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

Thank you for standing by, and welcome to the Coronado Global Resources 2023 Half Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Andrew Mooney, Vice President, Investor Relations and Communications. Please go ahead.

Thank you, operator, and thanks, everyone, for joining Coronado's 2023 half year investor call. Today, I'm joined by our Managing Director and CEO, Douglas Thompson; and our Group CFO, Gerhard Ziems. Today, Coronado released its half year financial results to the ASX and SEC, including its Form 10-Q financial statements, half 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 non-U.S. GAAP financial measures. We encourage you to review these statements as well as our other filings on the ASX and SEC. Coronado also quotes all numbers in U.S. dollars and metric tons unless otherwise stated. I'll now hand over to Douglas.

Thanks, Andrew. Our strong production performance from operations in the June quarter so far [indiscernible] a half year group revenue of $1.5 billion. This is the second highest half year revenue in the company's history. The strong performance year-to-date comes despite headwinds in the half: higher royalty rates, global inflationary pressures and a met coal price falling below the record highs experienced in 2022. And our teams continue to demonstrate their and our plants' resilience to overcome with the related difficulties at the start of 2023. Our half year saleable production for the group was 8.2 million tonnes, reflecting a 10% improvement on the prior year. Production improvements are due to our sustained operational excellence in our U.S. operations as well as improved mining conditions at Curragh, which saw the team realize the full potential of our One Curragh Plan, testament to our people, management and leadership. Our team also recorded a 16% improvement in safety performance. We remain well below the relevant industry benchmarks in this regard. Our business is in an excellent position to deliver on the next phase of growth. We are fortunate to have a number of organic growth opportunities in Australia and the United States, reflecting and offering efficient use of capital and fully utilizing the talented skills of our people and the experience within the business. Based on the successful completion of our plants, Coronado group will produce 20.5 million tonnes by 2025. While we are aiming to significantly increase production over the next 2 years, we're also committed to reducing our emissions. Our projects afoot have us on a path to deliver our goal of a 30% reduction in emissions by 2030. And thanks to our strong balance sheet, we are well positioned to potentially pursue inorganic growth opportunities. However, as proven by our track record, we remain committed to a disciplined approach to growth, be it organic or inorganic. Our company remains in a strong net cash financial position. And today, we declare our biannual fixed dividend shareholder return of USD 0.5 per CDI. Subject to the delivery of our growth plans, ongoing operational performance and market conditions, the Board will decide if future special dividends shall be declared as the company has done in the past. Our company has grown substantially over the past decade, producing nearly 1.5 million tonnes from Greenbrier in 2013 and now where we stand, our 2023 production guidance between 16.8 million and 17.2 million tonnes remains unchanged. And as I mentioned earlier, we have tangible plans in place to organically grow our business to 20.5 million tonnes by 2025. We are, and seek to continue to be, a leading international producer of high-quality met coal. Met coal, an essential element in production of steel, will continue to be there for a long time to come. Steel starts here is our motto, and this continues to ring true. The inherent chemistry of steel production requires both iron ore and met coal. And these commodities, as a result, underpin the existing uses of steel. Be it automobiles, transportation infrastructure, buildings, almost every aspect of our lives is touched by steel. But steel is also a critical commodity in the development of a low carbon environment. As shown on the slide, McKinsey's research shows that steel is the #1 critical commodity used in the development and advancement of renewables for a low carbon future. Steel is used in almost every aspect of our lives. In 2023, it is estimated that the total global steel production from blast furnace processes will be 1.3 billion tonnes. This level of steel production sustains the current traditional infrastructure development. The ever-increasing demand of renewable infrastructure will drive increased demand for steel. To produce 1.3 billion tonnes of steel, 1 billion tonnes of met coal is required, making met coal a critical mineral for renewable transition. Market research indicates that the total global crude steel production is forecast to increase by 13% to 2.2 billion tonnes by 2050. The method of generating will overwhelmingly continue to be blast furnace, securing the long-term future of high-quality met coal for at least the next 20 years. So simply stated, met coal has a long-term future. And high-quality, long-life producers such as Coronado will continue to see the need of the market for some time to come. And Coronado is well positioned. Our resources are in the top met coal locations in the world, and 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 secures our position as the premier pure met coal business on the ASX. To ensure we get the best from our people and the best people, we, as Coronado, need to ensure that our people feel safe in all aspects [ for the team ]. I'm proud of the passion and the efforts by our people in this regard, but we remain vigilant and focused on the task at hand. The Coronado group total recordable incident rate as of June 2023 was 1.09 compared to 1.29 at the end of June 2022. This is a 16% improvement year-on-year and is actually the group's best performance since May 2019. And in Australia, our total recordable injury frequency rate was 2.52 compared to 4.08. This is a 38% improvement year-on-year. And in the U.S., our total recordable incident rate was 2.05 compared to 2.01. Our recordable rates in Australia and the U.S. remain well below relevant industry averages. Year-to-date, our business has some notable achievements in this regard. In the March quarter, Buchanan preparation plant achieved 1 million man-hours and 10 years TRI free. And in the June quarter, the Logan complex achieved 1 million hours LTI free. These are both tremendous results for the business. As a business, we continue to strive for further improvements in safety. An example of this is our dragline proximity wins project at Curragh. The outcome of this project is to reduce the risk of personnel and equipment interactions. And we're rolling out this technology now that we've proven it to all 4 of our draglines and strive to have this completed by the end of the year. Our learnings through this project, we are sharing with the whole industry to ensure that we can make our industry safer. I'll now hand over to Gerhard who will take you through the company's financial performance and a bit of a market outlook.

