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

Thank you for standing by, and welcome to the Coronado Global Resources 2024 Half Year Results Presentation. [Operator Instructions] There will be a discussion of results from the CEO and CFO, followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Andrew Mooney, Vice President, Investor Relations and Communications. Please go ahead.

Thank you, Darcy, and thank you, everyone, for joining Coronado's 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, we again disclose our important notices and disclaimers and reconciliations of non-U.S. GAAP financial measures. We encourage you to review these statements as well as other filings with the ASX and SEC. As always, Coronado quotes all numbers in U.S. dollars and metric tonnes unless otherwise stated. With that, over to Douglas.

Thanks, Andrew, and thanks, everybody, for taking the time today. I know there's a lot going on in the market. So giving us your time is appreciated. Going to our first slide, the first half of 2024 delivered tangible and promising results and showed the significant potential that lies within our plan and captured returns from investments that we have made over the past 18 months to optimize and expanding our mining operations in Australia and in the U.S. The material improvements in production, sales, costs and revenue reported in Q2 are the direct result of sustained focus on our plan to ensure that Coronado remains competitive and a world-class producer of met coal for decades to come. The significant cost and productivity gains at Curragh in Q2 were made possible by the successful completion to plan of our historic pre-strip waste deficits and the subsequent removal of 4 fleets. This allows for the sustained improvement in dragline productivity and drill and blast performance, setting new benchmarks for future performance. Production and cost improvements were also realized in the U.S. with yields increasing as per our plan at Buchanan following the installation of the Southern District longwall and the reopening of Powellton mine at Logan. Our present preference of organic growth funded by cash flows rather than bolt-on acquisitions funded by debt or equity is proven to be prudent in a challenging market characterized by high inflation and increasing taxes and royalties. Our growth projects in Australia and in the United States continue to make good progress. First coal from Mammoth is expected to be in December 2024, subject to regulatory approvals and Buchanan Expansions are scheduled to be completed in Q2 '25. Completion of both these projects is expected to deliver incremental tonnages of up to 3 million tonnes per annum once fully ramped up. Maximizing returns from our portfolio of high-quality assets through expansions and ongoing productivity and cost improvements will further strengthen our balance sheet. Coronado's reportable incident rate improved year-on-year at group level and also at both of our operating segments, Australia and the United States. Our Total Recordable Incident Rate as of June was 1.01 compared to 1.18 this time last year, which is a 14% improvement year-on-year. However, our business was deeply saddened by the tragic fatality of one of our employees in May at Buchanan. As previously reported, our investigation is underway and until this investigation is concluded, we can't provide further comment other than to note our continued support of Mr. Jackson's family, friends and coworkers. Now turning to Slide 6. The material improvements realized quarter-on-quarter in our business is shown on the slide. We realized ROM production increases of 24%, saleable production increases of 21%, sale volumes increases of 8% and a reduction in mining cost per tonne of 27%. These results reflect 18 months of hard work from everyone in the business to drive our business forward and deliver our plan. However, as I've noted previously, the job is not finished. Our plan has more to offer. We are progressing further operational and cost gains in the coming quarters via the safe implementation of additional productivity improvements and the development of our organic growth projects at Curragh and Buchanan, both of which have extremely positive prospects. With our Q2 results and the positive outlook for the second half of the year, we reaffirm our previously announced 2024 guidance. At Curragh in Q3, we are undertaking a planned major shutdown of one of 4 draglines to ensure its long-term reliability and productivity. And in late July, we incurred some mechanical delays at our overlaying conveyor and bucket wheel reclaimer that needed to be addressed. As of today, both pieces of infrastructure are back operating. However, we did have some coal flow delays in late July and early this month. Our salable production levels are expected to increase in the second half of 2024 due to several factors within our plan, but to highlight a few of these. Both of our longwalls are planned to run simultaneously for periods of H2, which we expect will realize higher blended yields and maximize the full system of our underground equipment, both longwalls and material handling. And the continued incremental production at Logan following the implementation of highwall mining at our surface operations and the reopening of Powellton Underground in the second quarter at Logan and then in addition, the improved Curragh production. Given the productivity improvements in our draglines, our dozer push fleets and our truck and excavator fleets, all of these will result in increased coal exposure rates in the second half of the year. Our performance is underpinned by our strategic priorities. Firstly, striving to ensure the safety of our people; secondly, optimizing our high-quality asset base, progressing our organic growth pipeline at Mammoth Underground and Buchanan Expansion and then maintaining a responsible capital management strategy. And with that, for now, I'll hand over to Gerhard, who will take you through a bit more of the detail on the company's financial performance and market outlook.

