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

Thank you for standing by, and welcome to the Coronado 2021 Full Year Results Presentation. [Operator Instructions] I would like to now hand over the conference to Andrew Mooney, Head of Investor Relations, Treasury and Business Development. Thank you, Andrew.

Thank you, operator, and thank you, everyone, for joining Coronado's Full Year 2021 Investor Call. This morning, we released our full year results to the ASX and SEC, in which we outlined in detail our safety, production and financial results. Today, I am joined by our Managing Director and CEO, Gerry Spindler; and our Group CFO, Gerhard Ziems. Within our investor presentation, you will see our important notices and disclaimers and reconciliations of non-U.S. GAAP financial measures. We encourage you to review these statements as well as our other filings with the ASX and SEC. I also remind everyone that Coronado quotes all numbers in U.S. dollars and metric tonnes unless otherwise stated. With that, I'll hand over to Gerry.

Thank you, Andrew. Coronado finished the year at a very strong financial position. We delivered substantial increases in revenue, EBITDA and net profit and returned the balance sheet to a net cash position. These positive results have benefited from the recent high price environment, but also from the hard decisions taken in mid-2021 to restructure our debt arrangements as we completed a comprehensive $550 million refinancing package, which enhanced liquidity and provided a more flexible capital structure moving forward. The Coronado team has again responded exceptionally well to the challenges presented through the -- throughout the year as we continue to navigate the COVID-19 epidemic and general economic and geopolitical uncertainty. The company is in a significantly stronger financial position now than 12 months prior. Today, we, therefore, plan to distribute $151 million dividend to shareholders and have advised the trustee of our senior secured notes of an offer to redeem up to $100 million of notes in the first quarter of 2022. The redemption offer price pursuant to the indenture is at 104%, with these notes currently trading at 107%. Should note holders accept the discounted offer in full, Coronado will have distributed approximately $250 million, all from available cash. Before Gerhard and I elaborate in on the financial results, we'll commence our call with a discussion on safety. As of 31 December, our total reportable injury frequency rate in Australia was 3.07; and in the U.S., the total reportable incident rate was 2.51. Both of these reportable rates are below the industry averages in their respective jurisdictions. Our Australian TRIFR rate represented a 67% improvement compared to the prior year. However, despite the rate improvement, the entire Coronado Group was deeply saddened by the fatality of one of our employees at Curragh in November 2021. The company extends its deepest sympathies and sincere condolences to the family, friends and colleagues of Mr. Clark Peadon and continue to provide counseling and support services. In response to COVID-19, Coronado has remained focused on the safety and well-being of all employees and contracting parties as we continue to execute action plans to manage the risks associated with the COVID-19 variants. The spread of COVID-19 has been ever present throughout the year, and the Coronado COVID-19 Steering Committee has continued to remain vigilant in dealing with the Delta and Omicron variants and their impacts on our people, operations and customers. Standardization processes, social distancing, mask wearing, vaccine advocacy, vaccine rollout, educational materials and regular pre-start communications continue to form the base level commitments by the company in tracking the virus and keeping our people informed. The U.S. segment Vaccine Incentive Program is continuing to have meaningful results with vaccination rates increasing. 2/3 of our U.S. employees are now fully vaccinated. And these numbers are growing, leading to greater workforce availability and fewer production interruptions in 2022. In Queensland, 90% of the adult population is fully vaccinated, and the company's efforts are now firmly behind the encouragement of booster shots to ensure prolonged protection. Turning to the summary of results. You can see that Coronado has realized substantially improved financial results compared to prior years. Gerhard will elaborate on the financial results shortly, but we are pleased to announce that Coronado has generated substantially improved revenue, EBITDA and net profit results and has returned the balance sheet to a net cash position. Production, sales and cost results for the year were within or better than revised guidance targets, and Coronado further boosted liquidity in the year through the completion of noncore asset sales and also reduced debt by redeeming 10% of the senior secured notes. I won't go into too much detail on our group operational performance as we have released most of this information prior. But it's important to point out that both run of mine and saleable production rates were higher than the prior year and we expect these rates to increase in 2022 per our guidance. Our met versus thermal revenue mix improved in 2021, seeing us realize 95% of our revenues from met coal sales. We expect this percentage split to be replicated in 2022. Turning to Slide 8. I'll remind our callers that Coronado continues to remain a premier met coal pure play on the ASX and we retain a sizable metallurgical coal resource reserve in excess of 2 billion tonnes that underpin an operating life of approximately 20 years. Our motto is steel starts here, and we mean it. We remain committed to being the premier metallurgical coal supplier of choice to our customers. Turning to Slide 9. We see Coronado's current valuation metrics lag its peers despite maintaining a strong balance sheet with net cash, strong earnings outlook, lower gearing and the greatest leverage to high met coal prices. We believe we are inherently undervalued with EBITDA multiples lower than peers, including the thermal coal miners. To address our lagging valuation, Coronado will carefully control debt and distribution levels and we commit to a balanced capital management strategy going forward. We commit to reinvestment in maintaining our first-rate operations and organic growth projects to increase production. We are well positioned and focused on accretive acquisition opportunities as met coal markets look to consolidate. We will continue to emphasize our unique geographical diversification with our U.S. business exporting to China and enjoying the arbitrage. We will continue to show the market the advantages inherent in our U.S. business to achieve appropriate recognition. We expect to generate record cash levels in 2022 at current price levels. And finally, we today reiterate or reinitiate the payment of dividends and desire to reduce gross debt further. Coronado's operating assets and met coal products are of excellent quality and are in the right locations to service the high-growth Asian markets. We are well positioned for a strong 2022. I'll now hand over to Gerhard to go into a bit more detail on the company's financial performance, 2022 guidance and market outlook.

