identified and on plan for cost out in 2025. $30 million has been achieved to date and another $50 million is to come out in the second half. Our assets have incrementally been improved. Our U.S. operations have shown better production on prior quarter and prior year despite interruptions and shutdowns that were required in preparation for the growth projects. And our Australian assets ended the half with a 6-year record ROM production. Our growth projects are now complete and the attractive returns are scheduled to be delivered from now. Buchanan has both longwalls operating, and these expect to deliver up to 1 million tonnes of additional production per year, and Mammoth Phase 1 will deliver up to 2 million tonnes per annum, while all 3 continuous miners are now cutting coal. Both projects are already contributing improved margins and quality of earnings, and there will be a company-wide improvement in H2 on the back of these expansion projects due to reduced costs associated with them, increased production and lower capital expenditure now that these projects are complete. And importantly, we've strengthened our liquidity position, supported by cost discipline, improved cash flow and the recently completed ABL and Stanwell transactions. We will continue to explore all options in H2 to maintain balance sheet adequacy throughout this difficult market cycle. And with that, I'll hand over to Barrie, and he'll take us through some of the financial details.

Thank you, Douglas, and good day, everybody. We're now on Slide 10, looking at financial performance. Operational and financial performance started building positive momentum in the June quarter despite low prices persisting. This momentum is expected to continue building throughout half 2 as the expansion projects ramp up. Over the last 12 months, a lot of work has been done to reduce cost and improve productivity. Mine site cash cost is $100 million lower than the same time last year, primarily at Curragh. Therefore, at the end of the half, unit cost was trending at the bottom end of our guidance range of $92 per tonne. As reported with our June quarterly 3 weeks ago, ROM volumes increased 20% quarter-on-quarter, driven by a 41% improvement in Australia and continued strong output from our U.S. operations. As a result, despite a 25% lower year-on-year price, taking about $50 a tonne off the revenue line, we achieved breakeven EBITDA during the second quarter without any meaningful production contribution from the expansion projects yet that will happen in half 2. We have better liquidity runway than before as a result of the new ABL facility. Only $75 million of the $150 million facility has been drawn to date and $50 million of Stanwell rebates will still be deferred. Turning to Slide 11. The chart on this page shows how responsive our unit cost is to increasing volumes. The 2.8 million tonne record ROM production in the June month resulted in a cost per tonne of $72, well below the lower end of our guidance range. The average unit cost for the quarter was $92 a tonne at the bottom end of guidance. The quarter performance was at an average 2.3 million ROM tonnes per month. Half 2 dollar spend will only be slightly higher than half 1 due to the ramp-up at Mammoth and Buchanan and the additional spend will be immaterial compared to our overall costs. Therefore, as both the expansions ramp up, this relationship between volumes and cost will continue to play out strongly across the second half. In the June quarter, we achieved a realized met coal price of $148 per tonne, which was $3 a tonne lower than Q1. However, due to the quarter-on-quarter reduction in unit cost, we achieved breakeven EBITDA in Q2 compared to a loss of $73 million in Q1. Considering that the ROM production rate for the midpoint of guidance is 300,000 tonnes or 13% per month higher than that of Q2 as is marked by the green star on the chart and $50 million more cost savings is to come in half 2, the result should be EBITDA generation even if prices remain flat. Cash will also benefit from half 2 CapEx that is $70 million below half 1 and no Stanwell rebate payments for the rest of the financial year. Turning to Slide 12 and talking a bit about cash flow beyond FY '26. As is well known, early in FY '27, there will be an estimated USD 150 million or AUD 240 million positive step change in the company's cash flow when the new already agreed coal supply agreement with Stanwell becomes effective. Since the acquisition of Curragh in 2018, approximately 3 million tonnes per year have been supplied to Stanwell at a deep discount to market prices, which has been exacerbated by cost following industry inflation since 2018. Come 2027, the price for 1 million tonnes, 1/3 of the supply will increase materially. 600,000 tonnes will go up to full market prices, which at current new pricing is a cash flow uplift of AUD 100 million per year, while 400,000 tonnes will increase to an agreed fixed price, which is 20% above current spot prices worth another AUD 40 million per year. While the rebate that is deferred for the remainder of FY '25 becomes payable again in FY '26, it will cease in FY '27, which is worth about AUD 150 million. 