Thank you, Douglas, and thanks to everybody joining the call. Today, I will keep my part quite short as we have essentially pre-released most of our results 2 weeks ago. If you go to Slide 9, as of end of June, we continue to maintain a strong balance sheet with healthy liquidity levels allowing for continued investment in our very accretive organic growth projects without the need for raising additional capital. And in the first half of 2024, our business delivered group revenue of USD 1.3 billion and adjusted EBITDA of USD 135 million and net income of $16 million. The majority of EBITDA achieved in the second quarter resulted from production cost improvements, as Douglas previously outlined. Turning to Slide 10. We completed the half year with an available liquidity of USD 414 million and a net debt position of $5 million, so, not much. We have maintained healthy liquidity levels year-to-date despite the negative impact of one-off payment of, that's in Australian dollars, AUD 79 million, inclusive of interest to the Queensland Revenue Office in March. That was a so-called stamp duty thing. This payment was made prior to us lodging our appeal with the Queensland Supreme Court against the QROs stamp duty assessment on our 2018 acquisition of Curragh. Cash generated from operating activities, excluding the QRO payment was $63 million for the half year. As outlined on the slide, a significant component of our earnings continues to be paid in government royalties and rebates. And for the half year ended June, we paid $226 million in government royalties and rebates equating to an approximate cost of $30 per tonne, which is significant. The continued imports on our industry from the elevated Queensland royalty regime continues to put pressure on earnings and cash flow, not only for us but of course, for the entire industry. Moving to Slide 11. Our capital management strategy is set out as follows. Number one, maintain a strong balance sheet; number 2, deliver shareholder returns; and number 3, prioritize organic growth projects to increase production. Upon review of our business strategy, inorganic growth is presently not one of our core focus areas as we realize there is a substantial value in our existing business, which holds more than 800 million tonnes of reserves. The development of Mammoth and our Buchanan Expansion works are examples of that. Down the track, we also have many other options for development, including X-Pit and Z-Pit at Curragh, further expansions at Buchanan and greenfield options at Russell County and Mon Valley. We closed out 2023, maintaining a strong balance sheet as part of the impact on steel and met coal markets from global economic headwinds, including high inflationary pressures and high interest rates in addition to higher Queensland government royalty rates. Our capital management strategy will continue to apply throughout 2024, as we continue our growth investment mandate from the Board. That will translate then to higher production, lower costs, higher margins and ultimately higher shareholder returns over time. If we move to Slide 12, today, Coronado's Board of Directors declares a bi-annual fully franked fixed dividend of $8.4 million or USD 0.05 per CDI to shareholders in accordance with the dividend policy that we have got. Our business continues to invest in its organic growth projects in order to provide the company with maximum flexibility to achieve delivery of these projects only declares at this stage a bi-annual fixed dividend. And subject to the delivery of these projects, ongoing operational performance and market conditions, the Board maybe decide to declare special dividends in future periods. The payment date is scheduled for September 18, this year and no matching offer to senior secured notes holders is required for this dividend. Moving to Slide 13 -- then 14, I want to talk about the met coal markets and steel markets. So look, I think there was a rally in met coal prices in July following supply issues from some of our peers in Finland and the U.S. However, in recent weeks and days, we have seen the premium low-vol Australian met coal price fall to about $216 per tonne. I think the current prices represent the floor. Hard to say in this environment, but we expect that in late August, early September, prices will rebound on the back of Indian restocking appetite after the monsoon season, which is kind of the regular thing every year. In the same period, we expect met coal supply to be restricted with mine production issues from our peers and railway maintenance occurring across the Queensland network. And despite the lower prices, it is pleasing to see the PCI relativities improve. As of today, PCI prices are about 87% of the met coal price, up from 55% relativity at the end of last year. Moving to Slide 15. As we outlined here, undoubtedly, the long-term growth story for met coal is projected -- is a projected future demand from India. India remains one of our largest export destinations and this forecasting GDP growth rates of approximately 6% year-on-year for the next 20 years. Long-term growth in met coal export demand is anticipated to push trade flows up from an estimated at 388 million tonnes in 2024 to an estimated just under 600 million tonnes in 2050. India is expected to lead all countries and import demand growth due to its significant potential for urbanization and industrialization. Imports are expected to increase to 269 million tonnes by 2050, up 241% from today's levels. And what India is projected to import equals almost today's seaborne export market. Indian crude steel production is expected then to go from 150 million tonnes to [ 434 million ] tonnes by 2050, an increase underpinned by blast furnace steel generation methods. And here for now, we continue to remain very bullish on the Indian growth story and Southeast Asia and we have close relationships with these regions. For the half year, 22% of all Coronado coal revenues were generated from exports to India. I will now hand back to Douglas to talk about organic growth investment plans. Douglas?

