Coronado Global Resources Inc. (CODQL) Q3 FY2025 Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Coronado Global Resources Third Quarter 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 Chantelle Essa, Vice President, Investor Relations. Please go ahead.

Thank you, Rocco, and all for joining Coronado's September call for 2025. Today, we released our quarterly report to the ASX and filed with the SEC. Our quarterly financials are expected to be released to the market on the 11th of November with our Form 10-Q. Today, I am joined by: our CEO, Douglas Thompson; and Chief Financial Officer, Barrie Van Der Merwe. Within our report, you will see our notice regarding forward-looking statements and reconciliations of certain non-U.S. GAAP financial measures. We also remind everyone that Coronado quotes all numbers in U.S. dollars and metric tonnes unless otherwise stated. I'll now hand over the call to Douglas.

Thank you, Chantelle, and thank you, everybody, for making the time to be with us again today. Overall, we continue to see positive progress in our plan, and this quarter's results reflects this. After ending June on a 6-year record for ROM production, we concluded September quarter with growth across all production and sales metrics. Production was the highest on record since quarter 1, 2021. Our investments are delivering. Quarter-on-quarter, we saw a 3.2 million tonne annualized step change in production. We expect to deliver material volume increases again in quarter 4 as our high-return Mammoth and Buchanan growth projects are both progressing towards steady state. Both are currently between 60% and 70% of expected run rate. We expect the annualized incremental tonnage of approximately 3 million tonnes per annum to show in '26 and beyond as these projects ramp up to full capacity. Our cost reductions also continue to progress to plan. Our costs have reduced again this quarter and continue to be below guidance levels. Despite the step change in performance, earnings remain challenged in the sustained low coal price environment. We announced a transaction with Stanwell, a strategic partnership that is intended to add near-term liquidity to our business via a new structured ABL over the 2026 rebate and offer ongoing financial support when liquidity is below $250 million, effectively resetting legacy agreements. Turning to metrics. The key metrics achieved in quarter 3 were: the group ROM production, 7.4 million tonnes, an increase of 6%; saleable production, 4.5 million tonnes, an increase of 21%; and sales volumes 4 million tonnes, an increase of 9%. And at a group level, our total recordable injury rate was 1.16, well below industry averages in both Australia and the United States. If I turn to our group performance, as I've said, the quarter delivered good production results, a 21% improvement on saleable production, a full year record of 4.5 million tonnes. And we built an additional circa 600,000 tonnes of product inventory again this quarter, which will support our improved production volumes in quarter 4. The inventory -- the total inventory at the end of the quarter was approximately 1.7 million tonnes. Despite the material improvements in operations, sales volumes are marginally below what we had planned for the quarter. A few short-term equipment outages combined with port and vessel delays in both Australia and the United States in the last week of the quarter, which put pressure on our planned railing and shipping. With the major expansion projects now complete, quarter 3 proves the value and future potential created by these business improvements. Turning to the Australian business unit. We improved in all areas. We increased ROM production, saleable production and sales volumes in the quarter. And the third continuous miner commenced production in late June as planned, and Mammoth now has 3 production panels in operation. Mammoth is expected to deliver planned run rates in quarter 4 with up to an additional 2 million tonnes of incremental production delivered per annum from '26 and beyond. Cost reductions continue to be realized with average mining cost per tonne sold in quarter 3, below both forecast and budget and well below the low end of our guidance levels. Moving on to the U.S. business unit. Operations focused on firstly commissioning and then ramping up with the Buchanan expansion project after first production from the new shaft, which was also delivered to plan in late quarter 2. The U.S. delivered higher ROM production and saleable production with sales volumes slightly below what we had planned due to a delayed vessel in the last week in September. Together with the dual longwalls at Buchanan, we expect the U.S. business unit to exceed 7 million tonnes per annum in the future with the additional capacity that has now been created via the projects. It's great to see the successful volume uplift post the completion of these 2 major projects and look forward to enjoying further incremental tonnages that these projects will deliver for the business into the future. With that, I'll hand over to Barrie who will talk to our financial position for the quarter.

