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

Good morning, and good evening. Good morning, Australia, and good evening to the U.S. and Europe, and good afternoon to those in Asia. Ladies and gentlemen, depending upon where you are, welcome to the 2020 Annual General Meeting of Stockholders of Coronado Global Resources Inc., our second AGM as a listed public company. My name is Bill Koeck, and I am your Chairman. As you know, today's meeting is being held in a virtual meeting format. Given the ongoing COVID-19 pandemic, our Annual General Meeting of Stockholders is being held virtually via online webcast using the Lumi online platform. This allows security holders, proxies and guests to participate in a live webcast of the meeting. In addition, security holders and proxies have had the ability to ask questions and submit votes. Every effort has been made to ensure the meeting runs smoothly. But if you do experience technical difficulties, this meeting is being recorded and will be available on our website. While our Annual General Meeting of Stockholders is being held virtually today, I would like to begin with the customary acknowledgment of the Turrbal traditional owners of the land on which our offices in Brisbane are located. I would like to pay my respects to elders past and present. Liesl, can you please confirm that we have a quorum?

I will now ask [ for your prepared card ] from Computershare to confirm the quorum, please.

Hi, Chairman and Company Secretary which -- we do have a quorum.

Thank you. I now declare this meeting open at 3 minutes past 10 Australian Eastern standard time. I would like to begin by introducing my fellow directors, who are all attending by webcast today. Firstly, I would like to introduce the Managing Director and Chief Executive Officer; Gerry Spindler; next, the Non-Executive Director, Laura Tyson, who's joining us from Houston; Non-Executive Director, Ernie Thrasher, also in the U.S.; independent Non-Executive Directors, Greg Pritchard, Philip Christensen; and I also, last but not least, wish to mention Liesl Burman is the recently appointed General Counsel of Australia and the Assistant Company Secretary, who will act as company secretary for today's meeting. I should add that we're all -- all of those in the Sydney office are appropriately physically separated just in case you were wondering. I would also like to introduce Sir Michael Mick Davis, who is nominated for election as a Director of the company at today's Annual General Meeting of Stockholders. My only comment there is I believe he supports the South African team in the international rugby competition, and there will be some tension around the Board table on rugby matters from now on. We are joined by members of our executive team in Brisbane and the United States, including Ayten Saridas, the Group Chief Financial Officer; and Richard Rose, the Chief Legal Officer and Secretary. Also joining us today is Andrew Carrick from Ernst & Young, the company's new auditor; and Simon Crane from KPMG, who were the company's auditors until the 2nd of March 2020. The meeting is convened to consider matters specified in the notice of Annual General Meeting of Stockholders dated 15 May 2020. I will be conducting this meeting in accordance with the order of business contained in that notice. Let me remind security holders that Coronado is incorporated in Delaware in the United States, and today's agenda reflects the requirements of Delaware and U.S. law. So those security holders from Australia will find that there are some procedural differences in requirements, but, of course, they achieve exactly the same outcomes. In accordance with the company's certificate of incorporation in Delaware and bylaws, all directors are seeking reelection at today's meeting. The proxy statement and the notice of meeting provide explanatory notes in great detail on the proposals to be put for resolution to the meeting today. Okay. The notice of meeting included a form for security holders to submit questions of the company's Board or its auditors in advance of this virtual meeting. In addition, Coronado security holders or their duly appointed proxies have the opportunity to appoint themselves or another person as their proxy, as is the usual thing, in order to vote and ask questions. We have not received any questions from security holders in advance of the meeting, and no security holder has elected to appoint themselves or another person as a proxy to vote and ask questions during the meeting via the Lumi online platform. As usual, registered guests will be unable to ask questions. While we haven't received any questions, we certainly received lots of questions outside these annual general meetings. And if any security holder