Thanks very much, Mike. As outlined on our last call, our growth projects at Mammoth Underground and Buchanan Expansion continued to progress to time and on budget. Subject to approvals, first coal from Mammoth is expected in December of this year and the Buchanan Expansion is expected to be completed in quarter 2, 2025. Upon completion of full ramp-up, we expect these projects to deliver incremental tonnages of about 2.5 million to 3 million tonnes of met coal to the seaborne market each year. And as I point out at every opportunity I get, these investments represent the best use of our capital in order to grow our business and ultimately provide sustainable returns to our shareholders, as these projects continue to be funded by internal cash flows generated from our business without the need for additional debt or equity requirements and the projects are also at multiple substantially lower than recent market opportunities. Turning to Slide 18. On this slide, we show images of our newly constructed VAM unit at Vent Shaft 18 at Buchanan and completion of some rehabilitation works at our Greenbrier property. Given the proven success of our first VAM unit at Vent Shaft 16 to reduce emissions, Coronado undertook a commitment to install a second unit at Vent Shaft 18, which was successfully completed and commissioned in June. The establishment of the second VAM unit is expected to further reduce Coronado's emissions as part of our strategic path to a 30% emission reduction goal by 2030. The Greenbrier reflects our commitment to meet or exceed environmental obligations. By the intention of restoring the land to the agreed rehabilitation and closure criteria, we are proud of our rehabilitation efforts across our portfolio of assets. I'd now like to shift gears and talk to the short-term targets and our investment credentials. This slide demonstrates the path we are taking in the short term, which is to achieve higher tonnages, lower costs, lower capital expenditure and higher margins over the next 3 years. The investments we've made to date and we continue to make into our business based on our well-executed plan are bearing fruit. Our fully funded Mammoth Underground project and Buchanan Expansion works will deliver more tonnes to the market. Our cost per tonne will lower given the forecast of higher met coal production rates combined with improvements we've already implemented and continue to implement at improving our productivities at our sites and return to more normalized capital expenditure levels is expected upon completion of the capital projects in the second half of next year. We expect these investments to translate to higher margins and higher free cash flow generation from our business and all of which is within our control. In addition, as the completion date of the existing Stanwell agreements draws closer every month, we expect further valuation uplifts early 2027. These gains for our business are set against a backdrop of higher for longer metal pricing driven by the expected supply demand imbalances outlined by Gerhard a little earlier. So it's important for us to pause and focus on the substantial valuation uplift for our business that will be achieved once the Stanwell supply agreement expires. The current Stanwell agreement is a legacy agreement we inherited when we purchased Curragh in 2017. And to summarize it, the existing agreements under the Stanwell supply agreement was in CSA. CSA Curragh supplying Stanwell power station in Queensland approximately 3 million tonnes of coal per year below market prices. In addition, Curragh is required to pay a rebate akin to a royalty for a certain percentage value of all export tonnes sold. So come late 2026, early '27, these arrangements under the CSA expire. And we will -- and we internally estimate approximately 290 million tonnes of uplift in EBITDA per year as a result. While we do retain a supply agreement to Stanwell to supply 2 million tonnes at the end of the current CSA, we will have an additional 1 million tonnes to sell into the export met coal market, boosting our revenues. Additionally, the Stanwell rebate is no longer payable, a substantial cost reduction for our business. In a scenario with the production from our operations is higher, so we're producing more met coal from Curragh following the implementation of the Mammoth Underground. We're excited about the future margins to be achieved following the expiry of the CSA. Now, turning to our final slide. The fundamental focus of our Board, executive and entire Coronado team is to generate sustainable returns for our shareholders. And our shareholder value proposition is supported by 3 pillars under which we are making significant strides as we progress the milestones within our plan. The first of these pillars is that met coal is a critical material in a market that has structural shortfall in supply. And the pace of change driven by the energy transition is set to exacerbate that shortfall. And our business is extremely well positioned given our long life met coal assets to take advantage of the supply-demand imbalance and resulting pricing environment for years to come. Our second pillar, operational excellence. As I've outlined, we have made significant operational strides at our 3 operations that have resulted in material improvements that we reported in the second quarter. And we are aiming for further cost improvements as we demobilize a fifth fleet from Curragh as our productivity plans bear fruit. We also continue to execute our organic growth plans at Buchanan Expansion and Mammoth Underground that will underpin our 2025 production targets. And our third pillar being capital management, our commitment to prudent financial management and a strong balance sheet ensures that we have a sustainable business. As of the 30th of June, we continue to maintain a strong balance sheet that has funded our organic growth without the need for raising additional funding. Our ongoing commitment to being a responsible custodian of the resources we own is evident in our track record as we continue to invest in rehabilitation and emission reduction works across our portfolio of assets. The Coronado team, the Board and I are excited to execute our plan and thereby deliver sustainable returns to our shareholders. With that, I'll hand over to Darcy, who will take us through the Q&A session.