2/3 of the supply, the 2 million base tonnes, however, continue to be supplied at a deep discount, albeit receives a small price uplift worth about AUD 30 million. After coal deliveries of AUD 80 million to repay the current USD 150 million liquidity support provided in FY '25, the net annual cash benefit is AUD 240 million or USD 150 million per year for 5 years and then USD 200 million thereafter. These changes will transform the company's cash generation ability in FY '27. However, to be ready for prices persisting at current levels throughout FY '26, we are working on all options to create adequate liquidity runway, as Douglas said earlier. On Slide 13, I'll explain the significance of Coronado successfully navigating the current low price environment for all stakeholders, but in particular, for Queensland. Despite low prices, we continued our $105 million investment in the Mammoth underground mine over the last 24 months. It created 235 jobs in the Blackwater region in central Queensland, which is in addition to the approximately 2,000 jobs that already existed before that. The 3 million tonnes per year of coal we supply to Stanwell, the Queensland state government-owned corporation is the fuel for approximately 15% of Queensland's baseload electricity supply and is therefore material to Queensland's energy needs. While the USD 150 million or AUD 240 million liquidity support extended to us by Stanwell was much needed and welcomed in half 1. It has to be repaid in coal tonnes beyond 2027 and carries a 13% interest cost. This interest cost will add up to USD 100 million until it's settled. Therefore, while it provides liquidity relief, is not permanent capital and represents an additional cost to the business that had to be incurred to remain ongoing concern. The extent of the recent support should be seen in the context of Coronado's direct financial contribution to the state of Queensland since 2018. This comprises an estimated AUD 3.8 billion value transfer in the form of deeply discounted coal for electricity generation and rebates, and these rebates are effectively an additional royalty on the coal we export. On top of that, there's a further AUD 1.9 billion that was paid directly to the Queensland state government as royalties. It's worth noting that AUD 1.2 billion of this was incurred since 2022 when coal royalties in Queensland was increased. In total, this amounts to AUD 5.7 billion of permanent value transferred to Queensland in less than 7 years. Over the same period, shareholders received AUD 2.1 billion in dividends. During the first half of this year, we worked hard to discharge our responsibility to all stakeholders. We navigated a very challenging market, improved operational performance, continued investing through the cycle and found ways to extend liquidity runway while continuing to plan for a lower for longer coal market. As Douglas said earlier, we have good optionality at our assets, and there's a pipeline of studies and projects identified that could benefit all stakeholders in the medium and long term. The chart on the left illustrates the inherent potential of our assets to fund growth using half 1 cash flows as an example. Before discharging our responsibilities to Queensland, the business funded all capital expenditure, including the expansion investments even at current low prices. This is testament to the quality of our assets and the commitment of our people. Lastly, on Slide 14, we have made good and much needed improvements to our liquidity position in the first half of the year. We have $262 million in cash and up to $387 million of liquidity. There's only $75 million of the $150 million ABL drawn and $50 million of rebate deferrals from Stanwell are still to come. Since liquidity is a critical success factor for us, we are as sharply focused on working capital management as we are on cost. During the June quarter, we utilized a short-term prepayment of $50 million and factored $25 million of debtors before the ABL and Stanwell transactions were completed. This was used to fund $25 million of ROM inventory build and cash back $31 million of bank guarantees. In the September quarter, we expect to see the short-term prepay and factoring unwind. We'll maintain our ROM inventory at current levels ahead of the wet season starting later in the year, and build the working capital associated with the expansions that will ramp up progressively over the next 2 quarters. We will be able to partially fund these working capital increases from the ADL because it allows for a 70% advance rate on certain categories of debtors and inventory. We note that towards the end of July, various of our co-shipping producers were late with deliveries to port, delaying the dispatch of vessels. If this trend continues, it could cause further build in debtors towards the end of the September quarter. When thinking about the September cash balance, one also needs to consider that there could be a couple of weeks lag between working capital increasing and drawing down ABL funds. There will be some lumpy payments in the September quarter, particularly our annual insurance premium, which might be partially funded over the remainder of the year, payment of take-or-pay rail obligations and to buy annual coupon on the high-yield notes at the end of September, which have all been appropriately accrued for in the June financial statements. In July, we also had to cash back a further $25 million in guarantees for U.S. workers' compensation obligations. In recognition of the current low price environment, uncertain outlook and cash flow position for half 1, the Board did not declare an interim dividend for FY '25. We currently have no major short-term debt maturities. Our notes do not include maintenance covenants and the ABL EBITDA-based covenants provide flexibility in the next 9 months, starting with no testing for the June quarter and the September quarter leverage ratio set at 5x and interest cover at 2x using quarter 3 annualized EBITDA. So that is quarter 3 EBITDA x4. This compares to a 3x threshold for both these measures under the old ABL, which would have used EBITDA for the last 12 months. By setting up the new ABL in this manner, it allows the covenant test to benefit from the reduction in unit cost for September as discussed earlier, without bringing EBITDA losses for half 1 into the calculation. We have supportive noteholders with sizable individual holdings and our credit rating is expected to start improving over time as our expansion projects ramp up and we successfully navigate covenant tests over the coming quarters. With a cash balance of $262 million and total potential liquidity of $387 million, we are well placed to navigate the current low price environment as well as working capital needs for the rest of FY '25. Lastly, our half year financial report is also available today through the ASX and SEC. I'll hand you back to Douglas now. Thank you very much.

