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

Thank you for standing by, and welcome to the Coronado Global Resources Second Quarter Investor Call. [Operator Instructions] There will be a discussion of results from the CEO and team followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Chantelle Essa, Vice President, Investor Relations. Please go ahead.

Thank you, Darcy, and everyone, for joining Coronado's June Quarter Investor Call for 2025. Today, we released our quarterly report to the ASX and SEC, in which we've outlined our key information related to safety, production, sales, coal markets and financial performance. A more detailed outline of our financial position and results is expected to be released to the market on the 12th of August with our Form 10-Q. Today, I am joined by our Managing Director and Chief Executive Officer, Douglas Thompson; and our Chief Financial Officer, Barrie Van Der Merwe. Within our report, you will see our notice regarding forward-looking statements and reconciliations of certain non-U.S. GAAP financial measures. We encourage you to review these statements in conjunction with our other filings with the ASX and SEC. I also remind everyone that Coronado quotes all numbers in U.S. dollars and metric tons unless otherwise stated. I'll now hand over the call to Douglas.

Thank you, Chantelle, and thank you, everybody, for making the time to join us today. Overall, we've demonstrated significant progress in the last quarter. We've executed to our plan and ended the June quarter on a 6-year record ROM production despite weather events in the quarter, idling one of our mines and other assets, and planned shutdowns to enable our growth projects. We've improved our business resilience, and this reflects the capability of our mines to be operated to meet the market, a great result by our team under current market conditions. And we expect H2 to materially grow in returns with our expansion projects now in full execution. June EBITDA was also positive, covering our capital expenditure in the month. Our cost reductions have delivered, and we continue to execute these to plan, and our costs have reduced to below guidance levels in the quarter and have improved on prior quarter and on prior year. We will deliver material volume increases in the second half of this year as our high-return Mammoth and Buchanan growth projects are both in production, with 3 panels now operating at Mammoth and the Buchanan expansion producing its first coal. We expect the annual incremental run rate of approximately 3 million tonnes to show in the second half of this year as these projects now ramp up to full capacity. We closed the new ABL facility and the Stanwell transaction at the end of the quarter with improved immediately available liquidity of $284 million. Given the extended market conditions, we continue to work through a series of steps to extend and optimize our liquidity further, if required. Key metrics achieved in quarter 2 were: group ROM production, 7 million tonnes, up 20%; and our salable production and our sales volumes were both 3.7 million tonnes in the quarter. At a group level, our total recordable injury rate was 1.05, remaining well below industry averages for both the U.S. and Australia. On our group performance, as I've said, June was a 6-year record ROM performance, and the quarter delivered a 7% improvement in salable production. [Audio Gap] Our total inventory at the end of the quarter was approximately 1 million tonnes. From a group perspective, the increased production is expected to have a material impact on EBITDA and free cash flow growth in the second half. Moving on to operations, specifically in the quarter. For our Australian business unit, the June month was significant. We exceeded plan from a ROM production perspective and achieved plan for salable production. Our ability to recover volumes after unplanned events has been more consistent than in the past, demonstrating the resilience that we built into the business. Our performance this quarter reflects the ability to manage the mines to meet the market. The increased production is before the incremental volume increases expected from our growth projects as these are still in ramp-up phase. Cost reductions continue to be realized and the average mining cost per tonne sold in quarter 2 was below our forecast and budget and well below the lower end of our guidance levels. The third continuous miner commenced production in late June at Mammoth, and Mammoth now has 3 production panels in operation, and they are on line to achieve their full year planned production. Mammoth is expected to deliver a run rate in the second half of the year of up to an additional 2 million incremental tonnes. Moving to our U.S. business unit. We had our planned longwall move in the quarter, and we also undertook shutdowns at Buchanan. These were enabling shutdowns that tie the new infrastructure for the expansion project into the existing infrastructure. The U.S. continues to make incremental improvements every quarter, delivering higher ROM production, salable production and sales volumes than the same time last year and last quarter despite these additional shutdowns, idling one of our mines and idling select assets. Our Buchanan expansion is now 100% complete, on budget and on schedule. And I'll note, this is the second project our team has delivered on time and on budget. We are producing coal and finalizing commissioning of the shaft. The project is expected to deliver approximately additional 1 million annualized run rate from the second half of this year. Together with the dual longwalls now at Buchanan, we expect the U.S. business unit to exceed 7 million tonnes per annum going into the future. This additional capacity has been created by this expansion project. It's great to celebrate the successful completion of 2 major projects, the Buchanan expansion and the Mammoth underground within a 6-month period. And we're looking forward to enjoying the incremental tonnage that will come from these projects as they ramp up in the second half of this year. And with that, I'll hand over to Barrie, who will speak to our financial position.