wishes to submit questions after today's meeting, these can be submitted by e-mail to the address shown on the slide. And of course, we welcome any such questions. Following my report, our Managing Director and Chief Executive Officer, Gerry Spindler, will deliver a presentation covering current market conditions, Coronado's performance and objectives in full year '20 and outline how the company is positioning itself for the future. I will now hand -- I will now begin the Chairman's address. I'm sure it comes as no surprise when I say that the last 12 months have been some of the most volatile in recent times, certainly in my lifetime, and particularly in energy and metallurgical coal markets. COVID-19 has changed all our lives in ways we never have imagined just a few short months ago, and has already had a significant adverse impact on both the industry generally and the company's performance specifically. The high prices we experienced in the first half of 2019 quickly declined as growing political uncertainty and deteriorating trade conditions impacted global economic growth. This, in turn, caused significant price erosion in metallurgical coal markets over the second half of the 2019 year ahead of the COVID-19 market conditions. But allow me briefly to comment on full year '19. This was an excellent -- Coronado's excellent first half operating performance with benchmark met coal prices peaking at USD 216 per tonne in March 2019, was countered by increasingly challenging conditions in the second half, softening demand from Atlantic Basin steel mills, U.S.-China trade tariffs, coupled with a sharp downturn in benchmark metallurgical coal prices to as low as USD 134 per tonne in December 2019, resulted in higher inventory levels at our U.S. operations and the suspension of shipments to China in the fourth quarter. Nevertheless, I think it's worth just briefly focusing on our full year '19 highlights, which are set against the difficult conditions we're now facing. It was a significant achievement. A few of the data points, which I'm sure many of you are aware of, saleable production, 20.2 million tonnes; sales volume, 19.9 million tonnes, with metallurgical coal comprising almost 80% of sales; mining costs per tonne fell by 8.2% to USD 51.8 per tonne; revenue, USD 2.2 billion; adjusted EBITDA increased by 5.9% over 2018 to USD 634.2 million; and, significantly, reported net after-tax increased by 80.9% to USD 305.5 million. At Curragh, we booked 87 million tonnes of additional reserves through the Stanwell Reserved Area, developed an accelerated expansion plan for the mine and secured the necessary rail and port infrastructure to support this expansion. Our success in full year '19 allowed us to declare USD 42 -- USD 420.5 million of distributions in relation to full year '19 performance. Since the company listed in 2018, Coronado has returned over USD 720 million or USD 0.745 per CDI. So we can clearly see the potential of our business there -- right there, and this is only the start. Unfortunately, the global COVID-19 pandemic and other factors suggest we will not be anywhere near so fortunate in full year '20. The current weak macroeconomic environment means that we must continue to be vigilant and focus on ensuring we are well positioned for the economic turnaround when, inevitably, it will happen. Safety. Safety remains at the core of everything we do at Coronado. In 2019, our operations, again, outperformed relevant industry benchmarks for safety in Australia and the U.S. Excellent safety performance at Buchanan, which recorded 1 million man hours without a lost-time incident, which was recognized with the award for best large deep mine in the state of Virginia. However, in January 2020, we reported the sad news that an employee of Thiess at the Curragh mine was fatally injured during a tire-change activity. This tragic event had a profound impact on the family of that individual, his workmates, friends and colleagues. And on behalf of the Coronado team, I would like to, again, extend our deepest sympathies to all those who were affected by this incident. Dealing with that -- the personal and operational ramifications of that incident has made us more determined than ever to deliver the highest standards of safety in everything we do. Sustainability. In this increasingly volatile environment, sustainability is becoming a key focus of the Board and management as part of our business strategy and planning. Over the long term, our diversified production base and the extensive reserves and resources are sufficient to cover at least 20 years of production. While there may be annual fluctuations, the long-term demand fundamentals for the metallurgical coal sector remain robust. Steel is one of the