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

Doug, a few questions on the growth and the portfolio. I mean first of all, it's great to hear the ongoing focus on improving operations and returns. First question, just on the Curragh Underground, I see you've submitted, also, public review period ends at the end of, I think, end of August, end of this month. Can you just step through, I guess, what is the standard procedure as far as the time involved in the Queensland government actually approving an underground like this?

Paul, one of the key things to it is once you go into a this process, it's a predetermined time. They've got a well worked out process or gate stops that you work through in one of these approvals and there's time allotted to each one of them. If we take the outer limit of the time allowed for the process to be worked through is second half of November for us to get our approval of our project. We've gone through the first couple of gates, which include after our submissions that is submissions from theirs for additional information. We supplied all of those and consequently, we went to market for public consultation, as you pointed out, last week, Monday, and that's a 20-day business day process. And once that closes, then we busy gather the information. We go through a couple of other processes of assessment and then require and then we'll get their rulings handed down, which will range from a series of requirements possibly placed on the project for additional controls we need to demonstrate to them as we go through the approval process. The great thing about it is it's quite a well-defined process and it's got set time lines that we and they need to work through to meet our obligations.

That's good clarity. And then maybe switching to CapEx and the profile that you show on Slide 20, just the flat CapEx profile into '25 and then reducing in FY '26. I'm curious about if we strip out the growth CapEx on Buchanan and the Mammoth Underground, what is sustaining CapEx look like in '25? Or more the question is '26 CapEx that's stripped down and that new base, is that majority sustaining CapEx in '26?

That's correct. After half of '25 when these projects end, the growth capital comes to an end in our profile and sustaining capital, so, takes us forward at the moment. Probably of the growth capital, 2/3 is Buchanan, 1/3 this year is Mammoth. Mammoth will probably switch over next year, will be the lion's share and about $140 million of that expenditure this year is for sustaining capital.

And just last one in this set at least, just on bolt-on opportunities. I mean I think you made the comment your focus is on organic opportunities, just improving operations, which is great. But just curious around maybe an operation nearby starting with the [ J ] that, that clearly has synergies and -- but has a very complicated ownership structure, but is packaged together at the moment. But if that opportunity did come up at the right price, would that be something you look at?

As I said, presently, our hands are full. We've got a smaller pool. Gerhard pointed to it. But we've got -- these 2 projects we're delivering now at multiples that you all can do the math as well as we can. And I don't want to comment on other people's projects and their multiples, would be substantially lower. On our internal targets, we're well below 2s. So they're very attractive that would be great return in our debt. The projects that have been out to date haven't caught our interest because they really didn't fit our strategies. As you point out, there are other projects are not just in Australia that have synergistic opportunities for our business, particularly around product operating side of things that are interesting for us. But they've got to make sense for us at the right time. The one across the fence, J does make sense, but it is tied up in a fairly complex ownership structure that hinders interest. And then the other thing, as Gerhard pointed out, the Queensland royalties takes the shine of most investments in Queensland. It makes it very difficult to get investors excited at this stage for 2 reasons. One is just the burden that's put on it and it takes all the upside off so the market has to bear the downside risk and the upside is eroded. And then the other side of it that is taken away is lack of security because changes are made with such limited consultation, it's quite hard confidence in these long-term investments. That's why we are very comfortable with the risk profile we have with the assets that we own at the moment. We understand what products are going to come out of them and we can see the value creation that we can generate from them. And then beyond that, as Gerhard pointed out, we've got 2 open cuts that we're evaluating at the open -- at the moment at Curragh that is in our future. And then we've got 2 greenfields, being Russell County and Mon Valley within the portfolio of assets we already own and understand. So we've got a lot of exciting ideas inside our business before we go and look at other people's opportunities or potential challenges to bring into the business. But that's our present focus and so we wouldn't ever look at new for growth opportunities as it makes sense for us.

