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

Thank you for standing by and welcome to the Coronado Global Resources Full Year Results Presentation. [Operator Instructions] I'd now like to hand over to Andrew Mooney, our Vice President, Investor Relations and Communications. Please go ahead.

Thank you, operator, and thank you, everyone, for joining Coronado's Full year 2022 Investor Call. Today, I am joined by our Managing Director and CEO, Gerry Spindler; our Group CFO, Gerhard Ziems; and Australian COO, Oleg Douglas Thompson. Today, Coronado released its full year financial results to the ASX and SEC, including its Form 10-K Annual Report, full year earnings release and results presentation. All of these materials are available for free on our website at www.coronadoglobal.com. Within our results presentation, you will see our important notices and disclaimers and reconciliations of certain 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 remind all participants that Coronado quotes all numbers in U.S. dollars and metric tons, unless otherwise stated. With that, I'll hand over to Gerry.

Thank you, Andrew. Coronado Global Resources ended 2022 with record financial results, delivered record dividends to shareholders and continue to maintain a very strong and secure balance sheet. Excellent 2022 shareholder returns are in part due to the improved market conditions year-on-year, but also due to the significant work undertaken by our Board, management and employees in progressing strategic initiatives that are coming to fruition. I would like to thank all Coronado employees for their dedication over the past 12 months in helping drive our successes. Our company remains in a strong net cash financial position and today declares its biannual fixed dividend to shareholders of $0.05 per CDI. Following payment of today's declared dividend, Coronado will have returned approximately $1.4 billion to shareholders since listing on the ASX in 2018. As part of our capital management strategy, we will continue to pursue organic and inorganic growth opportunities in 2023. In order to provide the company with maximum flexibility to achieve this strategy, only the biannual fixed dividend is being declared at this time. You will have noted recent announcements on the availability of acquisition opportunities. Acquisition has always been a key part of our growth strategy and subject to the delivery of our strategic growth plans, ongoing operational performance and market conditions, the Board will decide special dividends should be declared as the company has done in the past. Our record financial results and returns on 2022 and have occurred despite the impact to production from considerable wet weather conditions in Queensland and global economic circumstances that have driven significantly higher inflation. Expectations are that weather patterns will improve in 2023 and global inflationary impact will ease, which should translate to improved production and costs for our business. However, should these events outside of our control continue, I remain extremely confident in our ability to address all challenges represented to the company and in our ability to continue to provide enhanced value and returns to all shareholders. As we look ahead, the prospect of met coal prices remaining higher for longer, is apparent, underpinned by steel production growth in India and China, and the prospect of China resuming met coal imports from Australian producers. In 2023, we are targeting improved production rates to take advantage of these higher prices, and we'll continue to focus on cost control initiatives and reinvest in our business for the next phase of growth. At Coronado, our motto is Steel Starts Here. Our motto continues to ring true, given the inherent chemistry in steel production, which requires mined iron ore and met coal commodities. Steel is used in almost every aspect of our modern society, including buildings, bridges, rail systems, houses and everyday white goods. The steel is also the key critical material underpinning the global transition to new renewable energy infrastructure projects that will reduce global emissions. As we show on this slide, steel is used in electric vehicles and wind turbines, but is also the critical component in the development of other low carbon technologies, including hydro, solar and nuclear energy. Experts across the globe all agree that metallurgical coal is an essential building block as the world transitions to a low-carbon economy. Without a doubt, met coal has a long-term future, and high-quality producers such as Coronado, will continue to service the market for some time to come. Wood Mackenzie forecast shows that the total steel production is forecast to grow by 15% to 2.2 billion metric tons by 2015, the majority of which will continue to come from blast furnace production means primarily in Asia. While electric arc furnace and other steel production methods will continue to grow over time, the overwhelming production method for steel in 2050 will continue to come from blast furnaced means. This, therefore, underpins the need for high-quality met coal for some time to come, from jurisdictions with high-quality reserves, such as Australia and North America, the locations in which Coronado operates. Coronado is extremely well positioned with reserves in the top metallurgical coal locations in the world. We continue to maintain long life operating assets in excess of 20 years and met coal resources exceeding 2 billion metric tons. This strong reserve and resource base underpins our position as the premier pure-play met coal business on the ASX. Before Gerhard and I elaborate on the financial results, I will first discuss Coronado's safety results for the year. The safety and well-being of our workforce continues to be Coronado's #1 priority. In Australia, the 12 months rolling average total reportable injury frequency rate was 3.92 compared to 3.07% as of 31 December, 2021. In the U.S., the 12-month rolling average total reportable incident rate was 2.42% compared to 2.51% in the prior year. The lower War Eagle mine, which is part of the Logan complex in West Virginia, achieved 1 million man-hours and 3 years lost time injury free in December. The Logan complex as a whole, finished 2022 with its best total reportable incident rate, while under Coronado ownership, reflecting a 25% improvement on prior year. In the pictures on this slide, Coronado recognized the excellent achievement by our Lower War Eagle team just before Christmas. New and revised health and safety initiatives continue to be implemented across Coronado operations. In Australia, Curragh continues to implement upgrades to its health and safety management system, increased training initiatives and enhanced focus on hazard identification and mitigation plans. In the U.S., we continue to focus on training our existing workforce and developing new miners. This has resulted in more than 112,000 man hours of discretionary training in 2022 that has helped set solid expectations for new hires. Turning to the summary of results; I'm again pleased to advise that we achieved record financial results in 2022. We achieved record revenue of $3.6 billion, record adjusted EBITDA of $1.2 billion, and we returned record dividends totaling $700 million to shareholders. Coronado delivered total shareholder returns exceeding 100% in 2022 on the back of both our high dividend yield and strong capital appreciation in the year. During the year, we continued to progress our mine plans and strategies and achieved solid operating performance and productivity initiatives at all 3 of our operating mines. The production was impacted by the significant wet weather across the Bowen Basin throughout the year. Reclamation efforts were strong in 2022, and we made tangible progress on our rehabilitation and emission reduction strategies. In 2022, we continued to manage a strong balance sheet and implement a prudent capital management strategy. This has set us up well in the next stage of growth, and a very strong 2023. I'll now hand over to Gerhard to go into a bit more detail on the company's financial performance, 2023 guidance and market outlook.