Thanks, [indiscernible] So as we close the first half of the year, we've made positive progress on both fronts, financially and the operational front. We've delivered a solid performance in H1, which saw the half end well with earnings growth, margin improvement, stronger liquidity and further cost reduction and record operational efficiencies. And we've strengthened our balance sheet in a tough market. We've improved liquidity and have no major debt maturing in the near term. Looking ahead to the second half of the year, our focus remains on executing our plan. Our key priorities for the second half include improving our earnings through these expansion projects and continuing productivity-driven cost reductions and maintaining our balance sheet adequacy. And as you can see from the slide, we're expecting to see the positive momentum that has been built to continue into the second half. And with that, I'll hand over to Ashley, and we'll take your questions.

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

First one, I just wanted to, I guess, go through some working capital and cash flow for half 2. You've outlined the $50 million of prepaid, $25 million of debtors factoring, $25 million of cash backing guarantees. I just wanted to -- are you able to quantify, I guess, the general working capital expectations for the Mammoth and Buchanan ramp-up and some of the other, I guess, line items like the insurance, take-or-pay and coupon expectations in kind of half 2 as well? And just following that as well, I just wanted to clarify, I guess it's missing from that analysis, but there's also an additional on my calculations, $57 million of CapEx that has been accrued and not expended from half 1. Is that expected to be paid in half 2 as well?

Thanks, Daniel, for that. So on the working capital, I try to signal kind of what the moving parts are in the second half. Now as we said, large parts of the working capital changes, we'll be able to fund from the ABL because only half of the ABL is drawn currently. So when you look at prepay unwinding, factoring unwinding as well as the build for the Buchanan and Mammoth expansions, most of that will come out of the ABL. And in terms of the other granular details, I think if you look at insurance, it's likely that we'll fund kind of most of that. You can pick up that out of the P&L, so that expenditure you'd be able to find. And then on the other bits, I mean, signaling them out, but I'm not going to associate kind of numbers to those in the public domain. I think safe to say that as we said, we're comfortable that there's enough liquidity, there's enough funding to work through these changes in working capital in the second half and that there's adequate liquidity to navigate it. I think the reason for putting it out is to make sure that we do kind of calibrate expectations for September cash balance because you can kind of do that modeling yourself and see that the cash balance will probably be down a bit because of these things. But then as you come out in the fourth quarter, as I said, the expansions ramp up progressively. So it actually gets more and more over time. So in the fourth quarter, you get most of that kicker and that then drives the cash up again. I think that the cash flow profile has looked like this kind of all along this year, where in Q2 and Q3, you navigate the low points. And then in Q4, you come out of that strongly. We've given the cash CapEx number. So there's $70 million of CapEx to be spent in the second half, and that includes accrued amounts that you'd see in the accounts with respect to CapEx.

And I guess the $53 million ABL, is there a specific timing or catalyst that you're kind of looking for there, you know, obviously it's around September. So is there a specific, I guess, period where that's going to fold, when it becomes liquid and available?