Thank you, Douglas, and thanks, everybody, for joining the call. So today, I will go into a bit more detail on our financial results for the half year, talk about today's dividend announcement and also elaborate a bit more on what we are seeing in the met coal markets right now. Coronado delivered strong financial results in the half year '23 despite the impact of global economic headwinds from high inflationary pressures and high interest rates in addition to a higher Queensland government royalty rates that were introduced from 1st July 2022. Liquidity levels for the group are high, and our balance sheet remains in a strong position, leaving Coronado well placed to take advantage of suitable growth opportunities. In the first half of 2023, Coronado delivered a group revenue of USD 1.5 billion, adjusted EBITDA of USD 352 million and a net income of USD 199 million. And despite achieving the record second highest first half revenues in the history of our company, group revenues were lower than the record levels achieved in the last year. This is reflective of our 37% fall in Australian met coal index price year-to-date, partially offset by higher met coal price realization at our operations of 78% compared to 63% last year. So higher mining costs per tonne are due to inflation, higher government royalties in Queensland and the impact of lower production in the March quarter deferred to subsequent quarters following the above-average wet weather in January and train derailment on the Blackwater line. Inflation levels as of 30 June '23 in the U.S. have moderated in recent times to about 3%. However, in Australia, inflation remains high at 6%. We expect average mining costs per tonne to trend lower in the second half this year as the global inflation rates moderate down further and given our second half-weighted production plans. So today, we reaffirm previously announced market guidance, subject to any wet weather or extraordinary events that may occur in the second half of the year. The focus for the remainder of the year is to deliver second half-weighted production plans to meet this guidance. Now turning to Slide 14. We completed the half year with a net cash of USD 192 million and availability -- available liquidity of USD 534 million. So more than USD 0.5 billion liquidity, comprising of a closing cash balance of USD 434 million and then the ongoing ABL of $100 million. And on 3rd August, we successfully completed the refinance of our ABL facility as part of the refinance. We increased the facility limit from USD 100 million to USD 150 million and extended the maturity until August 2026. So we generated $117 million in free cash flow in the half year, which is net of repayments made for capital expenditure, interest and $139 million in corporate tax payments during this period. The important one here is that in June, in that quarter, in June, we actually paid $100 million, about $100 million, on Australian tax related to 2022. So no doubt that question will come up. You will ask me what was the cash burn in the second quarter. The tax related to last year was a big part of this. So at 30 June, our closing inventory balance was $102 million higher compared to the closing balance in December '22. This increase in inventory is due to higher production rates late in the half and timing of sales. This inventory on stockpile is expected to be sold in the September quarter with a return to average stockpile levels by the end of the quarter. So here, you see the second reason why we had some negative cash in the second quarter. The high inventory build in -- particularly in June. So turning to Slide 15. Today, Coronado's Board of Directors declared a biannual fully franked fixed dividend of USD 8.4 million or USD 0.05 per CDI to shareholders in accordance with our dividend policy. Our business continues to pursue organic and inorganic growth opportunities. And in order to provide the company with maximum flexibility to achieve this strategy, only declares the biannual fixed dividend at this time. Subject to the delivery of our strategic growth plans, ongoing operational performance and market conditions, the Board will decide if special dividends should be