Thank you, Gerry, and thank you to everybody joining the call. Today, I will go into a little bit more detail on our financial results for the full year, provide FY '23 market guidance and also elaborate a bit more on what we are seeing in the markets. In summary, on Slide 13, Coronado delivered record financial results and record dividends in 2022 and remains in a very strong position. The company generated high margins in 2022, principally due to sustained high met coal prices. This was despite the impact from lower production due to the elevated wet weather in the Bowen Basin, but also from higher costs due to the global inflationary pressures and higher royalties. Revenue of USD 3.6 billion was 66% higher than the prior year, driven by higher average met coal price realizations of USD 265 per tonne during the year. Adjusted EBITDA of USD 1.2 billion was 150% higher than prior year and net income of USD 771 million was 207% higher than prior year. During the year, we also reduced the balance, owing on our senior secured notes by USD 75 million and also reinvested in our operations by spending USD 185 million in CapEx. These are very strong results, and we are very proud of them. Turning to Slide 14; we completed the year with a net cash of USD 92 million and available liquidity of USD 434 million comprised of a closing cash balance of USD 334 million and the ongoing ABL of USD 100 million. We generated USD 643 million in free cash flow in the year, which is net of repayments made on the senior secured notes and CapEx. I will elaborate on what we are seeing in the global met coal market shortly, but as we enter the first quarter, we can see that met coal pricing levels remain elevated. I expect us to generate strong free cash flows in 2023 and continue to maintain a strong financial position. So turning to Slide 15; our share price and dividend distributions over the past 12 months have substantially outperformed the market. As you can see in the graphics, we delivered a share price growth of 60% between 1st January, 2022 and 31st December, 2022, while the ASX 200 and SAP 500 indices have generated negative returns. As we have mentioned earlier, Coronado has distributed USD 700 million in cash to shareholders in 2022, while remaining in a net cash position. This has also seen our dividend yield significantly outperform the market and our peers. Our dividend yields just under 50% is substantially higher than the ASX 200 and S&P 500 indices, and also exceeds all of our met and thermal coal peers. If an investor purchased $10,000 worth of Coronado shares on the 1st of January 2022, that investor would have more than doubled their investment by end of the year. Total shareholder returns for Coronado in 2023 exceeded 100% -- more than 100%, which is a great result for our shareholders. So today, Coronado's Board of Directors declared a biannual fully franked fixed dividend of USD 8.4 million or [ USD 0.005 ] per CDI to shareholders in accordance with its dividend policy. The dividend record date is 15th March '23 and payment date is 5 April '23. No matching offer to senior secured noteholders is required. The accumulation of Coronado's year-to-date dividend payments and today's fixed fully franked dividend declaration, sees the company return 87% of 2022's free cash flow to shareholders, which is at the upper end of the board's stated policy to distribute between 60% and 100% of the cash flow per year. We remain committed to our policy in 2023, and we'll continue to make future fixed and special fully franked dividend announcement in accordance with this policy as the year progresses. Coronado's paid and declared dividends are made with the confidence that a strong balance sheet is attained, and we will continue to consider the options for quarterly special dividends, as the year progresses, subject, of course, to board approval. Turning our attention to capital management on Slide 17; Coronado's strategy continues to be broken down in 4 key buckets. In 2023, Coronado will continue to pursue these initiatives, which are; #1, maintain a strong balance sheet with enhanced liquidity and prudent debt levels; #2, delivering shareholders' returns. #3, prioritizing organic growth expenditure to increase existing production rates, particularly while prices remain elevated; and #4, ensuring we retain the financial flexibility to pursue acquisitions when they become available. And we expect that over time, we will see met coal consolidation in the market, as diversified miners look to exit [ met coal ]. And with a strong and flexible balance sheet, we will be in a position to take advantage of any of such opportunities. Turning to Slide 18; in 2023, Coronado's guiding for production of between 16.8 and 17.2 million tonnes. Mining costs of between USD 84 and USD 87 per tonne and capital expenditure of between USD 260 million and USD 290 million. Our 2023 production cost guidance is subject to weather and cost inflation pressures. Coronado is forecasting less wet weather in the Bowen Basin in 2023, which underpins higher production rates at the Curragh mine. With higher production, cost per tonne should reduce despite the expectation that inflation rates will remain elevated for the first half of the year. In 2023, Coronado will continue to reinvest in its Curragh and Buchanan operations, while pricing levels remain elevated. Expansion works at Curragh include capital expenditure on the Curragh North underground development and expenditure targeting the capture and use of waste mine coal gas as a diesel substitute project. Expansion works at Buchanan include expanding surface stockpile space and installing a second set of skips to improve hoisting capacity to the surface. These projects support Coronado's plans to deliver 13.5 million tonnes per annum and 7 million tonnes per annum of saleable coal production from the Australian and U.S. businesses. respectively, by 2025. In addition, Coronado has also previously provided commentary on FY '23 U.S. domestic sales, that will achieve a price of USD 201 per tonne FOR, reflecting a price that is $14 per tonne higher than the price contracted in 2022. These fixed-price tonnage contracts cover 40% of anticipated U.S. production and 90% of anticipated U.S. mine cash costs and royalties in FY '23. So I will now shift gears and talk to what we are seeing in the met coal and steel markets. Looking at the met coal index chart on Slide 20, you can see that in recent times, natural balance has returned to coal markets with the benchmark Australian premium global hard coking coal index at an 8-month high and now priced significantly higher than the benchmark Newcastle Thermal Coal price. Today, we see the Australian hard coking coal FOB Index price of $388 per tonne, supported principally by 3 factors: #1, destocking demand from Indian steel [ emerge ]. #2, supply concerns from Australian linked from Australia linked to wet weather and rail logistics issues; and #3, China overturning its unofficial ban on Australian coal imports. We expect met coal exports to China from our Curragh mine will return in 2023 and displace lower quality and higher cost Chinese domestic or U.S. met coal production, particularly to Chinese steelmakers in Southern regions, where a significant sea freight advantage for Australian met coal exists. Demand for Coronado's U.S. Buchanan plant is expected to remain strong in China, given the low ash, low sulfur characteristics of the coal and long history of reliable and consistent supply into the Chinese market. We anticipate that the resumption of Australian met coal imports into China will improve market dynamics, as well as increased competition for Australian coal and will likely push up seaborne coal prices in the short term. Turning to Slide 21; I think most people understand our business well, but it's important for me to call out our unique diversification of geography, met coal product offering and customer base. We support 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 the attractive coke making characteristics. We maintain a diverse, high-quality customer base across a range of global markets, but Asia remains by far our #1 destination for Coronado's met coal product. Expectations of economic stickiness are high following the resumption of an Australia-China coal trade, following the Chinese government's reversal of its zero COVID policy. GDP growth rates in China are forecasted to be north of 5% in 2023 and 2024. The resumption of coal exports to China from Australia is significant, due to China's position as the largest global steel producer and the proximity large-scale and high-quality of Australian met coal products. Turning to Slide 22; we again reiterate that the global steel demand outlook remains firm led by India, which continues to grow year-on-year and is projecting GDP growth north of 6%. At the beginning of this month, the Indian government announced its budget for 2023-2024, which is extremely positive for the steel sector. The government is prioritizing investment-driven growth, with spend focused heavily on steel-intensive projects. The Indian government has allocated USD 120 billion in capital expenditure for the next 12 months, which will support steel demand growth and in turn, met coal demand growth. Now the long term Indian steel growth is projected to increase by 218% to 392 million tonnes by 2050. These growth projections bode well for Coronado, given our large reserve base and given India remains one of Coronado's largest export customers. Looking beyond 2022, on Slide 23, forecast indicates a 43% 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. India seaborne met coal demand is forecast to increase by 195% by 2050, the majority of which will need to be filled by supplied -- from Australia. And while these demand growth rates are likely to materialize, it is difficult to see how the demand growth will be met by supply growth, given the limited approvals for new mines in the high-quality met coal regions of Australia and North America. The lack of supply will only underpin higher prices for longer, which places more emphasis on ensuring companies like Coronado continue to maintain long-term long-life assets. I'll now hand back over to Douglas to discuss our growth plans. Douglas?