Thank you, Douglas, and good morning, everyone. As Douglas outlined earlier, the June quarter performance outcomes were strong. It shows that we set up the business to be more resilient and responsive as the June ROM production, a 6-year record performance, clearly shows. While prices continue to be weak, we are controlling the controllables through reliable production, ramping up the expansion project and controlling costs. During the quarter, good progress was also made to extend the company's liquidity runway through the ABL with Oaktree and prepayment and rebate deferral with Stanwell. Our efforts to further strengthen the liquidity position continues, considering the expected continuing weak near-term price environment. The PLV index was volatile during the first half of the year, trading as low as $166 per tonne in March and as high as $196 per tonne in May. The quarter-on-quarter PLV index average was very similar, at $184 per tonne. The average Australian dollar exchange rate for the June quarter was 2.2% stronger than the March quarter, but was in line with our guidance assumption of $0.63. Our planning assumptions for the rest of the year is in line with current market prices. The 20% increase in ROM production was driven primarily by Curragh that produced 1 million tonnes more, a 41% quarter-on-quarter increase. This, and approximately $30 million of cost savings realized in the quarter, drove a reduction of 18% in mining cost per tonne sold to $92 per tonne, the bottom end of our guidance range. This unit cost was achieved without a material contribution to production from our expansions, which are only starting to ramp up now, and the majority of cost savings are to be realized in the second half. The strong production result built a 600,000 tonne ROM stockpile at Curragh, which will support production resilience of the open pits in the second half. The completion of the Mammoth and Buchanan expansions, as Douglas said before, will mean that half 2 CapEx cash flows will be approximately $60 million lower than half 1 with cash capital expenditure of approximately $230 million expected for the full year. At an operating level, before capital expenditure of $75 million, the group consumed only $19 million of cash during the June quarter. This is after $17 million in Queensland state royalty payments, $8 million in Stanwell rebates paid up to May before the rebate deferral started, and $7 million absorbed into working capital. The increased ROM stocks amounting to about $35 million was funded by a short-term prepayment arrangement. Cash outflows included cash backing of $31 million of guarantees; $4 million of transaction costs, which are not expected to recur; and payment of the final dividend for FY '24 of $8 million, which was more than offset by inflows of $170 million from the ABL drawdown and the Stanwell prepayment and rebate deferral. It's worth noting that even at these prices, and before state royalties and the Stanwell rebate, Curragh was in a cash breakeven position for the first half after funding the completion of the Mammoth underground expansion [Audio Gap] $75 million of the $150 million facility. $75 million remains available to be drawn, subject to having adequate eligible inventory and debtors, $22 million of which was immediately available at 30 June. There are no covenant testing for the June quarter, and the covenant thresholds and calculation methodologies up to the March quarter of 2026 have been set in a manner that accounts for a low price environment. Oaktree is supportive of our business and the recent review event resulting from credit ratings downgrades driven by the expectation of lower for longer prices were completed without any change to the facility's terms or availability. We plan on drawing the facility further in half 2 as required to fund working capital increases. The transaction with Stanwell for $75 million in cash upfront and approximately $75 million through progressive monthly rebate deferrals will increase liquidity by approximately $150 million by the end of the year. The liquidity support will be paid in coal tonnes beyond 2026, after which annual cash flow is expected to improve by approximately $150 million per year at current prices. At 30 June, we had $284 million in immediately available liquidity, a further $53 million under the ABL that will fund future inventory and debtors increases, and about $50 million future rebate deferrals from Stanwell. As we've said previously, we continue to pursue all options available to us to maximize our liquidity and financial flexibility during this downturn in met coal markets and from global macroeconomic uncertainty and volatility. We'll be releasing our quarterly financial results on the ASX and SEC on 12th August. I'll now hand you back to Douglas for a market overview. Thanks.