Thank you, Gerry, and thank you to everyone joining the call today. Today, I will go into a bit more detail on our financial results for the full year and also provide 2022 market guidance and also elaborate a bit more on the dividends/distributions and what we are seeing in the market. So going to Slide 11. As outlined by Gerry earlier, we are pleased to announce that Coronado has achieved or exceeded all revised guidance metrics and has returned to a net cash position. Saleable production was 17.4 million tonnes, exceeding the revised guidance of between 17 million tonnes and 17.2 million tonnes. Sales volumes of 17.8 million tonnes was within the revised guidance range of 17.7 million tonnes and 17.9 million tonnes. Capital expenditure of $91 million was aligned with revised guidance of under $100 million per -- $100 million. And mining cost per tonne finished the year at $65.7 per tonne, lower than revised guidance targets of between $66 and $68 per tonne. And Coronado completed the year with a net cash of $123 million as guided. In 2021, Coronado generated $2.1 billion in revenue, up 47% from prior year on the back of improved second half price conditions. In the December quarter specifically, we generated a record revenue of USD 775 million. Coronado generated USD 486 million in adjusted EBITDA and a net profit after tax of $123 million, a substantial improvement from a net loss position in the prior year. Further boosting cash flows in our most recent quarter was the completion of Amonate noncore asset sales of $30 million in which we realized a $14.8 million pretax gain on sale. Completion of this transaction will move certain ancillary holding costs associated with this asset. Our full year mining cost per tonne or FOR costs of $65.7 per tonne were lower than the revised guidance targets of between $66 and $68 per tonne but up from $55.6 per tonne in the prior year. Mining costs per tonne are higher primarily due to the impact of lower Australian sales volumes and higher FX. Curragh is impacted by the movements in FX as the majority of its costs in Australia are dominated in Australian dollars, of course, but we report our results in U.S. dollars. Turning to Slide 12. Coronado completed the year with a net cash of $123 million as guided. This balance was comprised of a record year and closing cash balance of USD 438 million and the lower senior secured notes value of $350 million following the 10% notes redemption we completed in November. As you can see on the slide, Coronado generated $299 million in free cash flow in the year after the $35 million notes redemption in November and maintained USD 538 million in liquidity at the end of December '21. So we are seeing elevated met coal prices continue in the first quarter of 2022, and Coronado expects to further leverage its ability to generate cash and strengthen its financial position in the year ahead. Turning to Slide 13. Coronado will distribute $150 million in dividends to shareholders in the first quarter of 2022. The dividend equates to USD 0.09 per share. In connection with the dividend, Coronado also advised the trustee of our senior secured notes of our intention to redeem approximately $100 million in notes, which is lower per terms of the notes when we pay dividends. The notes redemption offer is at a price of 104%. And let me be clear here, the notes are currently trading at 107%. However, Coronado cannot provide any guidance on as to whether we expect the note holders to accept this offer. We will have greater clarity, of course, on acceptance or otherwise per the time line as listed on this slide. Should note holders accept the full offer, Coronado will distribute around USD 250 million, reflecting a return of free cash flows of up to 95% when also including the $35 million of notes we redeemed in late 2021. Coronado expects to make all distribution payments from available cash and expected to remain in a net cash positive position after these distributions. Payment of the dividend to equity holders will realize a return of USD 870 million since Coronado's IPO in 2018. Turning our attention to capital management on Slide 14. Coronado's strategy can really be broken down into 4 key buckets: first, maintaining a strong balance sheet with enhanced liquidity; second, ensuring prudent shareholder returns; third, prioritizing organic growth expenditure to increase existing production rates, particularly while prices remain elevated; and fourth, ensure we retain the financial flexibility to pursue acquisitions. We expect that over time, we will see met coal consolidation in the market as diversified miners look to exit coal. With a strong and flexible balance sheet, we will be in a position to take advantage of such opportunities. Slide 15. In 2022, Coronado is guiding for production of between 18 million tonnes and 19 million tonnes, mining costs of between $69 and $71 per tonne and capital expenditure of between $170 million and $190 million. Saleable production levels are expected to be higher in 2022 with expected higher labor availability rates at Logan and normalized production rates at Curragh. Mining costs per tonne sold are expected to increase due to inflationary pressure in pre-strip works at Curragh that cannot be capitalized. We are seeing inflationary pressures, particularly in the U.S., of approximately 7% currently, which is impacting costs. Our assumed exchange rate assumption included in our cost guidance is $0.70. Capital expenditure increases are expected across the group in 2022. The increases relate to operational improvement initiatives and advancement works in the U.S. and box-cut capital projects at Curragh. In addition, Coronado has also previously provided commentary on FY '22 U.S. domestic sales that will achieve a price of $187 per tonne for approximately 1/3 of U.S. production in the year. And let me be clear here again that this year makes us -- covers all of our overheads in the U.S. So that's 1/3 of our production covering all of our