Thanks, Gerhard. As well as the largest producers of seaborne met coal, Coronado is inherently focused on capitalizing on the current high price environment. In order to do that, our focus for 2022 can be categorized into 3 buckets, namely safety, production and finance. Safety and the well-being of our workforce remains our #1 priority. And in 2023, we will continue to drive our strong focus on safety culture and continue to implement our various safety initiatives to reduce injuries. We remain inherently focused on meeting production guidance in 2023. We are investing in organic growth in our operations at Buchanan and at Curragh, sustaining higher long-term production. As Gerhard mentioned earlier, maintaining a strong balance sheet to ensure that we retain the flexibility and optionality for growth, both organically and inorganically and the ability to continue making distributions to our shareholders, as the year progresses. Over the coming slides, I'll be elaborating a little bit more on our organic plans for 2023. At our U.S. operations, progress has been done in our aspiration to reach 7 million tonnes of produced coal by 2025. This will predominantly come by capital investments in our Tier 1 Buchanan underground mine. We recently celebrated the Buchanan expansion ribbon cutting ceremony in December, with the Governor of Virginia joining the team for this event. At Buchanan, we are investing in the construction of a new surface coal storage area, to increase capacity and reduce the risk of the mining [ stockpile ] by downstream train logistics. We're also installing a second set of skips. This will increase our hosting capacity at the mine and further debottleneck the operations. Capital expansion plans on our processing plant will improve yield from the mine, and we're also looking at expenditure in key underground equipment to ensure optimized operations. At Logan, we are focused on planned expenditure and expenditure of our continuous miner fleets, material handling by belt upgrades and ventilation shaft works to ensure optimal production. We're investing in plans in incremental change increases, by looking at highwall mining from our surface operations of this complex as well. Over to the next slide; our U.S. segment also has future options with incremental organic production growth from our Mon Valley development project in Southwest Pennsylvania. The Mon Valley project is currently in permitting phase, but once we've achieved all the necessary permits, it's forecast that this mine can produce approximately 2 million tonnes per annum of high vol or coking coal. The project has approximately 197 million tonnes run of mine reserve and strategically positioned on a river with close proximity to multiple coke works. Turning to Australia now; our plans to deliver 13.5 million tonnes per annum by 2025 is progressing as planned. Producing 13.5 million tonnes of saleable production per year will ensure that we maximize utilization rates of our existing well-capitalized preparation plants. In 2023, we'll build on a successful work and initiatives implemented in 2022, via the One Curragh Plan. We'll continue to invest in box cuts to open up new mining areas and invest in new technology and engineering solutions, including further mine plan enhancements to liberate fleet capacity and incremental tonnage. We are also well progressed on the works on the Curragh North underground development project. We reported this earlier to the market that the prefeasibility study had delivered promising results. As you can see by the slide that we provided -- or the math that we provided on the slide, the underground is proposed to be to the east and starting in the southern part of Curragh North open pit mines. The reserve area is optimal for both cooperations. The advantages we're going to take, is coming directly off the high wall, which will greatly reduce the capital requirements from this project, but also ensure that we have early access to coal. We are targeting first coal in late 2024 and the quality of coal from the underground reserves is very close to and matches the work -- the coal that's coming from the present open cuts. The next phase of this project has started with engineering and support works. I hand over to you, Gerry.