declared, as the company has done in the past, and then in future periods, a dividend. The dividend record date is 29 August, and payment date is 19 September. Payment date is 19 September. No matching offer to senior secured note holders is required for this dividend. And following the payment of this biannual dividend, we will have distributed more than USD 1.5 billion in cumulative dividends since listing on the ASX in October 2018. Almost half of that was declared and paid last year. I'll now move on and talk to what we are seeing in the metallurgical coal and steel markets. So on Slide 17, 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, but Asia remains our #1 destination for Coronado met coal. And in Asia, that's particularly Japan, India, Korea and then others. 53% of all Coronado coal sales revenue comes from the Asian market. On Slide 18, in the half year, global economic confidence has been low given the ongoing conflict in Ukraine, the global inflationary pressure and rising interest rates. The average Australian met coal index price in the half was USD 294 per tonne, down 37% compared to the average index price in the same half last year of USD 467 per tonne. The falls in price year-on-year are linked to increase in supply from Australia as the Bowen Basin exited the wet weather season and impacts of stalled demand as steelmakers lowered steel prices and delayed the procurement of raw materials. However, despite the fall in prices, the average index price remained firm throughout the period and remained well above the historical average index price of $190 per tonne. Expectations of further stimulus measures and incentives to improve the China real estate market are expected to improve demand and price sentiment in late quarter 3, as will Indian restocking demand forecast to return following the country's monsoon season and continued growth for planned infrastructure projects. And for the remainder of '23, we expect pricing to remain above the long-term historical average price with the SGX forward curve projecting Australian index prices greater than $235 per tonne for the remainder of 2023 and into 2024. Turning to Slide 19. Global economic confidence is projected to return to the midterm, which will underpin infrastructure projects requiring steel. India, one of our largest markets, as I highlighted, is forecasting GDP growth rates in '23 and '24 of 5.6% each year with most other key markets, ex China, forecasting modest growth rates of between 1% and 2%. And China GDP rates, whilst lower than in recent years, are still predicted to be north of 5% in '23 and '24. At the beginning of the year, the Indian government announced in its budget that it was prioritizing investments -- investment-driven growth with spend focused heavily on steel-intensive infrastructure projects. Now the long-term Indian steel growth is projected to increase by 193% to 367 million tonnes by 2040. These growth projections bode well for Coronado given our large long-life reserve base and given India remains one of our largest export customers. Turning to Slide 20. Looking beyond '23, AME forecasts indicate a 65% increase in global export demand for met coal by 2040. As you can see in the chart, the majority of demand growth is planned to come from blast furnace steel production in India. India is expected to lead all countries in import demand growth due to its significant potential for urbanization and industrialization. India export demand is forecast to increase by 226% by 2040, the majority of which will need to be filled by supply growth from Australia. As we have stated in prior calls, it is difficult to see how that supply will materialize and match demand given the limited approvals for new mines in high-quality met coal regions of Australia and North America. In order to meet projected 2040 demand levels, AME forecasts that met coal production from Australia will need to double from existing levels over that time. A lack of supply should ensure higher prices for longer, which places more emphasis on companies like us to continue operating and developing long-term long-life assets. And I will now hand over to Douglas to discuss our organic growth plans.