Paul, if I can just add one point here. You have seen that we dropped the fourth item out of capital management strategy that was inorganic growth. We just dropped it out. So I think that's a strong message to the market that at the moment, we are just purely focused on organic growth.

Your next question comes from Chen Jiang from Bank of America.

I've got a couple, please. So firstly, by looking at your balance sheet and free cash flow, you are still in negative free cash flow this half. I'm wondering what is the key for you to get back to positive free cash flow besides backhaul prices. So based on your current cost and the production outlook from on Slide 20, you have outlook, especially you achieved a very good quarter of mining cost. So I'm just wondering if you have -- can give us any color on your balance sheet and free cash flow? And then the second one is, what is your back to positive free cash flow? What is the priority? Is that start building a resilient balance sheet back to net cash from net debt or revisiting the dividends beyond the minimum dividend payments?

Yes. On -- let me answer the last one first. So I'll stick to the capital management strategy that we explained. First of all, maintain a strong balance sheet, our balance sheet is strong. So if you go back to -- and we will go back to producing decent cash flows, then Item 2 kicks in, distributions to shareholders. So on your first question, I'll refer to Slide 10. Our operating cash flow is positive. When we look at the stamp duty, that definitely impacted us, USD 52 million. That certainly impacted cash flow. What we're going to do to improve cash flow further is exactly what you have seen in quarter 2, continue on that path, deliver production at low cost, which means basically operate at higher productivity levels.

And then how -- so back to positive free cash flow, I mean what is the priority capability to have a resilient balance sheet back to net cash from net debt? Or you revisiting the dividend because you have been paying the minimum dividends in the last 12 months?

Yes. As I said in my speech just now, we stick to our capital management strategy. The first item is really maintain a strong balance sheet. I do believe we have a strong balance sheet. And then number 2 kicks in. So once we have attractive cash flows and when we look at our dividend policy, we go back to making distributions. So all of our shareholders are keen on this and I think we are well set up with the new projects to make these distributions in the near future.

And then another question for Slide 20. The medium-term outlook for the saleable production mining cost per tonne and CapEx. So by comparing that slide versus the slide released in February, when you released the FY '23 financial results, it's the same. So -- but you had a very good mining cost in the June quarter, which proved to the market your FY '24 guidance is seems achievable. I'm just wondering, is there any upside for your estimated mining cost by looking at that -- the outlook from FY '24 to FY '26 based on what you have achieved in the last quarter?

I mean, first of all, let me respond to the cost question here. The -- we stick to our guidance. Right? So, for this year, we just stick to our guidance and we believe that it's definitely achievable. As you have seen in the quarter 2, our cost performance in quarter 2, we can replicate this in quarter 3 and quarter 4 and then therefore, achieve guidance. Quarter 1 was a little bit of something that put a spanner in the wheels here. So therefore, I would be careful to overpromise anything. And then we don't really give guidance in outer years. But what I can say is exactly what Douglas referred to. We will continue on this productivity improvement path which will reduce costs and will improve production volume. And then in -- at the end of 2026, a large portion of our costs, meaning the Stanwell rebate will fall away and that's a pro forma number. So overall, when you look at the things that come our way, we will become more productive at lower cost.

Your next question comes from Glyn Lawcock from Barrenjoey.

Douglas, I was wondering if we could just go back to Curragh for a minute. I think in your response to Paul's question, you said the outer limit for time to be worked through would be the second half of November '24. I think you meant that's when the latest you think you get regulatory approval. Could you sort of help me understand what can't you do until you get regulatory approval? Like what's the remaining steps you need to do physically at the mine site? And what's the latest you need approval to actually achieve first coal in December, the month of December? I'm just trying to understand exactly what has to occur.

Your choice of words, terminology explains it perfectly from what I meant by outer limits, firstly. And then secondly, what we need is approval for stock. So at the moment, we have done the civil works. There's no regrets behind doing the civil works. We're well progressed on the highwall stabilization and the prep work for the portals. So we can set up portal covers, the infrastructure around all of that and then we can also cut the first entry to portal. All the infrastructure, enabling infrastructure like offices and that are presently going at the moment, water management, stockpile areas, the loading on to the overland conveyor to feed prep plants, all of that work is done. So, all of the critical path items in that regard have been decoupled. Our procurement strategy has the first fleet arriving in November and be ready for operational -- a little bit before November actually, but really for operational and testing, final testing off-site in November. So the last thing that we will need is that approval by the government for a mining method change. And it's important to point out, we fully permitted to mine-less coal. We can mine at all open cut. We're seeking a mining method change. And that's what we're going through at the moment is that permitting change.