Thank you, Douglas, and good morning, everyone. Our continuous improvement in production and unit costs continued in the September quarter. The unit cost was under the bottom end of guidance at $89.70 per tonne and September month's was $80.10 per tonne with 2.7 million tonnes of ROM mined. As I outlined in the half 1 results presentation, the correlation between strong ROM performance and unit costs is well established. Cash capital expenditure reduced as expected and was $59 million for the quarter. We were paying some of the last bills associated with expansions. This is $16 million less than the June quarter, and we expect the cash CapEx to be at the bottom end of guidance of $230 million for the full year. We can therefore deduce that the last quarter spend will be about $20 million. Despite the rail availability and shipping delays that Douglas spoke about that we had at the end of September, we still had a 560,000 tonne build of product inventory that will be sold in the December quarter, it will contribute towards cash. But despite all of that, our sales volumes were up 329,000 tonnes, which is 9% higher than the June quarter. And a lot of this was driven by strong thermal coal production at Curragh. EBITDA before the Stanwell rebate that's currently deferred was $4 million positive. The working capital outflows that I outlined in the first half results presentation did materialize as we expected. The outflow of this working capital and the cash we spent to increase the product inventory was offset by other working capital levers that we pulled at the end of September. We didn't use the ABL as was envisaged when we did the half 1 results presentation. The other cash outflows that we had in the quarter was the capital expenditure of $59 million. We paid interest of $26 million, which was mainly the coupon on the high-yield notes that's payable in quarter 1 and quarter 3. And then we had to cash back a further $29 million in guarantees mainly relating to the U.S. workers' compensation obligations. As I said earlier, next quarter, we expect CapEx to be $20 million plus/minus. The cash backing of $29 million will not recur and interest will be less. It will be around $15 million for the quarter. Our quarter end cash balance was $172 million and $16 million was available on the ABL facility with Oaktree, and that ABL was still only $75 million drawn as was the case at the end of the June quarter. The earnings adversely impacted by a PLV index that remained flat on the first half of the year, the buildup of the product inventory as well as lower realized prices due to the sales mix, we did get a preemptive covenant waiver from Oaktree during September. And at the end of September, this facility remains available, subject to the borrowing base. The recently announced transaction with Stanwell addresses both Coronado's near- and longer-term funding needs in a depressed metallurgical coal market. Subject to completion of due diligence, long-form agreements and approvals, financial close is expected towards the end of November with the proposed ABL facility, adding approximately $165 million to available liquidity after settling the outstanding amount to Oaktree. The waiver of the remaining rebate under the amended coal supply agreement, the ACSA and the prepayment mechanism when Coronado's liquidity is under $250 million could add up to a further $250 million in cash flow over the course of FY '26 at current market prices, noting that the amount does depend on Stanwell's nominated tonnages. It's also important to understand under this arrangement, Cash flows occur monthly and not upfront at the start of the year. As our recently commissioned expansion projects ramp up and reach nameplate performance, this will further contribute to lower unit cost and improved cash generation. Our arrangement with Stanwell provides immediate liquidity relief and longer-term support, we will continue to evaluate other available options to ensure that the capital structure improves and adequate liquidity is available in the current low price environment. Coronado will release its quarterly financial statements for the September quarter to the market on 11 November, 2025. And I'll hand you back to Douglas now for a market overview and the conclusion. Thank you.