primary building blocks of the global economy and the green economy, and metallurgical coal is a key ingredient in steel production. Of course, we monitor research into alternative methods of steel production, including the use of hydrogen as a potential alternative to metallurgical coal, as a fuel source in steelmaking. While theoretically possible, hydrogen is demonstrably, not practical nor commercial at this point in time and may take decades to develop as a safe and cost-effective alternative to metallurgical coal. We recognize that sustainability, particularly Environment, Social and Governance, ESG issues, are increasingly important. I recommend to you the company's 2019 sustainability report, which is in the Investors section of our website, for a detailed report on Coronado's approach to sustainability and ESG. I'd now like to turn to COVID-19 impact on full year '20. The Phase 1 trade agreement between the U.S. and China in February combined with constrained production from Queensland and the U.S. and raised the prospect of improved metallurgical coal prices in the first half of 2020. I remind you that benchmark prices briefly reached USD 164 per tonne in March 2020. They then fell sharply as the full impact of the COVID-19 pandemic became apparent. Although well positioned, Coronado is not immune to COVID-19 fallout. Rapidly deteriorating market conditions in the first half of the year have had an adverse impact on our financial performance. And as you know, we've withdrawn our formal guidance for full year '20. Of course, we've implemented an extensive range of operation and financial measures to address the COVID-19. In relation to that, we've established a COVID-19 Steering Committee to oversee the approach to education, prevention and response plans. Screening, we've enhanced procedures for site entry, including questionnaires. In hygiene, we've increased cleaning, sanitizing and enhanced food handling, and the social distancing norms that apply elsewhere also apply in our workplaces. Our CEO, Gerry Spindler, will discuss some of these and other measures in greater detail in his address. Like many companies in the resources sector, this period of increased volatility and market uncertainty has placed greater demands on our balance sheet. And we've significantly reduced planned capital expenditure by over 40% in full year '20 and deferred the expansion of Curragh until the market environment improves. We've got the plans there, and we can jump into action when we need to. We're focused on reducing operating costs to ensure we are able to sustain the business through the cycle of lower prices and market volatility. We reduced the dividend paid for the second half of full year '19 to USD 0.025 per share to preserve capital, and the Board is taking all the necessary steps to strengthen our financial position and improve liquidity to ensure we are well positioned when markets inevitably rebound. Nevertheless, the impact of COVID-19 and other factors will result in significantly lower saleable production, and we've announced to the market that, that could be in the range of 16.5 million to 17 million tonnes in full year '20. In terms of remuneration, there will likely be an expectation that the variable component of senior executives' remuneration will be materially reduced in accordance with short-term incentive formulas given the adverse impacts of COVID-19 on our business. We also aim to enhance the level of mining and global capital markets experience on the Coronado Board with the nomination of Sir Mick Davis as a Non-Executive Director, which will be voted on later in today's meeting. And we're looking forward to working with Sir Mick. We are working assiduously to deal with the conditions with which we have faced and positioning the company for a recovery as governments around the world adapt to the new normal of COVID-19 safeguards and limitations and gradually reopen their economies. In closing, I would like to thank all our employees and contractors for their unwavering commitment and dedication, especially in the extremely challenging circumstances we have experienced in the first half of 2020. And I would also like to thank the Board and senior management, who are working in unison to shepherd the company through these unprecedented conditions. Coronado is a resilient organization with assets, product base and cost profile that makes us competitively positioned globally. We are focused on emerging from this unprecedented global situation stronger than before. With that in mind, I would like to acknowledge the support of our security holders and reinforce our commitment to delivering long-term shareholder value. I will now hand over to Gerry to provide an update on Coronado's business.