Okay. Douglas, so essentially, if you get approval no later in the second half of November this year, could you just kind of punched straight in, that will give us first product coal as you punch straight in December?

Correct.

Just turning to Buchanan, I know it's semantics, but you're now saying Q2 '25, previously May '25, it's a bit of a -- you say it differently in the release today. Is it slipping into June? Or are you still comfortable May even though you're now saying Q2?

May. It is my -- the team have done great work in the shaft sinking and the concrete lining. We're busy doing the shop fitting works at the moment, and that's all on schedule, on time. The surface works is also on program and on time. They're doing very well on both of those scopes of work at the moment, holding time.

And is there anything that we're waiting on that could delay that? Is there any more approvals or anything like that in the time line? What's the critical path?

No. This is the beauty of these projects. So our -- the expansion works in particular, is all within our control. We've got full control there. Material supply has been the longwall for the Southern District. We derisk that by ensuring that we had that delivered last year. We've had that operating for all of this year. And the beauty is the northern sections longwall has gone into operation last week. So we will enjoy both longwalls running for the second half of this year as I said, and that will give us system efficiencies and it will also give us a blended yield efficiency that we couldn't enjoy in the first half. And now we're pushing for that bottleneck being hoisting capacity. When we double our hoisting capacity, we can run up our longwalls more and push the bottleneck out from underground to surface. And that's where the wall storage area project derisks there again and that project is on time.

And if I could just slip a couple of really short ones in for Gerhard. Just firstly, Gerhard on the working capital build, how much of that do you think can be unwound? And how much do you think now sits as permanent? Like just trying to get a quantum and time frame to unwind it.

Probably some of that will be unwound for sure in quarter 3 off the top of my head, it's probably half. There's a lot of inventory build in coal inventories.

Is it 50% -- so about half of what you built over the first half you think you can outline?

Yes.

And then just really quickly, the appeal on the stamp duty for Curragh, I guess there's no update there.

No, no update. It takes a little bit of time, but no update.

Your next question comes from George Eadie from UBS.

A lot of questions have been asked. Just the first one on prices. So Gerhard, you said earlier at $215, you think is a floor. I see July shipments were weak seasonally from Queensland. And you talk to Indian demand before as monsoon season ends. Any insight you can give us here? And maybe any comments on Russian tonnes entering India? Is this a risk to prices potentially?

Yes. Look, I think let's respond to the Russian question first and then overall market. Yes, I mean, Russia has been selling met coal into India and China. And by the way, into South Korea and Brazil quite heavy and quite at a large discount, I would say, between $150, $160 a tonne PCI. PCI is trading at like $180 -- what is it, $187. So big discounts. Now recently, the Americans have sanctioned certain Russian met coal businesses or coal businesses. Elga is one, and Elga is quite a large one. That is -- keeps basically PCI prices at very high relativities. Nevertheless, Russia is trying and will continue to find ways to export their coal into India and China and other places where they can. One example is that they just built a railway that goes via Iran, then to a port where they export it into India. So I think there will be infrastructure routes available for Russia to keep exporting their met coal and that will have impacts on dynamics. But when I say impacts on dynamics, not so much from the met coal benchmark price we talk about. It's more on the prevalent Russian products like PCI and semi products and semi products like Elga has large reserves in semi products. The semi price probably is approximating met coal, sorry, thermal coal prices now. It's not too far away. I think semi-soft today sits at $145 and thermal core sits at $144, something like that. So that's on Russia. We will see some interesting dynamics playing out then, of course, the Americans made it hard for the Russians to export their stuff. Bear in mind that the market is just one global market. If Russian coal is sanctioned at the moment, it can't find its way to customers and it's good for any Australian coal. If it opens up, I think the only thing you see is like PCI goes back to normal relativities. On the overall market question, $215, today, we have seen $215, $216 over the last few days. Prices have come down from in June $250, in July $240 and now, it's $215. So you see a massive market correction, which is common at this stage as India, the biggest offtake, I would say, this importer of met coal has retreated from the market because of monsoon. And then we have other aspects. I think if you look at Europe, you look at rest of Asia, it's pretty -- the steel markets are not very strong at the moment given the overall economy. I think it's amazing to see and to be able to say that met coal prices at $215, there's a floor. In fact, we see prices going up in, call it, early September, when India comes back and then is much stronger than in quarter 4. Long-term prices, it depends, but long-term prices, you have seen the demand dynamic sort of India and Southeast Asia, certain met coal prices will shoot up to price levels we haven't seen before in the next 5 years. Okay?