overheads in the U.S. Every other tonne we sell, it's just pure profit coming out of the U.S. Shifting gears, I will now talk to the met coal and steel markets on Slide 17. Most people understand our operations, but it is important for me to call out again our unique diversification of geography -- it could be -- met coal product offering and customer base. Coronado supports customers on 5 continents. Our geographically diverse asset base is located near key rail and port infrastructure providing access to both domestic and seaborne markets. Our broad range of met coal products are well established and highly valued for their attractive coke-making characteristics. We maintain a diverse high-quality customer base across a range of global markets with India being our #1 destination for Coronado coal. Let me remind you again that India is by far the fastest-growing steel market and met coal consumer market. Furthermore, Coronado's U.S. business is currently being -- is currently taking advantage of high pricing into China, while import restrictions on Australian-sourced coal continue. Turning to coal markets on Slide 18. You can see that the Australian premium low vol hard coking coal price, the so-called benchmark, is currently at record levels. In fact, it increased overnight by $6.5 to nearly $447 per tonne. Another record, by the way. As of 31st January, the benchmark index was $444 per tonne, a far cry from $100 to $110 per tonne in early last year. Strong ex-China demand, combined with continued supply tightness across the globe, continues to underpin met coal prices. Supply tightness has been driven by above average rainfalls in Australia, logistics chain issues in North America and the ever present threat of COVID-19. Demand growth ex-China is forecast to continue as government-sponsored growth projects continue to be approved to boost economic growth. Currently in China, the government is moderating steel production and enhancing the production and use of domestic coal resources. As a result, cargoes into China slowed in the December quarter. Still, we are seeing demand growth with China seeking Buchanan cargoes for quarter 1 shipments and quarter 2, while retaining the embargo on Australian-sourced coal. We expect China to ramp up met coal imports now that the Winter Olympics have been completed. Looking forward, we now expect pricing to remain at elevated levels in the short term due to supply constraints. Looking beyond the near-term, Coronado expects met coal prices to moderate in 2022 as supply recovers and lifts in response to the current high prices, but remain well above historical levels for the balance of the year. Fair to say that even the most conservative forecast, we see the benchmark above $200 per tonne. Looking at Slide 19. Met coal prices for shipments from both our U.S. and Australian operations reached record levels during the December quarter and remain elevated due to the continuation of strong global demand and tight supply. Realized pricing levels for the group were 52% higher than prior year. In the most recent December quarter, Coronado's average realized met coal price was USD 240 per tonne, up nearly 50% compared to the September quarter of $144 per tonne. And given current and forward price expectations, we expect Coronado's realization to further improve in 2022. And we remind the market that the average realized price reported reflects a mixture of FOB and FOR trade terms across all grades of met coal sold and also includes a lower 2021 U.S. domestic annual contract cost. Let me remind you, it was nearly $100 lower 2022 -- '21 price compared to the '22 cost. Coronado's seaborne contracts typically realize an average 3 months lag in price compared to the index price of the day. In Australia, the majority of cargoes are negotiated on a quarterly basis with reference to the average prior 3 months index. In the U.S., 55% to 65% of cargoes are determined on a negotiated price in advance, sometimes up to 6 months in advance. The forward negotiation basis uses a combination of the prevailing spot price and forward curve to determine the contract price. 35% of sales relate to fixed price annual contracts of $187 per tonne FOR basis. FOR, not FOB. We view these arrangements as a hedge and the revenue generated from these annual contracts in 2022 will cover the majority of U.S. segment costs in 2022. Coronado estimates that a $10 change in benchmark met coal prices equates to between $65 million and $70 million change in EBITDA, assuming financial year 2022 guidance levels and stable FX. So then on Page 20, Wood Mackenzie forecasts a 34% increase in seaborne demand for met coal by 2050. As you can see in the chart, the majority of demand growth is planned to come from blast furnace steel production in India, which is our #1 customer. India's seaborne met coal demand is forecast to increase by 146% by 2050, the majority of which will be filled by supply growth from Australia, which we cannot see and no one can see what is now coming online. By 2050, Wood Mackenzie forecasts that 64% of all global seaborne met coal supply will come from Australia -- will have to come from Australia to meet demand. Looking at Slide 21. Steel prices, in recent times, have hit record highs last year. These highs are due to government stimulus packages focused on infrastructure spend in order to boost employment rates as most major economies push for economic growth post-pandemic. India is forecasting GDP growth rates of 6.4% for 2022 and 5.8% for 2023, underpinning steel demand and met coal forecasts, with most other key markets generating modest GDP growth rates north of 2%. The Indian crude steel production is forecast to grow 229% between today and 2050 to 380 million tonnes based on the latest Wood Mackenzie forecast. Coronado has approximately 26% of our seaborne metallurgical coal into India, making the country Coronado's largest customer. I will now hand back over to Gerry to discuss our growth plans and ESG. Gerry?