Thanks, Gerhard. As we announced on our call last month, in June, the Board of Directors officially approved the development of our Curragh North underground met coal project. This project underpins the business' strategy to deliver saleable production of 13.5 from the Curragh complex by 2025. The project has first coal delivery in late 2024 and will be a similar quality of met coal delivered from our open cut operations at Curragh North presently. As per the slide, we'll be utilizing the final open cut highwall in S-pit to directly access the coal seams, thereby significantly reducing the capital expenditure and start-up risk. As a business, we have extensive experience in underground mines. We've operated longwalls and bord and pillars for many years in the U.S., and we are leveraging this experience in the development of this project. The resource estimate for the underground is approximately 48 million ROM tonnes. And our plan is first coal from Phase 1 to be delivered in late 2024 and ultimately, we'll produce between 1.5 million and 2 million tonnes of met coal per year. Future phases of this project has a potential of exporting coal resources under -- sorry, coal reserves under the open cut [ out pit ] waste dumps. Turning to the U.S. operations. The images on this slide shows the progress that we've made to date on the capital works at Buchanan. The construction of the new surface raw coal storage area increases the mine's capacity. And the construction of a second set of skips, which increases hoisting capacity surface, are well on plan. Completion of these projects is estimated to be in 2024, and ultimately, when complete, increase salable production from the U.S. segment to 7 million tonnes by 2025. So combined, the Curragh North expansion project and the Buchanan expansion project will see Coronado produce saleable production of 20.5 million tonnes by 2025. Now turning to our emissions reduction projects and sustainability achievements year-to-date. Coronado has directional intent to net zero operational emissions across our business by 2050. Our business is committed to a 30% reduction in Scope 1 and Scope 2 emissions by 2030, and this is strengthened by decarbonization projects which are afoot. In July of 2022, Coronado successfully commissioned our first ventilated air methane, or VAM, unit at Buchanan. Utilizing the latest available technology, the VAM unit converts fugitive methane emissions to carbon dioxide, significantly reducing the mine's carbon footprint. Since commissioning, the VAM unit has destroyed more than 178,000 tonnes of carbon dioxide with a 94% efficiency rate. This project alone will see us achieve our 30% emissions reduction target by 2030. But given the success of this project, we're well advanced in the installation of an additional unit. We're targeting to install an additional unit by mid-2024 on vent shaft 18 at Buchanan. We, along with our partners, have proven this technology works, and it's safe. As Coronado, we're working with the Australian government to bring this technology to Australian underground mines and ultimately, deploy it at our Curragh underground mine in the future. Turning to our Curragh North gas pilot project. This project targets the capture and use of waste mine gas and use it as a diesel substitute in our operating fleets. Year-to-date, we have completed the drilling of the wells, and we're now moving to the installation of the gathering infrastructure. And our intent is to have this fully commissioned by the first half of 2024, resulting in us capturing the gas to power between 5 to 6 trucks at the mine. The truck photographed on the slide has been operated in a trial phase on site powered by a blend of gas and diesel. And this project is intended to not only reduce our emissions at Curragh, but also reduce our costs as we substitute diesel power with gas power for the fleet. The Coronado team is made up of people who are passionate and committed to create a successful business that delivers for our clients and our shareholders, and our shareholder value position is supported by 3 solid pillars. Firstly, the fact that met coal is a critical material. This commodity touches every aspect of society and is key to the renewable energy transition. And met coal finds itself in a market that is in structural shortfall of supply, and the pace of change driven by the energy transition will only exacerbate this shortfall in supply. So Coronado is extremely well positioned. Given our long-life met coal assets, our high-quality met coal assets, we're there to take advantage of the supply-demand imbalance and result in pricing environment. Secondly, our operational excellence. The Coronado team, since inception in 2013, has a proven track record of successfully integrating, operating and then further developing new assets. And we have delivered more than $1.5 billion of distributions to shareholders since listing on the ASX in 2018. This success is driven by our people, people empowered by our plan to maximize every opportunity and ultimately, drive excellence. And we have an organic growth plan, and we're delivering upon that plan and we can see the business growing to more than 20 million tonnes by 2025. And our third pillar, capital management. Our commitment to prudent financial management and a strong balance sheet ensures we maintain a sustainable business, and our ongoing commitment to be responsible custodians of resource is evident in our track record. We will continue to be disciplined in our approach to investment strategies. The Coronado team, the Board and I are excited to execute our growth plans and deliver for our customers, employees and shareholders. I'll now turn back to the operator, and we'll take your questions.