Thank you, Bill. As a management team that has the scars of many commodity cycles, we are used to exercising judgment in anticipating these cycles. It's what we do. Politics and pandemics are a bit harder. Toward the end of 2019, trade negotiations and tariffs impeded the shipment of our Buchanan coal to China, yet markets in Asia remain generally sound. Given subsequent supply disruptions in the Bowen Basin, the supply-demand balance, while not rosy, seems stable, and we planned accordingly. Then within a 30-day time span, the COVID-19 pandemic erupted, spread and destabilized everything. It is truly like nothing we have ever seen. And attention shifted from protecting our markets to protecting our employees, our balance sheet and our ability to capitalize on an improving market when the market returns. And it will. Literally, everything stopped. Steel mills shut. Coke ovens went on standby, and U.S. steel production dropped by 40%. World production dropped by 11%, an annualized equivalent of 200 million tonnes of hot metal, representing 170 million tonnes of coal on an annualized basis. Like the oil industry, coal was faced with not only dropping prices, but a dearth of stockpile room. Fortunately, annualized numbers don't apply, and we are already beginning to see the return of steel production. Stimulus payments designed to jump-start economies will impact steel production favorably. And historically, you can see the potential for demand to double post-crisis was recently demonstrated in 2009 and 2016. Next slide, please. In order to employ or to protect our employees, task forces in the U.S. were immediately formed by operating management in order to address the particular problems of each jurisdiction. In our U.S. operations, where underground mining is the rule, hygiene and protective equipment measures were instituted, and the incidence of contamination in the surrounding areas were closely monitored. Ultimately, the difficulties of ensuring distancing and the inability of the market to accept production caused the U.S. mines to be idled or cut back, and the majority of the workforce furloughed. The integrity of the operations was ensured by the staff. Those mines have now returned to limited production. In Australia, where social distancing is more easily achieved and the service lines, production continued. A new focus was the maintenance of hygiene and distancing in the camps. While we do not have fly in, fly out operations, the rostering schedule necessitates camp arrangements, which require unique precautions. To date, there have been no instances of COVID-19 in our workforce. And I want to thank the diligence of management and the cooperation of a well-disciplined workforce in achieving this result, which hopefully will stand. With regard to the balance sheet, an extensive review of the capital program was undertaken and expenditures were reduced by 40% and the Curragh expansion has been deferred. Waivers on bank covenants have been secured, ensuring continued availability of our revolver and all available avenues of generating cash through elimination of unnecessary expenditure or unproductive assets are being explored. Next slide, please. The result, we believe, is a business which displays through disciplined management of the balance sheet and operations, a resilience to the current market crisis, which ensures the continued health of the production capacity. As markets improve, we have retained the capacity to increase production, enjoy the cost benefits of the incremental tonne and generate cash flows, which will support expansion and reduce debt. We should emerge in better shape than many others. And this may generate the acquisition activities that have fueled our growth to date. In closing, I wish to join Bill in extending our sympathies to the family of Donald Rabbitt, who died in a fatal accident that occurred on our property in January. This is the worst thing that can happen in this business. He will not be forgotten. I would also like to extend thanks and good wishes to Ayten Saridas. She has been our CFO since the IPO of the company, and she's guided us through that IPO, Board meetings, bank debts and numerous other crisis with diligence, dedication and unwavering good humor. She's leaving for better opportunities, and I -- arguably a better climate. We wish her well, and our thanks go with her. Bill, over to you.