Thanks, Barrie. As Barrie mentioned that coal prices remained stable throughout the September quarter. Look at the Australian benchmark, it averaged $184 a tonne, which is unchanged from the June quarter. And the U.S. East Coast benchmark averaged $175 a tonne, which is slightly lower than the previous quarter at $178 a tonne. If we look ahead to the September quarter, we expect prices to remain supportive for a few key factors: Firstly, in India, the post-monsoon restocking cycle is expected to lift demand. And this may be further supported by the Indian government's recent antidumping investigation into coke imports, which could benefit domestic coke producers. Secondly, the CFR China price continues to hold a premium over seaborne benchmarks, and this reflects ongoing domestic supply constraint, which will also lift import demand. And third, we're seeing continued rationalization of high-cost supply as producers respond to margin pressures and elevated royalty burdens in Australia. While the macroeconomic uncertainties and cautious buyer sentiment may keep short-term pricing contained, the market remains very volatile to geopolitical developments, trade policy changes and weather-related disruptions. Many of these could have upward potential on price volatility in the months to come. We remain on the view that the long-term outlook for seaborne coal is very positive. The results delivered by our team in Q3 speak volumes. Operational performance has lifted, now reaching historic highs. There is solid execution across our investments, which is supporting this uplift. The market remains subdued and it has been so for a prolonged period of time, presenting a challenge to producers and is impacting the industry as a whole. With that, I'll hand over to Rocco, and we'll take your questions.

[Operator Instructions] And our first question today comes from Glyn Lawcock with Barrenjoey.

Just firstly, a lot of moving parts in the quarter. Could you maybe just sort of simplify a little bit? I mean, if it hadn't been for the one-offs and the build in product at the port, do you think the business is free cash flow positive in the quarter? And what about now, if we look at the current settings you'd expect for Q4, is the business now on a stable free cash flow position?

Yes. So Glyn, it's a good one to expand a bit. So I'll step through the quarter first, and then I'll talk about kind of how it moves going forward. So if you look at how the bank balance moved for the quarter, it was down $90 million. Now within that, we paid $60 million of CapEx, $30 million of interest and we cash back $30 million of guarantees. So if I look at quarter 4, we'll spend about $20 million on CapEx, $15 million on interest and we won't have the cash backing. So if everything else stays the same, and that's before working capital, I'd say, underlying, you're probably burning $40 million to $50 million in the fourth quarter. Then you need to overlay the expansions keep on going up. So you need to take a view on what cash that will give you. And then you need to get into working capital. Now for quarter 3, the quarter was really working capital neutral. So whatever levers we pulled at the end of Q3 -- end of Q2, we pulled again at the end of Q3. So that's a wash. As we move into quarter 4, obviously, at some point, we need to reinvest in the working capital, and it's mainly debtors and accounts payable because inventory are dealt with separately. And so you'll have to invest some in working capital. I think the way to think about that is you'll fund that from the new ABL that comes into the business. And then also the inventory you'll sell down, the product inventory you have. So what I'm saying is if you look at that whole part of kind of the working capital, there's a working capital outflow net coming and you'll fund it with the ABL that comes in. Underlying business, I'd say like-for-like basis, should current prices burn about $40 million to $50 million, but offset by whatever the expansions gives you in addition. And then the last point, which was very topical in Queensland over the last couple of days, you need to go and look at the BOM website and kind of take a view on kind of the weather at Curragh. A bit of a long one, but I hope the long one simplified it a bit into buckets.

Yes. And obviously, pricing is $10 a tonne better off today versus the Q3 at the moment?

Correct.

Exactly.

Correct.

And then maybe just on pricing, just U.S. domestic price settlement for -- coming up for next year. Any update on that you can provide?

Glyn, at this stage, no negotiations are ongoing within the market. So unfortunately not.

[Operator Instructions] That concludes the question -- I do apologize. It looks like we have a follow-up from Glyn at Barrenjoey.

Sorry, Douglas. I think there's quite a lot of competing calls on -- in a particular line, it's just probably holding and keeping everyone at bay. Just given the 0.5 million tonne inventory build and the issues at ports, do you think you can catch that up and ship the increased production you hope to deliver in Q4 as well? Or is there going to be potential for bottlenecks and et cetera? Just thinking of your allocations.