[Operator Instructions] Your first question comes from Chen Jiang from BofA.

Two questions from me, please. Would you please remind us a new restrictions from your current senior secured notes, if you would like to increase your debt facility. Also, do you have any target gearing level or leverage that you are comfortable with?

So the details on the notes, you can read up. It's all publicized. So if you look at the leverage ratios in there, it's sitting at about 3x as well as interest cover, 3x. As long as we operate within these ratios, we can take on debt.

Right. Okay. Okay. I guess that's the restrictions from the senior secured notes. Okay. And how should we think about your final dividend or full year dividend? Is your current full year dividend policy still intact, 60% to 100% of your annual free cash flow?

Yes. That's still intact. So if you go back to our capital management strategy, first comes maintaining a strong balance sheet, right, followed by distributions and then followed by growth. And so if you look at it in the quarter, we paid out USD 74 million in Australian tax for 2022. We had a massive inventory build, so we want to be a little bit more careful on the -- with the balance sheet. And if you then go back to distributions, we have paid out USD 700 million last year. So it's about AUD 1.1 billion in dividends last year. Now we go back at this moment to the fixed dividend. And then I'll also refer to all the growth opportunities that Douglas highlighted. So in that sequence, we manage our balance sheet and distributions to shareholders.

Okay. Just to clarify. So the minimum of 60% of your annual free cash flow remains intact? No change?

That has not changed. That has not changed. 60% to 100% of free cash flow distributions to investors has not changed.

Right. Okay. Okay. Good to know. Last question, please. What are the CapEx plans required for the Curragh gas project to meet the 30% reduction -- sorry, emission reduction target by 2030? Are you subject to any safeguard mechanism?

There's a few things in that question. So firstly, yes, we are subject to a safeguard mechanism and working through that diligently on this project and other projects. The other point, to achieve our 30% reduction in Scope 1 and Scope 2 by 2030, our VAM project in the United States alone at this stage of our trajectory will help us achieve that goal. And as I've said, the success of that project has encouraged us to do the installation of an additional [ VAM unit ] in our U.S. operations, and we are seeking to bring that to Australia when appropriate to include in our underground operations planned at Curragh. The pilot gas project at Curragh project is intending to reduce emissions and find a way to use fugitive emissions in a productive way. Our target at the moment is to substitute diesel use. So it's slightly different in intent at this stage, but our capital project through the VAM units will achieve our 2030 commitments, and that capital has been committed previously.

May I have a follow-up just on the safeguard mechanism? I'm not sure if you can guide us. What are the costs that you are expecting from that?

I beg your pardon? If you could just say again, what is the cause?

Yes. Cost, cost. Any cost associated with the safeguard mechanism that's in addition to your cash cost?

At this stage, it is so new. And some of the changes that have come through, particularly in the last couple of weeks, needs to work through the approvals. So we've got projects that are already committed, but we don't see any additional costs at this stage as we plan to achieve our requirements under the safeguard. Into future years, there will be. But our intent is to have value-adding projects, like our gas pilot project, that will not only meet our safeguard obligations but also reduce cost.

Your next question comes from Nathan Martin from The Benchmark Company.

So you maintained full year saleable production guidance, 17 million tonnes at the midpoint there. However, obviously, first half saleable production and sales for that matter were less than half of that. So it'd be great to get your thoughts specifically on cadence of shipments in 3Q, 4Q, maybe especially helpful at Curragh where you mentioned you expect inventories to draw down to more normal levels by the end of 3Q.

I'll let Gerhard talk about our sales. But yes, as you pointed out, we built inventory to the back end of the month of June. And our intent is in this quarter to pull down on those sales, and the team has progressed really well on those, I can report already. From a production imbalance, we execute everything according to plan as per the One Curragh Plan. First quarter was impacted by wet weather. The performance in quarter 2 at Curragh, in particular, that was drier, showing the strength of the plan that we have afoot. And the plan has always been back-end loaded from a production profile perspective as we cleared some of the maintenance planning at the beginning of the year, but also the anticipated wet -- our mine plan had forecast that we knew the first quarter will probably be wet. So the plan had a second half loading from Curragh's mine plan perspective. Gerhard, do you want to say anything?