Thank you, Gerhard. As the largest independent producer of met coal globally, Coronado is inherently focused on capitalizing on the current high price environment and accelerating our growth plans. Our focus for 2022 is on 3 issues. One, health and safety. The safety and well-being of our workforce remains our #1 priority. And in 2022, we will continue to drive a stronger safety culture and continue to implement various safety initiatives to reduce injuries. Two, improved production. We remain inherently focused on meeting production guidance levels and taking advantage of the diversification and arbitrage our U.S. business provides. In financial, as mentioned by Gerhard, maintaining a strong balance sheet will ensure we retain the flexibility and optionality for growth, both organic and inorganic, and the ability to make distributions in future periods. Over the next few slides, I'll elaborate on our organic growth plans. At Curragh, we currently under current plans expect to reach production levels of 13.5 million tonnes by 2025. Indeed, the current plans have provided a renewed opportunity to evaluate the 15 million tonne case that we introduced several years ago. There are additional opportunities with revised capital and with different expenditure levels to achieve 15 million tonnes, and we'll report on this somewhat later. We will invest in box cuts to enable higher dragline utilization and improved strike length, thereby boosting efficiencies. Box cuts for new mining areas will decrease congestion in existing pits, allowing improved productivity and will increase our preparation plant utilization rates. We also plan for incremental highwall mining volumes in our current plan. As disclosed last week, we have converted 4 fleets at our Curragh North mine from contract mining to dry-hire arrangements. We believe direct management of our employees will result in improved efficiencies. We are also undertaking studies to assess the potential for an underground operation in the future. At Buchanan, we are initiating the construction of a new raw coal storage area which will reduce the risk of the mine being stock-bound due to logistic chain delays. We are also installing additional skips, undertaking construction of the refuse belt extension, undertaking enhanced ventilation works and progressing tailings reclamation works, all of this designed to increase and improve production. At Logan, our focus is on the hiring and retention of employees as we emerge from the COVID-19 labor shortages. We are looking at improving productivities at our Eagle mine and commencing mining operations in the new Winifrede mine. We also plan to undertake refuse belt works, continue reclamation activities and also plan to submit permit applications for our Middle Fork and Elk Lick met coal surface mines. Another organic growth project we will advance further in 2022 is the Mon Valley development project. Mon Valley, formerly known as Pangburn-Shaner-Fallowfield, is a strategic greenfield development in Southwest Pennsylvania. The project will produce a high vol hard coking coal at upwards of 2 million tonnes a year once operational. The project has approximately 197 million tonnes of ROM reserves and is strategically located along the Monongahela River, only a few miles from multiple coke work end users. Coronado expects to advance permitting and planning activities in 2022 for this project. I would now like to talk a little bit about Coronado's ESG efforts. I've said this before, but as we think about ESG, it is important to consider all of the components of what ESG means. While the focus of most people in markets is specifically on carbon emissions, ESG covers all aspects of environmental, social and corporate governance responsibilities that a company such as Coronado is committed to comply with in order to ensure a sustainable business. Coronado takes its ESG responsibilities very seriously and is committed to being a safe, sustainable and ethical operator. Our #1 focus is always on the safety and health of our employees. Coronado remains focused on the safety and well-being of all employees and contracting parties as we continue to execute action plans to manage the risk associated with COVID-19 variants. The rehabilitation of our operations is also a priority. As evidenced by the pictures on this slide, we have made tremendous headway at our Greenbrier and Logan operations in recent times. Since 2018, Coronado has completed approximately 960 hectares of rehabilitation works across the group. This is equivalent to 960 football fields. In 2021, our primary focus was on rehabilitation works at Greenbrier, and these works are seeing excellent results. Since 2019, our U.S. operations have planted more than 277,000 trees to rehabilitate the land and offset emissions. Our goal as a responsible miner is to have 0 significant incidence of an environmental or cultural heritage across our operations, and I am pleased to confirm that we achieved that goal in 2021. Coronado is also intent on community engagement. We are committed to engaging frequently with traditional owners, local businesses and landholders to ensure we have transparent, respectful and meaningful communications. Climate risks and opportunities increasingly form part of our strategic thinking and our investment decisions. We monitor and report our emissions and we are investing in research and development to ensure we are well-positioned for a transition to a low-carbon economy. Turning to Slide 29. The use of steel production is integral in achieving a low-carbon future. The inherent chemistry of steel production requires both mined iron ore and met coal commodities, and it is these commodities that will underpin the growth of renewable infrastructure and technologies such as wind and solar farms. On this slide, we depict examples of key renewable and nonrenewable infrastructure to demonstrate the importance of the met coal industry. For example, the construction of an average land-based wind turbine requires 220,000 kilograms of met coal. Offshore-based wind farms, as shown on the title page of this presentation, require more steel than land-based turbines as the steel requirements for the foundations, towers, gears, et cetera, all require more metallurgical coal. Looking at Slide 30. Blast furnace steel production is essential and the construction of an all low-carbon technologies and renewable energy infrastructure. On this slide, a recent article released by McKinsey shows that steel is the #1 critical component in the development and advancement of renewables. Steel infrastructure is used in hydro, nuclear, wind power, electric vehicles, the list goes on. As of today, blast furnace steel production methods make up 71% of total global crude steel production. While we expect green steel production methods will emerge, in the coming decades, an electric arc furnace method will expand. Wood Mackenzie research still forecast 55% of total global crude steel production will be from blast furnace methods in 2050. It is safe to say that metallurgical coal is here to stay for quite a while yet and high-quality producers such as Coronado will continue to service the market for some time to come. I'll now hand back to the operator to take any questions.