Thank you, Doug. Coronado will hold its next Annual General Meeting on the 25th of May this year, and at that meeting, we will formally announce Douglas Thompson as Coronado's next Managing Director and CEO, in accordance with our planned succession process. Douglas has been the company's Chief Operating Officer for Australia since September 2021, and there's more than 25 years of experience in the mining industry, including as Managing Director and Chief Executive Officer of Thiess. Over the coming months, as I continue in my role as CEO, I will work closely with Douglas to facilitate a smooth transition. Following my transition to my new role of Executive Chair, I will continue for a period to support and guide Douglas and to lead the Board, to ensure our business continues to evolve and grow. I would now like to talk a little about Coronado's significant ESG efforts in 2022. I've said this before. But we think -- as we think about ESG, it is important to consider all of the components of what ESG means, of the focus of most people and 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 complying with. Coronado strives to be a socially and environmentally conscious employer, putting its people and their communities first. We invest in the communities in which we operate, via initiatives such as sponsorships and donations and educational partnerships, by local programs and providing infrastructure support. Climate risks and opportunities increasingly form part of our strategic thinking and investment decisions. As a business, we have committed to a 30% reduction in Scope 1 and Scope 2 greenhouse gas emissions by 2030, a target we have tangible projects in place to meet. We are very proud of our rehabilitation efforts in 2022. The business strives to ensure it meets or exceeds legislative and regulatory environmental obligations, with the intention of restoring the land to agreed rehabilitation and closure criteria. In 2022, Coronado completed 223 hectares of rehabilitations work. To put this work into perspective, we have rehabilitated the equivalent of 223 football fields or the land equivalent to Centennial Park and Queens Park in Sydney combined. Since listing on the ASX in 2018, Coronado has completed more than 800 hectares of rehabilitation with excellent results. This is the equivalent of approximately 2.5 central parts in New York City of rehabilitation works completed in 5 years. As I said before, Coronado has tangible projects underway to reduce our emissions. The Buchanan mine successfully commissioned its Ventilation Air Methane, VAM project, July 2022, utilizing the latest available technology, the VAM project converts fugitive methane gas emissions to carbon dioxide, substantially reducing the mine's carbon footprint. The project has performed as expected in 2022, delivering a 94% emissions reduction efficiency. Overall, projections show a reduction in Buchanan emissions by approximately 60% by 2030 from this project. The project is working so successfully, management are currently investigating opportunities to install another VAM unit on Vent Shaft 18 in the next few years, while Coronado was also investigating other projects to reduce our carbon footprint. If the VAM projects projections are achieved, this project alone will meet our 30% reduction target. In Australia, we are currently investing in an ESG project to capture and use waste mine gas at our Curragh mine. Works are currently in their infancy, with exploration drill works commencing in late 2022. The pilot project involves testing the feasibility of capturing and using waste mine coal gas as a diesel substitute for our truck fleets at Curragh. If successful, this has the potential to significantly reduce our diesel usage emissions and costs in the future. I'll now hand back to the operator to take any questions.