Yes. Look, I think the key for us is really -- and we are reviewing the mine plan right now. It's a lot of inventory built back ended particularly in December. So if -- 2 things will happen if we can phase it forward into October and November. You generate simply more sales, number one. And with higher sales, phasing that into October, November, we can actually also meet our cost guidance because that's the denominator of our cost guidance [ in sales terms ]. So we need to achieve -- through the mine planning, we need to achieve the phasing into October, November to achieve the guidance on both. Well, at the moment, that's possible. That's why we maintained guidance.

Got it. Very helpful, guys. Appreciate that. Maybe next question on the pricing front. You just touched on a little bit on the production call, I believe, a couple of weeks back, but your realized price per tonne in the quarter was down sequentially both in the U.S. and in Australia. And Gerhard, I think you previously noted on the first quarter call that net realization should be higher quarter-over-quarter in 2Q due to the one quarter lag pricing on Coronado's contract. So just curious what was kind of behind the decline there. Do you have any directional thoughts for 3Q realized pricing at this point?

No. Well, 2 things. One, in the U.S., we had more FOR sales. So that's kind of mixing up. And therefore, we achieved [indiscernible] that gets washed up in that mechanics. And then in Australia, we had a little bit of different product quality. So probably a little bit more production of PCI and semi products dragged down the price realization compared to prior quarters.

Do you expect that product mix to return to more normal levels, I guess, in the back half of the year then?

Yes, absolutely. So -- and we see that already in July. So yes, absolutely.

Okay. Great. And then maybe just shifting to the global met markets. Gerhard, you spoke about the met market some in the prepared remarks. But recently, we've seen the FOB [ auction ] price increases start the quarter. CFR China price has also strengthened. But the U.S indices has been moving kind of in the opposite direction. So it'd be great just to get your take on these dynamics, especially the widening of the spread between the Atlantic and Asian markets, and I think maybe especially of interest as we approach the domestic U.S. met coal contracting season.

Yes. I think there's a number of elements in there. So what you see is if you just focus in Australia at the moment, then you see already that the PCI and the semisoft have shifted away from the premium low-vol index. Similar to what I actually predicted for the future, we can see -- I think it's, at the moment, just a snapshot. But if you look at the PCI, it's sitting today at 63% of the benchmark. So remember last year that, that was sitting above 100% and semi sits at the same level. So for some reason, we see probably a large supply or less demand for PCI in the market. I mean when you go back into who is the biggest PCI offtakers, probably India is a large one, very large one. And India is supplied by Russia. And at the same time, India, at the moment, the demand is pretty low because of the monsoon season. So I think the 63% is really a snapshot in time. It might spring back. The long-term average is about 72% -- 73%. But last year, again, last year, it was sitting at above 100%. And then if you look at the U.S. East Coast index, I mean, that was, for a long time, on par with the Australian FOB, sitting at 87% right now, a reflection of market at the moment. Again, so the only economies that are a little bit promising at the moment are really India, and India is in monsoon. China is actually not, at this stage, not too promising. When you look at the CFR, it sits at about, what, $5 higher than the Australian FOB. So that's a clear indicator that there's not a lot of demand out of China. That's what we see in the market. Some promising signs, but not too much. So right now, if you look at all steel economies, be it the U.S., be it Europe, I mean, we talk about recessions in these regions. But on the flip side, on the positive side, is they don't mean too much for met coal prices. What means a lot is really Asia and in Asia, China and India. Japan, by the way, is quiet. South Korea is quiet. So having said all of this, it looks pretty tight. It's probably one of the worst steel markets I've seen in a decade, at least. But the premium lower index sits at just under $250 per tonne. So we might have discovered a new floor. If I look back the last 3 months, it actually didn't go up, certainly not for a long time, below $230 per tonne. So we probably, in the premium segment, have found a floor, if I can say that. It sounds crazy, but $230 a floor. And from here on, I think when India comes back after the monsoon season, which should be in September, we'll probably see an uptick in demand. And then China -- and they had wet weather issues in Northern China as well, to be quite honest, across China. When China comes back, we see more demand out of China. China definitely has to do something about their economy. It's pretty much down. So new -- unemployment rate is 21.3%. Housing sales came down 28%. And they talk about the consumer price deflation. So there needs to be some stimulus, particularly in the real estate market in China, that will bring up steel prices -- steel demand and then met coal prices as well. So I'm a little bit more positive about the second half.