Yes. I mean so it is just subject to having adequate inventory and debtors. We actually, as you would see from the accounts at the end of June, we had $22 million available that we didn't draw and we can draw that ABL in $20 million increments. And so we are trying to balance -- it's balancing liquidity and cost because as soon as we draw it, we do incur higher interest costs. So we still -- despite the liquidity being a key priority, we're trying to balance cost and liquidity. And hence, when there's adequate headroom of that borrowing base, the debtors and inventory, and we believe it will stay there, then we'll draw down the facility. I think we've signaled enough about the working capital will build quite strongly in this quarter. So I expect there to be a good debtors base for us to utilize the facility in the third quarter.

Yes. That makes sense. And I guess you've kind of mentioned in the report as well about some additional liquidity options and you've called out the potential for a minority asset sell-down. Would you be in a position to share more detail in what form that might take, stake size, what assets you're thinking, about potential buyer profile? And are there any, I guess, active discussions or indicative [ discussions ]?

Yes. So Daniel, I think we signaled this one a couple of times that we do get approached for minority stakes in -- and it's Curragh and Buchanan. I mean we've got 2 mines there with a sought-after product suite that is kind of some of the parties that wants to secure offtake would talk to us, but there'd be others as well. So that's the same as we've always said, and we're doing the work as things come up. As and when there's something to say publicly, we'll say it publicly and comply with the disclosure obligations. But that is pretty much still the status that it was as we said before.

Your next question comes from Chen Jiang with Bank of America.

Just for your cash flow inflection on Page 12 of your investor presentation, could you please talk through how you come up with the 6,000 tonne at spot price of $100 million and 4,000 tonnes at fixed price of $40 million? Because my understanding is that you have 800,000 tonnes of thermal from 2027 will be sold to the seaborne market or the spot market rather than whatever the fixed price you agreed with Stanwell for another 5 years. So I'm just wondering where that 600,000 and then 400,000 comes from and the logic behind that.

Okay. Chen, no worries, I'll step through that. So if you look at the position currently, we supply 3 million tonnes per annum to Stanwell, and it might be 3.1 million, 3.2 million, but it's kind of, call it, 3 million tonnes over time. When we get to 2027, that turns into a baseload tonnes of 2 million. 1 million tonnes then becomes available, which before we did the liquidity deal with Stanwell earlier this year, that whole 1 million tonnes Coronado would have had to put on the market and sell on the market. We then agreed with Stanwell that they get the option to call up to 800,000 of those -- of the 1 million tonnes, 400,000 of which would be at spot price. For the purpose of that slide you see, we've modeled that at NEWC, then 400,000 is at a fixed price. That fixed price is about 20% above NEWC that we've agreed, and it escalates with inflation. The other 200,000 tonnes is available to us to put on the market and sell on the spot market. So if you then look at -- the 600,000 is made up of 400,000 goes to Stanwell at market, 200,000 goes to the open market at market and the last 400,000 making up the 1 million goes at fixed price that's 20% above current market price. Does that explain it, Chen?

Yes. Just a follow-up. So basically, 600,000 tonnes and 400,000 tonnes, that is related to your recent liquidity agreement with Stanwell and you agreed that the fixed price will be a 20% premium to the Newcastle thermal coal price?

Correct, correct.

Okay. All right. Okay. And then -- so I guess you still have 2 million tonne per annum continue to sell to Stanwell at fixed price. I'm wondering why there's a $15 per tonne price uplift? What I'm missing here? Because my understanding is the fixed price grow by inflation, but why is $15 per tonne extra price uplift on that slide?

Yes. I mean under the -- so the new -- we currently deliver to Stanwell on something called the ACSA. So that's the current coal supply agreement. And then in 2027, that becomes the New Coal Supply Agreement. The uplift on those 2 million base tonnes has always been in the New Coal Supply Agreement. And that's been agreed at the time in 2018 when that agreement was entered into. So it gives a modest uplift to the price. But as I said earlier, it's still deeply discounted and it doesn't get it close to the market price. I mean you have to associate it back to why that's the case. I mean it does relate to the acquisition of the Stanwell reserve area from Stanwell, which are tenements that we're mining currently. And part of that discount is to repay the money we owe to Stanwell for the Stanwell reserve area. And obviously, having locked in the price long ago, the markets moved, inflation has moved and the margin and cash flow impacts of that kind of is playing out currently.

Right. Can I have another question just on your financial -- sorry, on Page 14 of the investor presentation about the covenants. So September quarter leverage ratio 5x and interest coverage ratio 2x. So for the ABL why there's no covenants for the note? I'm wondering because in the presentation, you mentioned no maintenance covenants. What is the difference? I mean when is the next review?