[Operator Instructions] Our first question comes through from Paul Young from Goldman Sachs.

Gerry, interesting comments on M&A. I mean it's all happening in the met coal market at the moment with the higher prices in [ Technip ] and BHP's news, particularly BHP confirming that the south Blackwater and Daunia. Your comments on keeping your powder dry near term. It sounds like the bidding process on Blackwater and Daunia is more near term?

Well, we can't comment on the order or the intensity we will approach these projects, but we're looking at all options.

Okay. I guess the next question then on that is, how do you rate disciplines on M&A? I mean met coal is at $400 a tonne, a lot of companies have strong balance sheets, but arguably you've got the most synergies to capture, particularly between Curragh and Blackwater. So just curious about how you approach this and remain disciplined?

Discipline is key in any case. And as we've said before, there's no such thing as a good deal on a bad project. Again, we'll take a look at the details of the projects, pick those that suit us best and fit us best and proceed from there.

Okay. Maybe last one on this, and it might be a question for Gerhard. Just around your funding options, how broad are they? Could prepayments or funding from steel mills be in the mix if you look at M&A?

Yes, lots of options, Paul, a lot of options. I can't -- don't want to and can't go into the details, but lots of options. It's not only equity, there's a number of other options that are available to us. And I think the good part here is, that we have a strong balance sheet that gives us a lot of flexibility as well.

Our next question comes from Chen Jiang from BofA.

Just a question on your cash cost guidance for FY '23. It seems like a slight improvement compared to FY '22. I remember FY '22 had a lot of weather disruptions as well as geological issues. If we assume less weather disruptions this year, probably there's not much cost improvement for FY '23 from -- by reading your guidance? How should we think of your cash costs in the next few years? Do you think you can drive costs lower post FY '23?