Yes. Just one more. That was good, Gerhard. Just on the Stanwell rebate. Is there an exact date it expires? I think Douglas said earlier, late '26, early '27. The press says early 2017, is there a date?

There's not really a date because we haven't committed really to tonnes in our contract with Stanwell. It's more energy levels. So really it depends on how much energy we can deliver through our tonnes. So that's why it's the end of -- we are talking about decimals here. So it's end of '26, early when I say early, probably, January 2027.

And just one more, Glyn's question, I didn't catch all of it. But on the working cap unwind, did you say around half of what we've built in half 1 will unwind in the second half? I'm guessing most of that's at Curragh with the delays at the end of the month?

That's why we have seen some coal inventory build at Curragh and some of that will unwind, it won't be there forever. So I think when you look at the core inventories in March, there were like USD 96 million. And then in June, just about USD 140 million, so call it 40 million, 45 million tonnes more. Some of it will unwind. I would call -- I would almost say like all of that increase could unwind. Yes.

Your next question comes from Hazmy Hazin from Foster Stockbroking.

Just on the July progress if can you update us at Curragh and Buchanan do you continue to see production and costs to improve in the month?

Yes. At Buchanan and Logan, our plans are going well. As I mentioned earlier, our longwall in the north is into production, so we can start enjoying the system efficiencies and blended yields that we'll get out of running both of those longwalls and Powellton mine and the additional incremental tonnes from the highwall mining from surface is going to plan. At Curragh, we're on plan. As I mentioned, we've had a few mechanical issues with overland conveyor. And bucket reclaimer, we did the repair works to that, and it's back up and running. It was an impact in the month of July and probably a little bit at the beginning of August. But in the quarter, that will smooth itself out. So there's strong resilience to the plan. And from a cost perspective, as pointed out, our productivity plan showed the potential of standing on fifth fleet. We've signaled that to the market through the first half and we've crystallized that. So we've stood the fifth fleet down and in the progress of demobilizing that in this month.

And just in terms of the met coal price, have you seen, of course, the suspension of Anglo mine earlier pushed the prices and then it came down lower. Do we -- like, will we see actual impact sort of like translate into shortage and all that going into second half when demands pick up in late August or September?

We could. I think when the news came out about Grosvenor prices shot up, that was more speculation to be quite honest, simply because the market was subdued and India is out of the market. And that product is exactly the product that India wants and needs. The premium met coal that Grosvenor produces. So yes, when India comes back, I think Grosvenor produces about 2.5 million tonnes per year saleable production. When -- so that has been taken out of the market. In the short term, it will have an impact on the met coal price. It would definitely support higher price levels when India comes back. And in the long term, it will be substituted with North Goonyella, Centurion that Peabody opens up again. So that volume will come back from Peabody's North Goonyella mine, previous, North Goonyella mine.

And in terms of relativity, I think you mentioned it's improved by 87%. Do you expect a similar kind of level going to second half as well?

It depends on. I think it depends on Russia. I think the reason we see low-vol PCI prices at 87% relativity to the benchmark is Russia and the sanctioning of Russian coal. And it depends on how fast Russian can bring back their volume to the market. I think balanced -- in a balanced market, you see the low-vol PCI relativity at about 73%, 75%. So it could correct a little bit downwards. But I think in quarter 3, we will see elevated levels, maybe even quarter 4.

And just lastly, just a follow-up on earlier question in terms of free cash flow. Do you think like if you are on track and manage to achieve your guidance by the end of the year, would you be able to achieve positive free cash flow by then?

Yes, absolutely.

And the team mentioned in terms of like capital management on healthier strong balance sheet. Do you have any sort of like definition for that, do you view as like certain of gearing or the kind of net cash as you all indicated for [ China ]?

Yes. So I'll go back to what I've been saying for the last 2 or 3 years. I want liquidity of at least $200 million. That means I can go through any difficult downward period like covered without major impacts. So that's how I define what I need in terms of strong balance sheet. But of course, being net cash is a nice position to be in. So -- but I have a clear target for the last 4 years, $200 million liquidity that will get us through any storm.

Your next question comes from Paul Young from Goldman Sachs.