Chen, are you asking on the notes or the ABL?

Sorry, on both. On both.

Okay. So let's start with the notes. So under the high-yield notes, when I say there's no maintenance covenants, so there's nothing in terms of financial metrics that we have to comply with under the notes. There's rules around increasing indebtedness under the notes, the circumstances under what you can do it and how much you can do. But as long as we operate within those, there are no triggers in the notes. And there's no review deadlines within the notes. So the notes, as the most secured debt in the company, runs on that basis, and it provides -- and as I said earlier, it provides long-term debt into the group that doesn't mature up to 2029. So that's that piece. Under the ABL, the maintenance covenants are the leverage ratio and the interest cover ratio. No tests in June. Then when we get to September, leverage will be 5x, interest cover 2x. That compares to -- and usually kind of in the market, both those sits at 3x. That's what you'd usually find with respect to these kind of covenants in debt agreements is about 3x. So that's the one piece of flexibility we've got in there. And then instead of using EBITDA for the last 12 months, for the September quarter, it will be the quarter's EBITDA times 4. That will be used to calculate an annualized EBITDA, and then we'll do the calculations of the leverage and the interest cover on that. It all does relate back to that unit cost slide, the cost per tonne slide, which is giving you an indication of how as the volumes goes up, the cost will come down and that we expect that together with the cost savings to then drive the EBITDA in the quarter, which will set us up to pass the covenants at the end of Q3. As you navigate through to December and March, the covenants, they progressively get a bit tighter. So I think it goes to 4x leverage in December. It's still 4x in March next year, and then if you get to 3x by June next year and the interest cover goes to -- from 2 to 3, I think, in March next year. And so it gives us a good couple of months to kind of do the things we do with ramping up the production at the expansions to finish the cost savings program that we've got on foot and then to allow some time for the market to hopefully improve. And that's not within our gift. But if that comes through, it does change our forecast quite quickly. Having said all of that, with that setup we've got, with the trajectory we expect in Q3, we have confidence around that September position. The covenants in September will be tested in November. So that will actually be -- the test happens about 6 weeks after the close of the quarter. And then I think you had something about when is the next review. There's no kind of ongoing reviews by Oaktree under the ABL. We just comply with our reporting obligations, covenant certificates, et cetera. And there's no on foot reviews currently.

Right. Just to confirm, no testing due and no review under the ABL.

No.

Your next question comes from Glyn Lawcock with Barrenjoey.

Douglas and Barrie, just wanted to sort of circle back a little bit on the -- you talked about you're still pursuing a partial asset sale. I mean given all your comments around liquidity, testing, covenants, et cetera, I mean, if you feel that comfortable about the outlook, why are we still pursuing asset sales?

Glyn, it's been a topic of strong speculation in the market at the moment. And I'll say this when I start answering your question, we're not going to get drawn on the speculation because it's not helpful for our shareholders. But we and I think most operators, particularly in Queensland, have had inbound inquiries where steelworks are getting nervous about, well -- where does security of supply come into the future? We can definitely see there's a long-term supply-demand imbalance and security of supply is becoming more and more important. And we've got a product suite that has served the market for more than 40 years, and they can see 20 years to come. So folks have been interested from middle of last year as we've been growing the business, particularly with what they could see -- what we were doing with the products that were going to come out of Mammoth mine, to potentially partake in that and see if they could secure offtake. So with those inbound inquiries, we've put to the Board that there's value here. Do we do investigate options in this regard? None of these discussions have matured to the point that we need to announce anything. The inquiries are value accretion, and it's quite pleasing to see that people see the value that we see in our assets. So that's what we're up to in these discussions. But we are exploring all options to ensure that we've got adequate balance sheet liquidity. I think anybody that's been studying the business for a while can see the underlying value of the assets, the investment we've put into it to make it now productive and lower-cost operations and sustained growth that we can get out of the assets. So making sure that, that is seen. And this difficult market and persistent difficult market demonstrated -- and where our stock price is today has demonstrated how strongly the market responds to the coal price firstly, but then secondly, also sentiment and speculation around liquidity and matters like that. We want to make sure that we're on the front foot. We've got all doors open to ensure that if the market does stay persistently hard, that we've got the [ way for all ] to make sure we get to '27 that Barrie has so eloquently and clearly described today that everybody can understand what we're working towards that is company changing after that agreement changes.