[Operator Instructions] We do have a question. It's from Paul Young at Goldman Sachs.

I have a few questions on Curragh and also a question or 2 on capital allocation. Can I start with Curragh? I mean, thank you for coming out with a new sort of, I guess, 5-year plan for that operation. It's been pretty challenging as the last couple of years at Curragh for a range of issues -- a range of issues there. I'm curious around, Gerry, around this 5-year plan targeting 13.5 million tonnes versus the plan you outlined 2 or 3 years ago, which was creeping Curragh -- or expanding Curragh to 15 million tonnes per annum with the Stanwell Reserved Area. Can you just maybe compare the 2 plans? What is different as far as the mine plan is concerned and also the CapEx required to get to 13.5 million tonnes?

Yes. Let me say that all of the plans we had to go to 15 million tonnes were interrupted by the COVID, the pandemic, the market and all of the circumstances over the past 2 years. So we're 2 years down the road having deferred the capital and the 15 million tonne plan. And as the Buddhists say, you never stick your foot in the same river twice. Well, we now have essentially a different configuration from which to start and different opportunities. We have the ability to spend, we think, less capital to achieve the 15 million tonnes than we did originally, partly because we have expended capital over the last 2 years and done incrementally what we expected to put in one single package and also partly because we have reevaluated some of the plans that will allow us to achieve the 15 million tonnes. Having said that, I think it's -- we are fortunate to have Doug Thompson here, who is running the Curragh operations, and I'd like to have him speak to it as well.