A question on the rebate, the [indiscernible] rebate, the Stanwell rebate. I know you've given that slide again, which is helpful around the timing of that falling away. But just a question on the absolute dollar million rebate in the last period -- a couple of periods. It's been pretty steady. Coal price has been bouncing around. Obviously, your revenues been bouncing a little bit as well. So when it comes to the reference price, [indiscernible] it's inherently it's quite difficult to model, I think, and it's quite -- the cash flow is quite sensitive to the modeling of the rebate. Anything to call out on the go-forward as far as how the reference price might change and any impacts on -- from the coal mix at all between say [ piece-owned ] and hard coking coal? I know it's a hard question to answer.

No, I think we're not going to see major changes in our coal mix. Even the underground will produce probably something what we see right now. At Curragh, we have probably -- I mean, you can see it, unfortunately, you have got the thermal coal in there. That's a big element, 3 million tonnes, but that will go down to 2 million tonnes and the other 1 million tonnes we can convert into some met coal product in 2027. I think when you look at the price as the best, the best way to -- if you want to go into the details, it would be to look at our IPO documents. But I would say, working with an average at group level $7, $8 is probably a reasonable assumption off the top of my head.

And then a question on -- maybe for Doug, just on costs and maybe yourself, Gerhard as well. I know we talked about looking out the removing, I should say, the truck shovel fleet, which is great for absolute cost reduction. I'm just curious around underlying dollar per BCM trends that you're seeing at the moment with respect to controllable -- sorry, uncontrolled costs really around diesel and labor? Labor inflation, no doubt, is still an issue. But just overall, are we seeing any sort of stabilization or maybe reduction in dollar per BCM on truck shovel fleet?

Gerhard, you can comment, if you like. So on labor, yes, there is inflation in the market out there. We're fairly protected at this stage because all of our labor is under enterprise agreement. We signed up a new our workforce last year that carries us forward for 4 years. And our 2 major contractors are the same. Scarcity of labor, obviously, is driving up cost for maintenance skills and the like and we're looking at strategies to protect our business against that going forward. And that's common in the United States. We're seeing parts pricing starting to normalize. Some of the spikes you saw further earlier years of their supply chain challenges where the indices were very high. Those are starting to come back to some long-term normal pricing. So that has started to normalize within the business. So the factors beyond our control are really driven by those 2 big buckets within the business.

Yes. Let me -- I can add to this. I think there's something positive here. I think the U.S., in the U.S., the cost and expenses are fairly -- I wouldn't say fixed, you have always opportunities to improve, but it's a very linear operation, Buchanan is the biggest one, I talk about Buchanan. It's a fairly linear operation. So in terms of productivity, we can definitely squeeze out more productivity, which will result into lower costs when we go into the -- when we look at the period after the expansion. And you've seen quarter-on-quarter already costs came down by $13 per tonne in the U.S., but largely not because of lower costs, more so because of higher production. So we need to look at the denominator. Australia is different. Australia is not a linear operation. Australia is very complex. And as we remove complexity, we have seen -- we have taken costs out nearly by $50 per tonne between the quarters. And also in quarter 1, we had like $127 from memory. And now in quarter 2, we had just above $80. So we talk close to $50 per tonne if things go our way, meaning, we have [indiscernible] always have disruption. I always say that internally it happens unfortunately. Many times you don't know what, but something will happen. But if things go your way and you have good production, and you use the same production levels even more with 5 fleets less, we can see how the mining costs in Australia actually where they can go. They can go into the 70s. They're in the low 80s now. And so therefore, I would say we have further potential to improve our cost absolutely this year and then following years.

And then just last one from me, just on the port allocation. A reminder of RG Tanna, WICET and particularly on WICET, do you still have exposure there to how much longer?

At WICET?

Yes.

Yes. That's beyond our planning horizon. Yes, the exposure. Yes.

And just on the port charges, if you heard anything that -- anything to call out on dollar per tonne versus WICET versus RG Tanna?

No. I mean, WICET is profoundly more expensive. I can call that out, as you know. So -- but it is what it is. I mean that's a commitment we bought when we bought color Curragh at the time, and it's not possible to get out of it. You could buy yourself out of it, but that's uneconomic.

Okay. No problem. Look, I'll take it offline. I've got few more questions on that.

Thank you. There are no further questions at this time. I'll now hand back for any closing remarks.

Everybody, firstly, thank you for making the time to join us today and the questions and the understanding of our business and particularly our plans going forward. We labor the point of pointing out the plan. We are executing a plan as a team. We've called out the strategic focus areas of that plan. And I think as you've seen, it's starting to bear fruit. And we look forward to continue executing our plan and delivering sustainable solutions into the future as we hold control of the plan. [ Cheers ].

Thank you. That does conclude our conference for today. Thank you for participating.