Yes. We've got capacity. Our team is looking at the moment to what we can pull forward before the end of the year with shipping and particularly its rail access. In the U.S., as you know, they don't have at port storage capacity. So what you put in a train set needs to be offloaded directly into a ship. There's very little latent time. So that is rail part constraint. - The other one is in -- Australia is getting rail lines. Now, part of it we did in Q3 was we caught up on some of the thermal contract deliveries through to Stanwell. So that was also what pushed some of the thermal up in the quarter. In quarter 4, the power station will obviously see additional burn and they're calling on, can we give them some additional. And that will free up lines domestically that won't have to go to port. So the team are working through those catch-up options. And what I'm trying to signal is there's a number of them open to us that we're working through at the moment.

And our next question today comes from Daniel Roden at Jefferies.

I just wondered, you mentioned that you're 65% of capacity at Mammoth. I was wondering if you could just give us a bit more color on, I guess, how that's going? And I guess from today, you've got your 3 continuous miners on site. They've been there for a couple of months now. What -- like how do you see the -- like what are the stage gates and what are the, I guess, outstanding elements in terms of that ramp-up profile to get from 65% up to that 100% capacity of the 2 million tonne per annum? And probably just [indiscernible] and noting that in previous, I guess, commentary around that it was a 1.5 million to 2 million tonne per annum kind of project, and you seem to have settled around that 2 (sic) [ 2 million tonne ]. Is there any risk that we kind of fall back into that range? Or are you still pretty confident at that 2 million tonne per annum?

It's a great question. The milestones, let me just talk through the technical milestones first. We -- as we built the mine out from December, you start with one, obviously continuous miner fleet. You have to then build the mine, build the infrastructure around it, create the space for a production panel, and that includes conveyor belt systems so that when you're in the production panel and your shuttle cars are running back, they can load on to your spine conveyor and bring it out to surface. So that's why we've been staging them one after the other as we've built that infrastructure, and that's why it's important to call out. We now have 3 production panels. We've built out all of that infrastructure. The other was getting the permanent ventilation system designed and built because you need to underground once again build the crossovers as the mine gets expanded that you then flow of fresh air in and exhaust air out through the system, and that needs infrastructure built underground. So that's been going for the first 6 months. And that is now all established and put in place for the mine and the 3 panels operational. Into how is the ramp-up going at 60%, as you design a mine of this nature, you do all your geological research and guess and that, most of that is playing out how we modeled and expected. But until you really cut the first coal, the teams then learn how they're going. And one of the things that we have learned in the ramp-up is the bolter configuration that we bought, so what puts in the support infrastructure as you're building the underground mine, we've had to do some modifications. Those modifications are occurring now. It's proven successful. So we're getting the [ bolt ] rate we need, and that will continue into quarter 4, and we will put that behind us. So we've changed some of the way in which method of work gets done to cope with the geology and the bolting rate ramp-up profile. Yet the last part of your question, the 2 million tonnes, it will be situational. The system we've built and technically is performing when it gets to full run rate that it can do that 2 million tonnes per annum to hit the upper end of what we've got planning, and that's what we'll plan from '26 and beyond. But we may flex it as we go into different areas within the mine. And I don't want to get over my skis here. But as we consider Mammoth 2 into the future, there might be an opportunity that we build out a fourth panel and during late '26, maybe early '27, we'll bring another production unit online at Mammoth that will give us some more upside capacity out of the mine, that will benefit for when Mammoth 2 gets built out into the future. I hope that gives you some color on our plan.

That's very clear. And maybe I think I've done my own checks and I'm pretty comfortable with it, but maybe just an opportunity to talk through there's some media around the Buchanan issues and maybe just a little bit of light around how that's going, what impacts you're seeing? And do you expect some impacts to continue into Q4?