Thanks very much, Gerry. Curragh is a resource that's blessed with not only excellent in-ground resource but also infrastructure that we are looking to leverage, and this presents us options. As Gerry said, we've cut the suit to fit the clock over the last couple of years with capital investment and expansion plan. There's no fault with any of those expansion plans. What we're presently doing is evaluating our present state and then planning for the future. As mentioned in the presentation, we're evaluating options of an underground mine. We also have 2 pits that we will evaluate as potential acceleration of our growth. And if we fulfill these aspirations, the 15 million tonne plan does come back into focus. But at the moment, we're running our operations well under the One Curragh Plan with a great team with a refreshed focus. And we will then take forward a business task to our Board to evaluate these options through the middle of the year and then report back to the market.

Okay. That's really helpful. Can I then ask about the CapEx, the CapEx question? With regards to the $170 million to $190 million at the group level for this year, what percentage of that is Curragh? And then is this just a one-off lift on the pre-strip or box-cut, I should say? Or does that continue in 2023? Do you acquire the same sort of capital levels in '23 at Curragh?

About $90 million currently is Curragh, and not all of the box cuts we're doing are capitalized. That's one of the less important but still factors involved in the higher cost. We are preparing some box cuts on cost. The capital program will continue at something like that level, although we haven't refined the capital program for following years, but we don't see any hugely increased requirement for capital expenditure.

And the Stanwell Reserved Area, is that included in the 5-year mine plan?

Yes. We're mining the Stanwell Reserved Area now and have for the last couple of years.

Yes, okay. No, understood, just clarifying that. The next question I have is on capital allocation and M&A in the mix with -- and in the mix with the 60% to 100% payout of free cash flow. Can I just ask -- I mean, clearly, you are correct and I agree that the big miners will continue to look to divest marginal coking coal assets or coking coal from their portfolios. How do you think about maybe paying at the bottom end of the range, building up the cash balance further to take advantage of the opportunities in the next 2 years? And then the other question I have just with that is that last time you got caught a little bit by the Stanwell payment. On the rebate, you only paid $50 million last year, but at current prices, at some point, that will catch up with you, and that will be a couple of hundred million dollar payment to Stanwell, and we hope when coking coal prices aren't tanking. So how do you think about being conservative on the payout with respect to looking for M&A and also just preparing for that big catch-up payments to Stanwell?

Well, the nice thing about the Stanwell payment, the best thing about it is it ends in about 4 to 5 years. So we don't have to worry about it then. The payments will undoubtedly increase as the coal price increases. It's one of the -- the other good thing you can say about Stanwell, you can -- it is tied to coal price, so it does vary, not exactly, but I wouldn't guess what it will be this year.

I've fitted it into the budget, Paul. So my statement is correct. We remain in net cash positive even after the increased Stanwell payments and even after the dividend payments.

But looking at M&A, I mean, obviously, part of the issue is that in this price environment, a lot of things that come on the market are things that you wouldn't really want to buy. They are profitable now, but the durability of their margins are suspect. We haven't seen what we'd like to see, but we remain prepared. And our cash plans and capital plans, I think, reflect that to be able to look at what does come on the market whenever it does.

Our next question is from Glyn from Barrenjoey, Glyn Lawcock.

Maybe just adding on to Paul's question, could you just sort of help me then -- would you build cash ahead of buying anything, like to build the war chest? Or is your plan to try and maintain like a low net cash business? Just trying to help me understand what it is you're trying to achieve going forward. Balancing the balance sheet versus M&A, how do you think about that?

The first thing we have to achieve is a strong balance sheet to ensure a comfortable durability should things go to hell. The second thing is to -- if we find the right target and can work our way to it, the cash that will facilitate the kind of transaction we find attractive, and we haven't found one yet. But I mean, we wouldn't distribute cash to save -- to enable a transaction that we can't foresee or don't have in mind. And we wouldn't distribute cash at the expense of a very prudent balance sheet.

Okay. So you're not going to build cash for M&A? You will just maintain a -- what do you think is prudent balance sheet then? Is it $100 million to $200 million of net cash? Or how would you think about -- what's prudent?

Glyn, the way I'd respond to that is -- the way I respond to that always is like it's not really -- let's not really have a cash target. But what I believe you need to have is always a liquidity of $100 million to $200 million. That -- if I look back 12 months, 12 months ago when we had prices of $110 per tonne -- $100, $110 per tonne, with the liquidity of between $100 million and $200 million per tonne, we would have sailed through that event and even if that event would have lasted another year. So that is a very -- would be a very, very healthy liquidity for us. And as you know, we have the ABL in place that gives us $100 million. If I have another $100 million cash, that's a very comfortable liquidity position to sell through the worst event we have seen in the last 20 years in the met coal industry.