Very helpful. Appreciate the discussion there, guys. I'll leave it there. Best of luck in the second half.

Your next question comes from Paul Young from Goldman Sachs.

Your result was largely pre-reported so I won't ask about your financials per se. But Doug, maybe a question on Buchanan. Really interested in the progress in the -- on that asset. The U.S. assets actually did really well when you look at segmentals in the half. And I saw you spent your $65 million in CapEx in the half in the U.S. I presume mostly at Buchanan on the second set of skips and the extra stockpile areas, et cetera. Just a couple of questions on Buchanan. One is how long -- how much further -- or how much more money is to be spent on Buchanan, I should say, on that project? And from a production perspective, I know you've given the combined production of Buchanan and Logan, but Buchanan was doing sort of 4.5 million tonnes of production back in 2017, 2018. Will the second set of skips get Buchanan back to that sort of level from a saleable production standpoint?

So firstly, Paul, thanks very much. The projects are both well on time and on program. Breaking it down to the detail that you're asking for on how we're going with the spend to date and what's full cost to spend is not what we'll do on these calls from an information share at this stage. What I will say is, yes, a large portion of these projects have long lead items that have to be committed to. So yes, quite a bit of the spend on Buchanan. Particularly, the skips is pre-committed because of the long lead item for the delivery of that. Both are progressing to the extent. So the first being the more storage area. That derisks and debottlenecks the mine from an infrastructure and supply logistics to port and beyond, ensuring that we have sufficient capacity on the other side of the prep plant and on the ore side of the prep plant to ensure that we don't have any logistics impacted delays. The hoisting capacity is to increase the capacity that we have from the underground. As you've seen from our results, our underground performance is presently outstripping capacity. So the additional skips will start matching and then improve upon our present capacity capabilities. And then finally, answering your question around will that get us to historic performance, yes, it will. And it will take the segment up to 7 million across it and Logan.

Yes. That's good information. I can sort of [ turn or go rewind indiscernible] sort of confirm numbers on our side. Next question is around, guys, the M&A piece. And I know you get asked this every call, but a couple of things I want to ask specifically. And that is with respect to what you're looking at, at the moment and the way you're looking at transactions, are you seeing demand from steel mills, particularly India and elsewhere, to form partnerships?

Our partnerships is interesting. So all of the steel mills, we actually caught up with 2 of them this week. Tata's CEO is in town, and we had some time with him and his team on Monday. They're all reflecting a long-term demand for our product. They know our product. It meets their present need and also their expansion projects that they've got going. So they're looking for surety of supply and were keenly interested in our organic projects in the U.S. and Australia to meet their needs going forward and relationships working beyond that. Their aspiration is to secure supply and ensure that we have the [indiscernible] business to keep meeting that. Partnering in M&A opportunities is not a topic that we discussed probably because both businesses respect the processes that are afoot and the confidence that's required in that regard.

Yes. And then just lastly, part B to the question on M&A, and that is around federal and Queensland state government's preferences for -- or views on the origin of major shareholders of those companies involved from a FIRB perspective. Are you getting a sense that that's quite [ a sense of ] sort of debate or could be a final sort of decision-making process and particularly from the -- from both those governments around where they want to see the industry go from an ownership standpoint?

I think comment on other people's business as regards to FIRB is not prudent and not where I want to go. Our own business, we've proven that FIRB supports us and understands what we are. So we don't see issues in that regard. But like everybody else, we'll follow the approval requirements.

Your next question comes from Glyn Lawcock from Barrenjoey.

Douglas, can I just ask you, did you early on in the call say that the 60% of free cash flow is a certainty at the end of the year? Or is it still going to be subject to whether you're still looking at M&A?