Yes. Look, thank you for the question. I'll say this, we don't get drawn into speculation. We don't comment on stuff. We've got a plan. We just stick to what we're doing, and we try and keep the market informed as we appropriately have. People are going to speculate. We've had to come out and clarify what is factually incorrect. Recently, a comment was also made that we went to Oaktree and try to get more funding and we were declined. Well, that's factually incorrect as well. So unfortunately, the journalistic effort that goes into these articles are limited, and I'll have a kick at this. When you write about an underground mine and put a picture of an open cut mine adjacent to it, you really don't know what you're talking about. But stepping off that, what occurred at Buchanan is we had a fall of ground in our North mine at an intersection well away from the working areas, so that had nothing to do with the coal seam. But it impacted our conveyor system from that longwall coming out. We worked with [indiscernible] mines to put a plan in place to secure that. We put it back into production. The impact of that was not material because we had the second longwall that was still in operations at that time. So that we felt we needed to come out and clarify when that incorrect article was written. The speculation more recently around the Stanwell deal, I write off to -- look, we've put out a limited release on what the detail is around the deal. We've done that because we're still respectfully working through with Stanwell on the deal. And I'll say we've got a very detailed term sheet agreed with them. But we're working through due diligence. And once that long forms are done, then we'll announce it to the market. Now Q10 will obviously give a lot more color on it. But speculation will stay speculation, and I won't talk about it much more than that because that's a credence it deserves.

Yes, very clear. And maybe just last one for me, and maybe I can return to the queue if there's some other questions. But I guess your sales mix for the quarter and I guess, an outlook as well, but you made comments about, I guess, the market is not paying for premium quality met coal. Is there anything on that front you can do, I guess, on a forward-looking basis to change and I guess, optimize your product mix for sale to the market that sits outside of your contractual obligations to, I guess, help improve earnings on a quarterly basis into '26. Is that -- like how much flexibility would you have around doing things like that?

Daniel, we do have some flexibility and your mind has gone to all the key doors that you got to step through. One is we are contracted and people really want our product. We haven't had any of our clients not take product that they want or that is under contract. So then it's what can you build within your flex of what's not contracted. Part of what we did in the quarter in the product mix, and you would have seen it in the results, we did do more thermal, and that was a catch-up with Stanwell. The power demand in Australia now is heading towards its peak at the end of the year as it heats up and everybody fires up air conditioners. There's a couple of other power stations within the state that are having difficulty getting to their performance rates. So our clients asked us if we can provide more and we could. And as you say, on some of those premium products, the pricing isn't just there. It's a very narrow trade there that sets the rest of the market and secondary products -- so we've been looking at, well, where can we get a yield advantage as we produce the product and pricing. And that's why you've seen a little bit more of thermal going into the export market through this quarter as well, where our sales and marketing have been able to pick up some good pricing through that, and we've got a yield advantage as well. So we're pushing all of the avenues we can, but we are fairly well contracted. So the options we have are limited in the near term what we can do in that regard, but we've done what we could.

Yes. Understood. And maybe I might just slip one more in and then I'll hand it over. But you've mentioned in this release and previously that you're exploring potential avenues around minority asset sales or other transactions in the business. Have you got any updates or commentary that you can provide any color around any of that? Or I imagine pretty limited, but yes, I appreciate the comment.

Daniel, we've been applying our minds to all options that create value for shareholders as we're going through this difficult period of time, and we've been finishing off these major projects that create long-term value in the assets, which included, as we said, we've had a number of approaches because people can see we've got great assets. They're now well derisked because of the capital projects are now tucked away and starting to deliver and they're fully permitted [indiscernible] long life and they products that clearly meet long-term market need. But nothing out of that has come to the point that it is a firm offer on that it's people putting overtures to us. And then on the minority sale process, that's still a process that's a [indiscernible] I won't comment on that at this stage, but strong interest in it.

Yes, your U.S. assets given the current geopolitical environment would be interest. But appreciate that color and commentary.

And our next question comes from Chen Jiang with Bank of America.