Thank you, Gerry, for your report on the business. This now brings us to the formal part of the proceedings today, and I'd now like to begin by explaining the order of and processes to this part of the formal proceedings. First, I will explain the voting and how to cast your votes. There are 2 forms of resolutions today. Firstly, a resolution of the holder of the preferred stock Series A, which is the Energy and Minerals Group and related funds, in relation to the reelection of Laura Tyson and the election of Sir Michael (Mick) Davis as Non-Executive Directors. Secondly, there are 4 resolutions of common stockholders and holders of our CHESS Depository Interest, or CDIs. Voting. As was set out in the notice of meeting, CDI holders must have completed one of the following actions in order to vote at today's meeting. They must have instructed CHESS Depositary Nominees Pty, Limited, as the shareholder of record, to vote the common shares underlying the CDIs pursuant to instructions in the CDI voting instruction form or inform the company that they wish to nominate themselves or another person to be appointed as that CHESS Depositary Nominees proxy with respect to the common shares underlying the CDIs. Now that's a bit of a mouthful, but that's how it works. I'm hoping we all get used to that and find that straightforward, particularly as it's now all online. Valid proxies must have been provided to CHESS Depositary Nominees no later than 10:00 a.m. Australian Eastern Time on Friday, 19 June 2020, last Friday, or 8:00 p.m. U.S Eastern Time on Thursday 18 June 2020 in order for the vote to count. As required by the company's bylaws, a list of stockholders entitled to vote at today's meeting is available for inspection on the company's website, a copy of which has also been available at the company's Australian registered office in Brisbane since 9 June 2020. Voting on all resolutions, as you know, will be conducted by way of written ballots submitted by electronic transmission via the Lumi online platform, as authorized by the Board of Directors pursuant to the notice of meeting and in accordance with the bylaws. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear on your screen. Selecting this icon will bring up the resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time that I declare that voting is closed. I now declare voting opened on all items of business. If you are using the Lumi online platform, the polling icon will appear. Please submit your votes at any time. I will provide a clear warning before I move to close voting. No ballot, proxy or vote, nor any revocation or change will be accepted by Computershare after the closing of these polls, as announced by me. As the Chairman of the meeting, any undirected proxies given to me in relation to any items of business will be voted in accordance with the unanimous recommendation by the Board of Directors, which is in favorable resolutions, as set out in the notice of meeting. The proxy vote tally indicates that the polling on all items will be comfortably passed with more than 95% of votes cast on each resolution being in favor of each resolution, as recommended by the Board of Directors. The proxy votes cast for each resolution will be displayed on the screen when each resolution is formally put to the meeting. Computershare and Lumi will tally the results of the ballot, and details of the voting results will be provided to the Securities and Exchange Commission in the U.S. and the Australian Stock Exchange after this meeting. In respect of any open votes, a proxy holder may be entitled to cast, please cast your vote using the Lumi online platform in accordance with the instructions provided. That covers the procedure for the voting on each resolution. I'll now go to the formal business. I will take the proxy statement and notice of meeting as read. Copies are also available on our website and were disclosed to the Securities and Exchange Commission and the Australian Stock Exchange. The items of business are -- to be considered are now displayed on the screen, and I'll pause for a brief moment to allow you to read them again. So now moving to Item 1, the reelection of Ms. Laura Tyson and the election of Sir Michael (Mick) Davis as Directors by the holder of the preferred stock Series A. Laura is a Series A Director, and the company has received notice from Coronado Global LLC, the Energy and Minerals Group, nominating Sir Michael (Mick) Davis as an additional Series A Director on the Board. The full background details of Ms. Tyson and Sir Mick Davis are outlined in the proxy statement. We've worked very constructively with Ms. Tyson over the last -- more than a year, and we've got to know each other very well. So we're very pleased that Ms. Tyson and Sir Mick Davis have been proposed through reelection. The resolution is now in front of you. The Board of Directors unanimously recommended that the Series A shareholder vote in favor of the resolution in Item 1. The proxy vote at the Series A holder was received before the meeting, and the Series A holders voted for this resolution, as is now displayed on the screen. I confirm that Laura Tyson has been reelected, and I welcome Sir Mick Davis to the Board. Moving to Item 2, the reelection of remaining directors. The next item, reelection of all remaining directors of the company, is voted on by the holders of common stock, including CDI holders. While this is unusual in Australia, Coronado is incorporated in the state of Delaware in the U.S. and is bound by the requirements of the company's certificate of incorporation and bylaws. All directors must seek reelection at each Annual General Meeting in accordance with the company's certificate of incorporation and bylaws. Security holders will have seen details of the specific experience, qualifications and skills considered by the Compensation and Nominating Committee and the Board of Directors in assessing the appropriateness of each of the directors elected or reelected today, and they have been outlined in the proxy statement. Further in assessing the independence of [ each ], Mr. Pritchard, Mr. Christensen and myself, the Board specifically considered the independent standards of the Australian Stock Exchange and the New York Stock Exchange, and the Board considers that each of these nominees continues to be independent. You should now have the resolutions on the screen in front of you. I will ask that those eligible to vote on this resolution, please do so now. [Voting]