I appreciate that, Douglas. Douglas, do you think in your discussions -- and obviously, we can't discuss them directly. But do you feel as a business, given the financial positioning, you are able to extract full -- if you went down this path, you can extract full value for the assets?

That will play out in the strategy and what is in the eye of the beholder. We know what the assets are worth. So it will be up to what people are willing to bring to us over time to see if that makes sense. As I said at this stage, we're not anywhere near that point in the discussions.

All right. And then just the cash flow. I mean there were a lot of moving parts in the first half as Barrie went through, and second half just as complicated. But it does look like operating cash flow was about negative $250 million in the first half, if I try and back everything in and out. But I guess I'm just trying to understand, what's the total spend just on mining cash that went out the door in the first half? Because it's sort of hard to see from the way the cash flow breaks down and your P&L mining cost. So just wondering, what's the dollar spend that we can use as a run rate for those savings you talk about into the second half before working capital?

I mean, I think, Glyn -- so if you look at that unit cost slide with a green star on, I think the way to go about that is to kind of decide where you sit on the volume expectations for the year, which kind of midpoint of guidance is where that green star is and then use that kind of unit cost times the volumes you expect us to sell/produce to come up with the cost. I think the way to cross-check that is to do the same for the first half using the $92 a tonne. Then I did say the dollar millions we spent in the second half won't be materially more than what we spent in the first half. And I think it's using those data points to triangulate that. If you look at -- yes, so there's always this matter of inventory and the inventory blurs kind of that cash spend a bit. But if you look at over the course of half 1, the inventory movement wasn't that material. [ Our own ] inventories were quite stable over the half. It moved a lot in the second quarter. So without giving an exact dollar number, I think there's enough in there to be able to derive a view with respect to the spend. Did you have a second part of the question?

Well, maybe just if I took your revenue and took your adjusted operating cash flow of $138 million, the difference between revenue and that $138 million is about $760 million. Is that a rough guide to the spend for the half in cash at a mining level?

Let me just look at something here. Give me a sec here. So I mean I think slightly lower, Glyn, maybe 6%, 7% lower than that. If you look at kind of mine cash costs, that -- obviously, that excludes royalties or [ rail ], all of those things. But if you look at actually mine cash cost spent, I'd put it about kind of $720 million, $730 million for the first half. Just -- I remember now what you -- the other thing you said is operating cash was -- you had a number of negative $170 million or something. I mean the operating cash was -- for the half was minus $35 million, but that's before capital, right? You then knock off the capital, you get to the $170 million. So operating cash before capital minus $45 million and then post CapEx is the minus $170 million. As is well known, half 2 CapEx, much less than half 1. And then important to note the ability to fund the CapEx before the contribution to Queensland in terms of Stanwell and the royalties, which we also outlined in the slide, which is more kind of an interesting point just about how the economics of Curragh sits and what the underlying potential of that asset is.

And Barrie, while I've got you, just a final one. Obviously, your EBITDA for Q3, your pricing is on a lag. So you pretty much know your pricing. And I guess what you're saying to us is if you deliver the volume you expect at the cost you expect, you don't -- you're very, very comfortable with the covenant test for the Q3 under the ABL.

Yes. I mean I didn't use the words very, very, but we are comfortable and confident that Q3 will generate EBITDA because unit costs coming down, volumes are shifting up, more cost savings coming through. So we are comfortable that we are on a good trajectory with Q3.

But given the pricing lag, which is the one thing you can't control, that's pretty much locked away from Q3.

Look, I mean, that doesn't go across all volumes. So for some, it lags, but for others, it don't. So it is a bit of a mixed bag. It's not quite as linear as just you know the PLV for Q2, and therefore, that's what you get in Q3. It does depend on the individual contracts and spot sales and those things. So yes, there's a bit of a lag, but it's not for everything, Glyn.

Yes. But I mean pricing serves -- marking similar to what you got in the first half so far, at least a PLV perspective.

Just say that again.

Just the PLV price, which obviously you don't sell PLV, but you [ sell ] reference to that a lot. Your -- the PLV price is pretty much -- today is similar to the Q1 and Q2. So if prices stay where they are, regardless of lags or not, you're comfortable at this stage based on what you believe you'll deliver.

Yes, we are.