My question is in regards to your -- the financial support transaction announced on Tuesday. So just to clarify, the previous liability or the agreement signed with Stanwell in June, there's no change for that one from pricing or repayment perspective. But the new one you are going to sign with Stanwell is just an extension of the legacy contract from 2037 to 2043. But how should I think about the thermal coal price because the legacy contract, thermal coal price, I think, from memory, was like $30, whereas your new contract signed with them in June was, I think, market price. So that's my first question. And also second question is the prepayment from Stanwell because I guess, the waiver -- sorry, the rebate for '26 will be waived. So there's no more Stanwell rebate, I guess, going forward. That contract is going to expire end of FY '26 anyway. So how should I think about the prepayment Stanwell, especially from P&L and accounting perspective?

Jim, the -- so on the first part of your question, just confirming that the rebate waiver, that's a full waiver and the rebate ends, as you say. So come the end of this year, the rebate ends. For the next quarter, we still have the deferral of the rebate that we agreed earlier this year. So that's the position on the rebate. In terms of the coal sales agreement called the ACSA, the amended coal sales agreement that expires it's at the end of '26, early 2027, that position is unchanged, but the rebate goes away now. I think the dollar per tonne that you've got associated with that is quite accurate. So you can continue looking at that. Now I'll just talk about that immediate prepayment part first. So what the agreement with Stanwell says is they will give us a prepayment up to a maximum of the discount that they would have received. So the way to think about it for next year is if our liquidity is under $250 million, maximum prepayment that we can get is the coal market price, less port and rail, obviously, next year, less the $30 that you quoted times the tonnes they nominate. So -- and I actually -- when you go and look at my script, I gave you an estimate there of what I think it will be. So it can probably be up to $150 million. While we say up to $150 million, we'll give more detail on this in the 10-Q and beyond that. But as the liquidity kind of goes down from $250 million, that prepayment increases. The closer you get to $250 million, the less the prepayment is. So that's the concept. So that's the first part, how the rebate works, how the coal sales agreement work. Then on the extension of the NCSA, the new coal supply agreement from 2037 to 2043 -- the easiest way to look at that is earlier this week, we put out some material we used to cleanse our noteholders from a transaction we were discussing with them. On Page 17 of that release, there's a slide that's got quite a bit of detail about how the existing -- the pre-existing Stanwell arrangement works, and there's some data there that will give you what you need. The principle is that NCSA can be extended, the term stays the same as what it is today. So there's not changes to the price of that contract. The only change is that Stanwell can nominate a wider range of tonnes instead of 1.8 million to 2.2 million, they can now nominate 1.2 million to 2.2 million tonnes. But that doesn't only apply to the 2037 portion. That applies from 2027. So that applies across the 15 years of the life of that agreement. The last thing I'll just say for clarity for everyone is the transaction we did earlier this year with Stanwell, the $150 million, which was a rebate deferral for nine months and a prepayment, 800,000 tonnes associated with that transaction, nothing changes. That stays unchanged as is.

Also another follow-up. I mean, in a few years' time, say, when you -- when the industry turn around and your profitability improve in a few years' time, what is the change for your dividend policy over the long term? Because from Tuesday's release, it says the dividend payment, there are some certain requirements, I guess, you have to pay Stanwell. Am I correct? Whenever -- if you want to declare dividend to shareholders, then you probably need some sort of consent from Stanwell or any payment to Stanwell. I'm just wondering what kind of payment you need to pay Stanwell if you want to declare a dividend?

So when you look at the announcement we made earlier this week, in the last paragraph, we've provided some details on that. So we don't need any consent from anyone to declare dividends. Dividends is at the discretion of the Board, and the Board will take into account business circumstances, et cetera, market outlook, all of those things when they declare a dividend. I think importantly, the Board will take into account the capital structure of the company as well. Even as we stand today, there's quite a bit of gearing in the company. And so that is something we look at seriously before declaring dividends. And you can imagine that -- and it's only fair that Stanwell would want some level of deleveraging to occur when we declare a dividend. So the arrangement with them isn't saying you can't declare a dividend, and I can't say that. We can still make distributions as we get profitable. But this prepayment bucket that we've agreed with Stanwell that gets us through the tough times, that has to be repaid as we declare dividends. It's similar to the arrangement we've got with our noteholders where if we declare dividends, we need to make a prepayment offer to them as well, whether they accept it or not is up to them, but they had a similar requirement. So it's no different for Stanwell. If in future, we do owe them contingent monies in that concession bucket, then if we declare a dividend, they need to get an equal amount or potentially a higher amount depending on how much money sits in that contingent repayment bucket. Principally the more they help us, the more we need to repay them first in relation to dividends. So they need to get more money than shareholders if we owe them a lot. Again, those details as to where is the threshold, what's the amount, that will be forthcoming in due course.