Yes. Let me respond to it. I think we can. Again, I think when we look at last year's cash cost, particularly in Australia, it's probably 2 impacts. One is inflationary pressure, as we all see, I mean, the latest number is 7.8%, the official number. But then the other half that we have seen comes from production, predominantly impacted by wet weather. Just to give you a few numbers, we have seen last year -- just under 800 millimeters of rain in the Bowen Basin at Blackwater, where we are located. That is way above the industry average and even 200 millimeters worse than we have seen in 2021. So we expect this not to continue, although we are not weatherman, but all the indications are, it's stabilizing in 2023. So a lot of that will be positive for production and therefore, unit costs. So the biggest element comes from there and over and above, we have also embarked on transformation initiatives last year already, and these initiatives will come to fruition in 2023. So it's a combination of production and real cost cutting for us. And that underpins of course, our guidance as well.

Another question maybe on the macro level for China and Australia coal trading opportunities. If you can share your plans or strategy to export met coal to China from Curragh?

Look, I mean, first of all, China remains a loyal blue-chip customer for Coronado throughout the years. So even during the last 2 years, under the unofficial Australian ban, we exported successfully in Buchanan out of the U.S. into China. Very popular, if not the most popular product -- met coal product into China, and that will continue. So over and above, of course, we just want to -- interest out of China for Curragh coal and that we've commenced now in 2023. So I think overall, when you look at the overall situation for China Australian met coal product trade, I don't think it will be in 2023, where it was in 2018 or '19. I think China imported about 40 million tonnes out of Australia met coal products. I think this year, it will sit below 10 million tonnes. But there will be some demand request out of China that is quite evident. It has built up in January. January, we only, I think, exported as a country, 134,000 tonnes sort of [ cape ] cargo, but it's building up. And also, combine that with the latest intelligence that we see that China met coal stocks are 34% down year-on-year. So the stock levels are at a historic low, so there will be demand, particularly as China is ramping up the economy.

I guess, would you please remind us your -- just maybe a rough percentage, how much prior the coal ban in the past, that Coronado used to sell to China? Is that mostly a spot market, what are the contracts?

Yes. Out of Australia, most of it was spot. I don't want to go into the details so much. But what I can say is, and that's why I say out of Australia into China this year, probably just 9 million tonnes or 110 million tonnes is that all Australian producers are now concluding the contract negotiations and contracts are usually between 1 and 3 years. They are being concluded. So China will have all the access to the spot market. And I think a lot of spot was taken already out of the market in January and February because of infrastructure events, and particularly wet weather as well. So I think we will see some good competition for any met coal products out of anywhere.

Our next question comes through from Lachlan Shaw of UBS.

Just a couple from me. So just on FY '23 production guidance, if the weather in Queensland is drier than usual, could you actually beat the guidance, or would there be other constraints that you'd come up against?

No, we don't foresee any other constraints. We've taken the long-term wet weather average. We've obviously considered patterns that have prevailed over the last while, particularly for the first quarter of this year, but further predictions are returning to more normal patterns. So if it was drier than that, then clearly, we take advantage of that capacity that we have available to our fleets.

Great. And then just a second one, so we're sort of 6 months plus into the new Queensland royalty regime. Just interested to understand how you're thinking about how that is influencing your decisions around investment in new capacity, so organic and organic. Given the increased tax take, how do you think about what sort of price -- long-term price you need to justify new investment?

Lachlan, let me respond to it. We are not emotional about it, right, we are very rational about it. And so essentially, the additional cost base that this year it will go into our NPV calculator. So any investment in Queensland operations will have to compete for capital that can be deployed in other jurisdictions, be it within Australia -- there's not a lot, but North America is another option as well. So we are not emotional about it. This is just part of the calculator. I think when you look at Coronado, we have paid USD 330 million loan in Queensland royalties in 2022, coming up from USD 170 million the year before. I think just in the half year, the additional increase cost us USD 108 million in 6 months from when the new royalty regime kicked off in July. So you can see that this will -- that impacts the cost base, the operational cost base, no doubt. At the same time, I think, a little bit of solace for us, because Queensland is -- Australia exports about 55% -- makes about 55% of the seaborne export market. There's a good chance, and not that we see that already, that these additional costs will be built into the overall cost base of met coal products. And we can see that already, I think the long-term price for met coal Premium Low-Vol at USD 188 per tonne. I think that, given the inflation plus the Queensland royalty is that, we've seen an uplift of that long-term highs. However, again, I think the important message here is that Queensland has to compete for investments with particularly North American opportunities.