So liquidity or net cash?

Liquidity, liquidity. That's how I see it. But at the moment, you can, of course, you make up your own calculation and you'll see that we are holding a lot more cash, and that's for the reasons we outlined before. At the moment, we feel like it's prudent to buffer the balance sheet. It's also prudent in terms of potential organic -- well, the organic growth that Gerry outlined and Douglas, but also be ready for potential inorganic growth.

Which is perhaps the best point. We are not -- the distributions are not to the level in this market where we're destroying our ability to approach opportunities because of this distribution. The next one will create another set of considerations, and we'll deal with that then.

Okay. And then just on the start to calendar '22 and just your comments on the coal market, do you think the current price, which is obviously a record, is that more supply-driven or demand-driven? I note, if I look at the exports out of Gladstone for January, they were down, not a very good start to the year. I know you're not the only person who goes out through Gladstone. But just any comments you can make? Is this a demand- or supply-led spike? And then how are you seeing, let's say, the Bowen Basin so far in calendar '22 across -- what you can see across your business, but also maybe just the Bowen Basin in general? Is it still waterlogged? And is that's what causing prices? Just any color you could give would be great.

Yes. Look, it is supply-driven, right? So what we see is across the board is really a normalized demand. Everyone has come out of the COVID situation. The blast furnaces are all turned back on again or most of them. So the demand situation is pretty much normalized. The supply situation supports the current price levels. And there are a few tailwinds that we have. Mongolia is one, and they weren't able -- I mean, I'll give you the example. Mongolia used to truck 2,000 trucks across the border into China. It has come down to 50 trucks because of the border and COVID situation. Out of Australia, we had a number of operations idly -- well, really idling or running on low production, having longwall issues and all of this. That reduced the supply we had in North America. We had port issues -- not we, but the industry, port issues. In Canada, we had wet weather events as much as we had in Australia as well coming from La Nina. So it's really a supply situation right now that gives us a lot of tailwinds. There might be some headwinds, but when I take everything into account, then I think the most -- and I don't want to give a price outlook or guidance here but -- for met coal, but the most conservative price forecast for the year would be way above $200 per tonne right now. So it's coming off, as I said in my part, prices will come down but to a very, very healthy level and way above the long-term average this year.

Gerhard, any observations on the Bowen Basin? Just it seemed to get off to a pretty bad January. Is the basin still flooded if you look across it probably...

Yes, that's like the other part was impacted. We weren't that much impacted, to be quite honest. And I think that will normalize, of course, as well, right? And we also see some of our competitors got approval or one of our competitors got approval to kick -- to start the underground mine again. So we will see a little bit more met coal coming back online from the Bowen Basin. I think the interesting part is that we probably see also [ mid wells ] coming out of the market as there's a rumor in the market that BHP is going to Caledonia, which was a blend for Peak Downs North, which is a [ mid well ] product, 10 million tonnes per annum. So that comes out of the market, that will support [ mid well ] product for the Indian growth market, so that will further improve -- take supply out of the market and support high prices.

Our next question is from Sam McGovern.

I was hoping you can provide a little bit more clarity around the 104% offer that you guys plan to make. Is that in addition to the 10% that you guys can claw back? Or how should we think about that? And to the extent that bondholders do not take the 104% offer, should we expect that, that cash will be used for further dividends? Or how will you use whatever cash is not returned to bondholders?

Yes. Well, I mean, it's an offer for 104% and the bond is trading at 107%. So if -- that doesn't mean no one is going to accept that offer, but I'd like to deal more with the people who accept that offer at 104%. So what are we going to do with the cash if we don't find a lot of acceptance of that offer? We will keep it on the balance sheet for now. For all the reasons I outlined before, we want to maintain a healthy balance sheet right now. I don't give guidance on further dividend payments. At the moment, that's it. And I think the USD 0.09 per CDI expect -- exceeds all expectations, at least the ones I've seen in the market. So that's a very healthy return to shareholders. And yes, it's over and above the $35 million we paid in November and that's over and above the other 10% we can redeem in November this year.

Got it. And just as a follow-up to the earlier question regarding M&A, to the extent that you guys do pursue M&A at some point in the future, how should we expect for you guys to fund that? How much would you guys expect that to be funded via cash flow and cash on the balance sheet versus equity raises or additional debt raises?

We retain all flexibility there. So you can -- depending on the size of the deal, we are very flexible. So we have all options on hand.

It would depend upon the nature of the acquisition.

Our next question is from Chen from Bank of America.