And our next question comes from Rob Stein at Macquarie.

This might have been gone over, but I just wanted to double check. In terms of waste levels and stripping and the like, what were the activity levels like in the quarter versus the quarter prior? Just noting the average mining cost per tonne sold. Just trying to comp that to sort of understand the quarter-on-quarter difference and what's happening at the waste level to sort of understand the unit cost mining movements.

Yes. So Rob, the balance of things is the volumes getting moved is improving. So we haven't cut back on waste movement to -- and I think what you're trying to ask is have we high graded the mines over the period of time. And no, we haven't. And the benefit that we're drawing upon is our four dragline fleets that we've been talking about that was part of the $100-odd million that we took out of Curragh through the course of last year, we pivoted away from truck and shovel as we got our mine set up to be a more productive dragline mine. That has continued on. I think we spoke about it in the last quarter where one of our draglines is now performing at world benchmark levels and the other three are getting there as we build the capacity around them. So the draglines are now getting to position that they are moving a lion's share of it. And I say draglines, dragline systems, so that includes dozer push and cast blast, which is the cheapest form of moving waste and then truck and excavate. So we rationalized truck and excavate at the mine, and we've kept that installed capacity through our own fleets and contractor fleets at the same level through quarter 2 into quarter 3. So that volume is sitting consistent with our mine plans and liberation of coal.

Okay. And so even considering the fact that Mammoth coming up, 65% of capacity, hopefully pushing up in the subsequent quarters, that additional volume, one, helps dilute your costs, I would assume. And two, also replaces probably a little bit of high-cost marginal tonnes with low-cost underground tonnes. Is that the way to sort of think about your unit cost evolution going forward?

That's correct. I think the strategic drive when we stepped back and looked at the business a couple of years ago and put this plan in place that I keep on referring to was one is Buchanan needed to be debottlenecked. We had two longwalls that had great capacity, but we had one shaft to get it to the surface. So we identified the engineering fix there was using an old vent shaft and doing it as cost effectively as we could, which the team has now delivered that we debottleneck those and we can get the incremental tonne out of the U.S. In Australia we were ideally looking for an incremental tonne that could dilute higher costs as stripping ratios go up, but then also derisk because our two open cuts in Australia are in reasonably close proximity. So weather systems that moved over the mine generally impacted our cash flow from both mines. And we could see that there is real potential for underground mines. So we went about designing it, and that's what we've managed to get approved and built. So it offers not only what you've described as cheaper tonnes and over the life of the asset as stripping ratios get higher as they naturally will build the capacity within our business to bring underground mining skill from the U.S. to Australia as we're building out and then we'll be able to exploit the resource for longer through that skill set, building Mammoth 1, 2 and 3 and twinkle in my eyes potentially another underground in the future in the south, but it's twinkle in the eye down the line. And that will ensure that stripping ratio doesn't beat out the economics. So yes, dilutive there. And then the other is it derisks, it gives you a better quality margin because in periods of wet weather when ultimately you're running Mammoth 1 and 2, you've got a sufficient capacity coming out of the underground that you don't have to build large working capital in wrong production to ride through weather system impact, you can produce it as you go. And that will help improve margin of the mine and quality of margin over time. So that's really been the key drivers behind building this underground mine, as you've described. In time, it offers other options that you reconsider how you run the underground versus open cuts and change your production profiles and the like, and that will be largely market-driven.