The proxy votes received before the meeting on this resolution should now be displayed on your screen. I now confirm the election of all directors. And on behalf of those directors, we look forward to working for the shareholders through this challenging time. Moving now to the nonbinding advisory vote on named executive officers' compensation. This is the so-called say on pay. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14 of the Securities and Exchange Act of 1934, we are providing security holders with the opportunity to cast a nonbinding advisory vote on compensation of the company's named executive officers, as disclosed in the proxy statement. The company seeks to provide compensation to each named executive officer that is designed to attract and retain suitably qualified executive officers to incentivize them and to create sustainable performance aligned with the interest of security holders. The vote on this proposal is not addressed -- is not intended to address any specific element of compensation, but relates to overall compensation of named executive officers, as described in the proxy statement. Security holders are asked to consider and if thought fit, pass the ordinary resolution shown on the screen on a nonbinding advisory basis. The directors have unanimously recommended that security holder's is eligible to vote for this item. I will ask that those eligible to vote on this resolution, please do so now. [Voting]

The proxy votes received before the meeting on this resolution will now be displayed on your screen. Clearly, that resolution is passed. Next item, Item 4, nonbinding advisory vote on the frequency of stockholder votes on executive officer compensation. This is really linked to the earlier resolution, and it's a question of whether this should occur every year or every second or third year. Pursuant to the Dodd-Frank Wall Street reform and consumer -- that's actually Consumer Protection Act and Section 14 of the Securities and Exchange Act of 1934, we are providing security holders with the opportunity to cast a nonbinding advisory vote on whether you will vote to approve compensation of named executive officers should occur every year, every 2 years or every 3 years. The directors unanimously recommended that holders of our common stock vote every year for this advisory vote. You now have a text of the resolution in front of you. I ask those eligible to vote, please do so now. [Voting]

The proxy votes received before the meeting on this resolution are now displayed on your screen. Again, there is overwhelming support for an annual nonbinding resolution. I'll now move to Item 5, ratification of the appointment of the independent registered public accounting firm for fiscal year ending December 31, 2020. As outlined in the proxy statement, the Audit, Governance and Risk Committee has appointed Ernst & Young to serve as the independent registered public accounting firm to audit our financial statements for the fiscal year ending December 31, 2020. Although we are not required to seek stockholder approval of this appointment, we intend to seek ratification of the appointment at this meeting, and we intend to seek that ratification annually. Representatives of Ernst & Young are present at the meeting today, of course, via video -- via link, the computer link, together with representatives of KPMG, who were the company's independent registered public accounting firm until March 2, 2020. So security holders are asked to resolve on a nonbinding advisory basis to -- as the resolution is on the screen in front of you to ratify the appointment of Ernst & Young. I ask those eligible to vote, please do so now. [Voting]

The proxy votes received before the meeting on this resolution are now displayed on your screen, and we can see that that's overwhelmingly supported. That concludes our discussion on the items of business for this Annual General meeting. We have now come to the end of our formal order of business, and, in a couple of minutes, I will close the poll and voting system. Please ensure you have cast your votes on all resolutions. I have confirmed with the secretary for this meeting and Computershare that there's not been any notice of revocation of any proxy submitted by our common stockholders. I will now pause to allow you time to finalize your vote. [Voting]

I declare that voting is now closed. Our Company Secretary, Liesl Burman, please ask the inspector of elections to confirm that the polls are closed.

Would the inspector of elections please confirm that the polls are closed?

Company secretary, the calls have been closed. Thank you.

Thank you.

Computershare and Lumi will tally the results of the poll, and details of the voting results will be provided to the Securities and Exchange Commission of the United States and the Australian Stock Exchange as soon as possible after the meeting. Ladies and gentlemen, that concludes the formalities of today's meeting. On behalf of the Board and management of Coronado, I would like to thank you for your attendance and participation in our virtual Annual General Meeting today. While we're unfortunately unable to meet in person, we look forward to having an in-person meeting with you next year. I thank you for your continuing support of Coronado and reinforce our commitment to delivering long-term value to our security holders. Finally, the Board would like to repeat Gerry's remarks about Ayten Saridas. We wish you well for your future, and thank you for your service with the company. You will be missed. I now declare the Annual General Meeting of Stockholders of Coronado Global Resources Inc. closed.