Most of my questions were asked, but I just got a follow-up for your senior secured notes. Could you please give us some direction if you have any deleverage plan? And remind us of your redemption restrictions for that senior secured notes. I have another one after that.

Not sure whether I got the first question right and the second one as well. So I mean, let me be clear on the redemption. So we just redeemed 10% of the bonds in November, so that was a $35 million or we paid basically $35 million at 104%. So now we make an offer for $100 million at 104% so that we -- there will be cash out of -- if there's full acceptance of $104 million, plus some accrued interest in the order of $4 million. And then in November this year, we have the opportunity to buy back another 10% of the bonds.

Right. So what's the plan for the remaining USD 230 million after the USD 100 million? I mean, are you going to just buy 10% every year?

We can buy 10% another time this year, at least. And look, I don't want to give guidance on this, but it's an option and it's an attractive option for us.

Right. May I please also have another follow-up for your future acquisition? Given record high met coal prices, what are you looking for in regards to jurisdiction, size, type of coal? Would you consider thermal coal or continue to stay as met coal pure-play coal quality potential?

So if anything, we would look at stable jurisdictions, and we consider Canada, U.S. and Australia stable. And let me be clear here, we are not expanding into any thermal coal segment. So we are focused on anything met coal. And there are, of course, grades of attractiveness, but I don't want to get into that because that's our strategy.

Our next question is from [ Brad Newcomb ] from [indiscernible].

Yes. I think you've probably answered my questions, asked a couple of questions, but just confirming with notes. My understanding is that you can invoke the 10% at 103% once a year. Just confirming that you have to wait through to November then, the full year? Or you can't -- is there any possibility you can do that at the May coupon payment?

No, we have to wait. Brad, thanks for dialing in. We have to wait until November. And unless we want to go to the market, that's always an option, but at the moment, I can buy it for 104%. The market is trading the bonds at 107%, so I'd rather pick them up for 104%.

Yes. Then you don't get much in the 104%, but you'll never know.

Our next question is from Paul Young again from Goldman Sachs.

Yes, a couple more for me, gents. First one on Curragh and around the operating cost outlook. Gerhard, you gave an inflation number in the U.S., that 7% number. What are you seeing at Curragh as far as labor is concerned? Obviously, diesel is going up, but what are you seeing just broadly on inflation, if you can give sort of a number?

Yes, I won't give you a number. I mean -- and obviously, you see the guidance we have given on our unit costs for the group, but you can expect some inflationary pressure here in Australia as well. And sometimes, actually supply is above the official headline rate of 3.5% when we look at all other costs that -- energy costs, how much they went up. But yes, so look, we see there is inflationary pressure even here in Australia. The U.S. is, of course, higher for good reason, but it's coming our way as well, and that's reflected in our cost guidance.

Yes, yes. Great. And then a question on Mon Valley. This is intriguing. It's been there since the IPO. This project is -- we know it's high quality. You've got U.S. steel in [ parts of the town ] amongst others nearby. What's caused you guys to sort of refresh this and advance these studies? Is it one of those steel mills that has approached you and said, listen, we'll underpin this, we need the met coal, we'll back this development?

It's purely a matter of permitting. All permits for operations in this location are granted locally, and that's a process we're working our way through. So it's one we haven't abandoned, but it's one that will probably take longer than we thought it would. We continue to work at permitting this project.

So Gerry, on that basis, is this a divestment opportunity rather than a development opportunity?

Depends on somebody else's view of what the property is worth and what the likely -- what the issues are in permitting it for their use.

Sure. Okay. And then I will ask one last question, please, on M&A again. And I know the answer is always it comes down to price but -- when it comes to looking at opportunities. But can I just ask broadly in a high level? Do you prefer blue sky mining in Queensland close to Curragh? Or would you guys look at underground -- unionized mature underground coke coal assets in New South Wales?

We have the luxury of being agnostic about that. We're comfortable underground. Much of our -- much of the experience of the management team is underground. And while we're blue sky right now in Queensland, we wouldn't necessarily require to -- we don't have any requirements to stay that way in either location.

There are no further questions at this time. So I'll now hand back to Gerry for any closing remarks. Thanks, Gerry.

Thank you for participating in the call today. Should you have any follow-up questions, please reach out to our Investor Relations team. In closing, we saw a remarkable turnaround in results in 2021 and expect the momentum to continue into 2022. On behalf of the Board and the executive team, I would like to thank all Coronado employees for their continued dedication to the company and ensuring our business remains a leading independent producer of steelmaking coal globally. Thank you.

That concludes the Coronado 2021 Full Year Results Presentation. Thank you for attending. You may now disconnect.