That's really good color. So if I take a step back, and I mean, there's been a lot of noise, I guess, around the finance structure of the company, how you -- which is primarily driven by Curragh. But if I just take it back to an engineering stance or an operational stance, how happy are you with the current status of, one, your growth plans; two, your productivity agenda; and three, metrics such as safety and operational health. Has that been altered in this recent volatile period in the sense that prices haven't really gone your way, but similarly, the finance structure of the company hasn't been stable?

This is public, so my team will call the proverbial out of me, if I'm not honest. I'm never happy in that regard because I can always see more on an engineering solution to be more productive. And frankly, that's your best cost out. You can save yourself to a point that you really need to drive productivity in the business to get cost out and find engineered solution or technical advancements. So we will always drive. I'm very pleased with what the team has delivered with our longwall [indiscernible] dragline systems that now we're operating those draglines in a far better performance. There's more that we can get out of them. We're designing as you build strike length out in the north that we can run a figure of eight type engineered solution on two of our draglines at least, which will drive cost down further. The team have restructured the dumping strategy. So our haulage profiles are a lot shorter than what they used to be historically. So we've taken a lot of cost out of the business by dropping haul strings on trucking lengths. And we're really simplifying the mining systems at Curragh, where it was a very complicated, convoluted far too many hands on the pillars of the two mines because we had contractors that were highly integrated into it. Diligently through what we had the One Curragh plan, took control back of the mine plans across the mines, now broken it down into three mines with appropriate leadership teams and technical skill to run those three mines, and I include the underground mine in that. So they're a lot more focused, simpler to operate, and we're really driving the mines down to unit cost focus. So I'm pleased where we're going, but I know there's more within the system and the plan that we can squeeze out of it over time. And Mammoth is a large contributor to liberating those options that we have. Canada has always been a very reliable, good performer. You just look at our ability to move a longwall compared to industry's performance. With what we've done there with the optionality of the old shaft and the new shaft and capacity between the two longwalls, it will help us to be able to run the mine a lot more efficiently. And in both systems in Australia and in the United States, we've effectively taken the engineering because your question is engineering linked and pulled the bottleneck out from underground or in the operating systems and put them at both prep plants. And managing a bottleneck in the processing plants is generally the easiest to solve technically because it's on surface and you can drive improvements in those and both of them are now, the system proving the bottleneck is there. So I think once we solve those, there's further upside that can come out of the system. So I'm quite excited out of it. The last place to pivot to you was your question around, well, under this pressurized period, have we pivoted away from our plan in regards to safety and the way in which we're executing. The underlying plan, the discipline has been held to very tightly because we all invested really strongly after COVID. When coal prices are really high, we told our Board allow us to execute this plan and catch up on old stripping ratio deficits to set the draglines up. So we haven't compromised on that. Have we pulled sensible levers in stripping ratio and truck and shovel in the short term for coal pricing? Yes, we have, but we haven't damaged the underlying quite intentionally. And then from a safety perspective, I really take my hat off to the team that have driven safety. The culture in the business in the U.S. has always been very strong from a safety perspective. And at Curragh, we went on the last four years of really simplifying safety, driving a solid safety culture. And you can look at the graphs that we put out, the lag indicators are performing really well, well below industry average, but I'm excited on the lead indicators on how the team are applying themselves to learn from incidents, set new systems in place and engineering controls. And the one that stands out the strongest is the dragline systems that now we design a system that's first to industry that has proximity detection of people and equipment coming to draglines. And our team designed that with partnership and have gifted it to industry and I think have offered the industry a change. The regulators and alike have looked at it and we've received due recognition from industry and then also industry awards from it. So the mine has really come up a curve of maturity around safety as well. So I can confidently say no compromise, but you can never take your eye off the ball with regard to safety. You have to stay on it constantly.

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

Thanks, Rocco. Thank you to everybody for making the time for joining us today. If you've got any further questions, please don't hesitate. Chantelle and the team will respond to those as she always does, very punctually. Thank you.

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