Great. And maybe just a quick follow-up. So just on the cash flows in the year, just on the working capital build, is that expected to stabilize or reverse through FY '23?

Yes. Look, I think when I look at the working capital, a big part of that was our coal inventory build, so that's about USD 38 million. And that helped us with the sales in January as we experienced wet weather. Our sales numbers were actually quite good, and that was just coming down to the inventory build, coal inventory build that we have seen in December. I think the other part was debtors, and that was -- that's all paid down. So debtors, we are up absolutely, and that's also a function of price, significantly up a function of price, that all washed out in January or after.

[Operator Instructions] Our next question comes from Glyn Lawcock, Barrenjoey.

Gerry, I just wondered if you could share some thoughts around -- you have obviously paid the bare minimum dividend and obviously, you are looking at opportunities. Should we think that's the way you're going to manage the balance sheet until these opportunities are either acted upon or resolved? Just your thoughts on how I should think about returns in the next 3 to 6 months, given your appetite to grow?

I think that's right, generally. I'm not sure that it will take 3 to 6 months for this to shake out, but we'll achieve some clarity -- we'll be working to achieve clarity as quickly as we can. And we have the flexibility to do any number of things, including pay dividends if we don't do an acquisition. But it remains to be seen.

Okay. But yes, I mean I guess until it's resolved one way or the other, we probably should just expect you to be slightly conservative and not stretch the balance sheet?

I think that's right.

All right. And then can I just ask a little bit about the start to the year? It was a pretty wet January, but obviously, you managed to get the coal away through some stock drawdowns. Then you had the train incident. How has the train incident impacted you and is the system up there, as stretched as it is in New South Wales, so there's little capability to make it up? Just trying to understand, could sales equal production this year, given you did draw inventory over the course of the entire 2022? So can you actually sell what you produce or would you expect to sell more or less over the year?

This is Douglas. The rail providers after they had their incident above rail and low rail, worked very constructively and transparency with the industry and impacted parties on getting operations up and running. They've given us a program of work, so they believe they can recover the impact of the 2 weeks to the system. So at this stage, our sales and marketing team are working with that to match sales and production for the year.

Okay. So we should expect it to match. And then just very last quick question, hopefully, it is, just the income tax liability on the balance sheet $120 million in current. Is that to be paid out over the year or is there a catch-up lump sum payment due sometime this year as well, that I guess you were probably being conservative on your dividend for as well?

Yes, paid out over the year. So we have become a taxpayer now, Glyn, which is not a bad thing to be put honest. It means we are making [ profits ].

Okay. So that's just the balance of your 12 monthly installments then?

Yes.

All right. And can I slip one more quick one and then if I could, sorry. Just Mon Valley, just your timelines and you said you're going through the permitting process. Is there anything we should be aware of that could prove this project just to take a bit longer, perhaps in the permitting process?

No, except a renewed intensity of effort. It remains an excellent project. The market is providing promising opportunities for it. So we'll pay more attention to it than we've been able to with all of the other competing issues over the last several years.

Our next question comes from Paul Young with Goldman Sachs.

Just a few follow-up questions on Curragh. To start with, with the FY '23 CapEx guidance of $260 million to $290 million, Gerhard, what's Curragh of that number?

I don't think we give guidance on sectors or segments. But as we said before, at Curragh, we have 2 exciting projects that we're working on. One is the underground development, which is quite attractive and low cost as we enter underground from the highwall, so we should save some costs there. And then the other one is the catch and use of the waste mine coal gas in order, to basically power trucks and other things. And some of that CapEx is, of course, in the CapEx number that we see -- in guidance that we see here displayed in the presentation. So remind everybody that our same business guidance CapEx is about 120 million, 130 million tonnes. So the balance goes into -- particularly Buchanan, which we highlighted before and then these Curragh projects.

Okay. That's helpful. And then a question on the Curragh North Underground project. I sort of feel like this has sort of snuck up on us. I know the last couple of years, you spoke about some highwall mining opportunities. But the bord and pillar underground remained -- you spoke about, I think, on the last quarterly you don't see a lot of bord and pillar operations in Australia. I'm just wondering, you've done the PFS now, can you share some overall project metrics and outcomes for that study, CapEx, production, et cetera, and unit costs?