And does it get tougher in Q4 because the covenant reduces, but then you expect the offset from better volumes?

Yes. I mean that's the thing. So in Q4, you've got this progressive ramp-up of the expansions. So you get more volumes. The leverage covenant becomes tighter in Q4, but the interest cover is still lenient. Of the 2, the most sensitive is interest cover. So on leverage, we feel more comfortable than on interest cover, but still fine with interest cover into Q4 on our current forecast.

Okay. So leverage drops to 4, is that right, and then stays there for another 3 months, whereas your ICR stays at 2 but moves out to 3 for the March quarter next year.

Correct.

Your next question comes from Rob Stein with Macquarie.

Just a quick one on the -- just aside from the result, the U.S. Steel plant explosion overnight at the Clairtown -- or Clairton coke plant. Does that have any impact on -- firstly, it's a tragedy. But secondly, on the impact to Coronado and volumes? And then on the U.S. met coal market, what do you expect -- what are you expecting there? Obviously, it's very early in the story, but what would be the sensitivity you expect given the size of the plant and its materiality in the U.S. market?

Rob, you said exactly it. It's very early in the incident and it's tragic. They've clearly lost some of their team members and still working through what happened and then after that, probably turn their minds to the impact. Very important client of ours. We produce about 500,000 per annum for them on the run rate year-to-date. We're about halfway over our annualized supply. That's about 40,000 a month. But we do move it to a number of their facilities. So we'll see what the impact is short term. But I think longer term, shouldn't really impact us with that kind of volume that's left for the rest of the year. But they will need to work through what it means for their business and then outflows on into the rest of the market.

[Operator Instructions] Your next question comes from Nathan Martin with The Benchmark Company.

Douglas, Barrie, any commentary you can provide around domestic contracting conversations here in the U.S. for '26? I believe Coronado contracted at a fixed price of $159 a tonne FOR for '25. I assume there's likely to be some pressure on that number just given where markets are today, but would be great to get your thoughts.

Nathan, it's one of those things that you're starting to discuss with your clients on pricing. And that -- so we wouldn't want to get into commenting about that too publicly because it's not fair to them or to us. It also signals to the market how discussions are going. But I would describe them in this manner at this stage, very early and very mature. I think everybody knows that the industry is under pressure at these prices and are looking to a long-term sustainable industry.

Okay. Douglas, appreciate that. And then maybe just one other question. I think you mentioned in your slides or in your prepared remarks some ongoing shipping delays. Could we get a little more color there? And what's the potential for shipments to slip into the fourth quarter and impact third quarter results?

Nathan, interestingly, we saw -- because this is the drier period for Queensland. So generally, it's when most operators come out of the blocks and run pretty hard in this quarter. We co-ship, and there's been some supply shortage, particularly it looks like some products that have been co-shipped with us. In some cases, we could provide the spec and agree with the other parties that the boats would sail on time. But in Queensland, in June, I think we had 3 boats delayed. And then in July, we probably had another 3 or 4 boats delayed. We're talking days. So it's not substantial delays, but it's where you measure the month or you measure the half year in your report to the market that becomes important because it does impact. So it's days that it slipped. So I don't think there's structurally something wrong with the market and people's ability to supply. It's just getting it to the port and getting it on a boat on time and out in time. We've been in a very fortunate situation with our half year ROM production in Queensland. We've turned that into product. That's made its way down to port probably a little bit ahead of others, and we've got good capacity at port for storing product. So we've been at the gate ready to run -- to turn it into cash as quickly as we can.

That concludes the question-and-answer section of today's call. I'll now hand back to Douglas for any closing remarks.

Well, Ashley and to everybody, thank you very much for taking the time to join us today. There's obviously some detailed information we've provided and some detailed questions. As always, our team will make themselves available to answer your questions and get some of the detail that you may require to help inform your models. We've been working hard on executing a plan, and I think everybody can see the fruits of that even in a very challenging market as we get disciplined around the way in which we run our operations. We address our cost base, and we make sure that we get the best long-term value for our shareholders out of the resources that we have. So we look forward to the next 6 months in this year and then the years ahead as we stand on the shoulders of these projects that we delivered now and to deliver results for our shareholders into the future. And particularly with those projects now totally derisked and starting to generate cash, we're in a good position as a business to start lifting our heads and looking to the future for our plans. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.