No, it's subject to -- obviously, the Board will make the decisions around special dividends. What they will consider is where the market's at, where our operations are at, our growth organically. And if we are and do pursue inorganic, that will be considered as well. So no, it's not a commitment at this stage. That will be by the Board in the future.

Okay. So 60% is the minimum, but only if you've got no other alternative uses for the cash and the balance sheet is in good shape.

Well, in simple terms, 60% of free cash flow.

Yes. But subject to -- so if you have free cash flow in the back half, there's no guarantee I'll get the 60% of that because if you've got better options for the cash, you'll choose to do that. I just want to make sure I'm crystal clear. That's all.

Yes, yes. You are clear as well. So we might use that cash for something else.

Okay. Yes, because, I mean, you were free cash flow positive for the half but chose to pay the $0.5. And then maybe just on costs. You've obviously got a big task ahead of you in the second half to deliver the guidance on costs. I think we talked too much about it on the call last month. But just when you look at that, I mean, how much of that reduction is going to be driven purely by the volume, you think, and then how much by what you can pull out of the business? And then just in addition to that, just on the Curragh gas project, you talk about cost reductions. Is it too early to quantify what that could deliver to the business?

Yes. On the second piece, it's too early at the moment. It's kind of experimental. But on the first piece, it's really -- of course, the denominator here is the biggest impact on the cost reduction, right, by far. We do have cost reduction initiatives in place, and they are quite effective. But if you don't have the denominator in place, it kind of evaporates. And in fact, if I look at the total dollar numbers in the first half, they're actually at least less than what we had in the budget, to be quite honest. It's just the production needs to come online as well. And unfortunately, the denominator is sales tonnes and not inventory tonnes. So the production at the moment based on the mine plan is there for the year. We just need to phase it forward from December because if I produce all that stuff in December and build that inventory, I can't sell it, right? So I need to phase it forward to October and November, and that's what we're looking at right now. And if we can achieve it, then we can definitely hold the cost guidance as well. And that's the plan right now. It is possible.

All right. Cool. And maybe just a final question, just following up on the first part of my questioning. Do you think you can -- you have finalized by the end of this calendar year then, in time for the final dividend, your inorganic opportunities? Or do you think it would probably -- can take longer?

I think so. That's definitely possible. And that if there is anything like this, that would be [ intended ], yes.

Okay. But you're basically saying the external opportunities that are out there could come to ahead before the declaration of the final dividend? Or do you think it goes past February?

At the moment, we expect this -- we have more clarity on the dividend by December, for sure.

Yes.

Your next question comes from [indiscernible] from UBS.

Maybe just a quick one for me. I'm just filling in on [ Lachlan's ] behalf . A lot of questions have been asked already, but just maybe turning to the market. You mentioned positive tailwinds in the second half. I just want to dig into that. And so for us, we are seeing China steel mills starting to receive directives to cap output. Just wondering -- obviously, it's not a big part of the market or your market -- but if you're hearing anything on that and whether that is the key downside risk for prices for the half?

Twofold. It's a good question, and yes, we hear something similar. They have capped output for many reasons. One is emissions reductions, safety reasons and other things. But I think when you look at the previous 2 years, they always try to cap production. And they -- it was kind of difficult to achieve. So when we look at production level -- steel production levels for China for this year, probably they will hit the same number as last year. So that's number one. Number two is what we will see in the future, I believe, is that China will outsource their CO2 emissions, particularly to Indonesia. So I can see that Indonesia is building more coke ovens, and then China starts importing that coke out of Indonesia. And therefore, the demand will come probably more out of Indonesia than China. So that might be the beginning of that. But no, I don't know. But in the future, I definitely see that trend.

That does conclude our Q&A session. I'll now hand back to Douglas for closing remarks.

Firstly, I'd like to thank everybody for taking the time to dial in and partake in our Investor Relations call. If you've got any further questions, please don't hesitate to pass them through to our Investor Relations team, and the details for them is provided. I'd also like to take the opportunity, on behalf of the Board, the executive team and myself to thank all the employees in Coronado. The safety results delivered sets the ethos of the business: That everybody feels safe in the work environment so we can deliver the great results for you, our shareholders. So for that, I'd like to raise my voice of appreciation to all. Thank you.

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