So firstly, the highwall mining is a project that we're looking at to liberate coal that's presently stranded under the -- some infrastructure power lines and overland conveyor and that, so they shouldn't be seen as the same. It has been an aspiration of ours, we have actually looked at it over a number of years of export and underground at the operations. The mine is blessed with great real estate and very good resource. So it lends itself to multiple opportunities. At the same time, I think we reported earlier, we got 2 additional open cuts that we've been exploring as well. The PFS results and the work that we did, did present favorably at the end of the year and has enjoyed support from the Board for continued investment to go to the next phase of the project. Sharing metrics, particularly around metrics like capital at this stage wouldn't be appropriate. It's too early. We want to mature the project a little bit further, and then we'll come back and advise on it. But as Gerhard pointed out earlier, we've got the opportunity to access the underground ore from a highwall. That gives us advantage of low capital requirements to enter. The resource does lend itself to bord and pillar in these mines and the adjacency that have exploited their resource through that mining method very successfully. So it lends itself to bord and pillar, and we see it producing similar quality of coal that's coming out of our open cut at the moment.

Our next question comes from Tony Mitchell Shaw and Partners.

I'd just like to ask you in terms of any potential M&A, would you consider being a joint venture partner with someone else like [ 50-50 say ]?

We would with caveats, which we would go in to at greater length later, but we're very flexible about the way we'd approach this.

Our next question comes from Alex Ren from Credit Suisse.

Just a quick one from me, please. Just wondering like where do you keep poking around merger opportunities. I'm just wondering, between merger and acquisition, is there a preferred route? And also in the wake of your recent thermal coal price retreat, has this changed your thinking around acquiring or merging with thermal heavy assets/companies?

We knew the thermal price would retreat. Obviously, the timing of investigations in the thermal accommodations is not as good as it was. But as Gerhard pointed out, thermal price jumped up again today. So we'll wait to see future events. I think -- look, we'd rather run our own business, but the options available to us, as long as we can maintain our ability to operate and capitalize on what we believe are our chief advantages, is open to whatever consideration is possible.

If I can just add that we are -- I can probably confirm that we are just focused on met coal assets.

We have Lachlan Shaw from UBS.

Just a very quick follow-up. Just on the CapEx guidance FY '23, $260 million to $290 million, how confident or comfortable are you with those numbers, given the broader inflationary environment, both from a inflation we've seen and signs that some sort of cost drivers are peaking or starting to roll off?

Yes, Lachlan, I think we are very confident. Based on the plans that we have finalized before the end of the year and plans that we continue to review, we are quite confident we stay within that CapEx guidance.

We'll take our last question from Glyn Lawcock, Barrenjoey.

Gerry, just your thoughts on the Queensland royalty. Obviously, the industry were very unhappy. There was talk about maybe even taking the government to court, because on the grounds that it was excessive. Just where does the industry currently stand at the moment in discussions with the government? Is it dead in the water discussions, or is there a chance that we could see some amendments to that excessive royalty?

I would hope there are. And as far as being dead in the water, there's a lot of work going on. As Gerhard said, we're not emotional about it. We do believe that it will be a deterrent to future investment, and future investments required for expansions of supply. So you'll likely see some of this made up in pricing, but it's receiving a lot of attention by the industry, and it should.

So I mean the fact that you're probably going to get some competition for BHP's assets, suggest the industry still wants to invest though or wants to buy these assets despite the high royalty. So how do you square that? I mean, it sounds like people still want to invest despite the royalty. So the government is not seeing the lack of investment would appear?

Well, I mean, we're swapping existing assets when we do this, when we look at these kind of opportunities. There will be an impact on new brownfield or greenfield sites without question.

Glyn, we haven't seen the prices yet. So again, everyone has got an NPV calculator and all of this goes into that calculator.

No. I fully appreciate that. I know you've got to take it into account. I just wondered whether, do you sense there's a softening by the government at all in your discussions with them, or you or not prepared to say?

I'm not prepared to say that. I think we have to stay away from driving the -- second guess what the government might do.

Are they constructive conversations you have with the government at least?

I think that varies with the reports you get on the various conversations. I can't be overly optimistic.

Thank you for your questions, everybody. And that concludes our Q&A. I'll hand over to Gerry Spindler for any closing remarks.

Thank you to everyone for participating in the call today. Should you have any follow-up questions, please reach out to our Investor Relations team. In closing, once again, I would like to thank all Coronado employees and contractors for their dedication and efforts to deliver our record financial results in 2022. Met coal prices are high, and we have a strong strategy for the year ahead. I expect 2023 to be another strong year for our company. Thank you.

That concludes our conference for today. We'd like to thank you all for participating and all participants may disconnect.