Thank you, Barrie. We continue to see the steel markets and raw material demand coming under pressure. Global demand feels weak and prices have remained subdued. China's declining domestic demand due to real estate weakness is assumed to be partially offset by exports and manufacturing, which is having a prolonged impact on the global demand and supply dynamics. Trade flows and product mixes are changing in response to tariffs, causing changes in dynamics in pricing at different pricing and product tiers. Having said this, the outlook for the second half of this year has potential, supported by several key factors: an anticipated recovery in global steel production outside of China, ongoing tariffs on China steel that has been exported around the world, and ongoing supply rationalization and continued indicators of steel production and demand in India. We're seeing positive signs out of India. India have extended the coke import quota to the end of the year and the potential post-monsoon demand and restocking to rebuild inventories will be seen. And in China, the coke and met pricing have improved in recent days, and they've announced some substantial projects domestically. We maintain the view that the long-term outlook for seaborne met coal remains very positive. And we remain confident that our second half production profile and our plan will support positive returns at today's prices, and we've demonstrated this in the June quarter. And with that, I'll hand over to Darcy to take your questions.

[Operator Instructions] Your first question comes from Rob Stein from Macquarie.

Just looking at the cost result, just wondering, in terms of overburden removal and the like, are we to expect a drift back to more productive movement going forward in future quarters, given that, obviously, due to the current prevailing market conditions, you've had to take some pretty drastic cost measures. Just trying to get a handle on how sustainable the cost position is.

Obviously, there's fluctuations from quarter-to-quarter as inventories move. But if you look at the last 2 years' journey, Rob, at Curragh, we went on a productivity drive led by our draglines. And you'll see in our results, the performance out of our dragline systems have improved materially over the last 18 months and have sustained that. We're moving more than half of our volumes through draglines. So as a result, if we compare year-on-year, about 45% of our installed capacity by truck and excavator has been removed from the system, dramatically reducing cost, but also enabling simplicity of operations, mine planning and the way in which the mine is -- the mines, the 2 open cuts, are set up. What we're going to enjoy going forward at Curragh is now with the incremental tonnes that will come from the underground operations, as that ramps up and those costs are below the cost of the open cut, so we'll enjoy that reduction further. So what we've done at Curragh and the continued ramp-up will definitely be sustained and enjoyed. What we've done in the U.S. recently to address costs, as I said, we've idled one of our surface operations. It was probably the higher cost operations and not the most favorable product. So it was a net benefit from a cash perspective. We've got that in idle. And if the market presents itself in time, we can turn those volumes back on. We've also addressed some of our development units at Buchanan, taking advantage of the investments we've made in the past with lead days on our longwalls to gear back some of that. That cost will come back into the business. But the incremental tonnes that we'll get out of the system now that we finished the project at Buchanan, the growth profile there will more than offset the costs. And then importantly, from a cash management perspective in this market, our discipline remains. We're very tightly controlling our capital. The capital projects that we spent to date now have come to an end. And our cost reduction initiatives that we spoke about at previous calls will continue into the months to come.

So specifically at Curragh, we're not seeing an overburden debt build in the quarter given that there is a time lag between truck and shovel movements regarding overbidding and laying those draglines, good length to sort of attack the same.

No. What we did diligently probably starting 3 years ago is catch up pre-strip deficits by the investment that we did back then. We've maintained a stable mine plan. Everybody in this market will be taking advantage of stripping ratio advantages they have, selecting pits that have got better margin ranking. We, like everybody else, will be doing that because that's just prudent work. But we do have a sustainable mine plan at Curragh, and it's dragline-led. In short, we haven't high-graded the mine to an unsustainable position.

Your next question comes from Glyn Lawcock from Barrenjoey.

You mentioned just before in the question costs fluctuate from quarter-to-quarter as the inventory moves. You gave us $92 a tonne for the June quarter, $72 a tonne for the month of June mining costs. What do you think it is on a cash basis? If you strip out the inventory noise, where do you think this business can get to? And therefore, at current prices and you've already -- prices lag by a quarter, can this business generate free cash flow in the second half?

Glyn, so on that first one, I think that when we look at that metric of cost per tonne sold, it is on a per sold basis. It's not a produced basis. So the other way to look at it is if we actually sell -- if we work through those inventories, we expense the cost, your denominator in that calc would go up. So it's not an artificial $92 a tonne, it was $92 a tonne even if you sold those inventories through and expensed the cost. I think that $92 a tonne sitting at the bottom end of guidance, and our guidance was $92 [Audio Gap] because in the performance for the quarter, we've not had much of the ramp-up -- expansion ramp-up tonnes. So you would think, with the majority of cost savings to come through in the second half and then the additional tonnes coming from the expansions, the $92 [ at least ] should give you a good indication of where it should sit in the second half. You then need to kind of roll that through to kind of what the second half looks like. I mean the prices are tough, the prices are low. We gave a bit of a steer in the quarterly report as to how the underlying operating cash flows look for the second quarter of the year. So there was $19 million of operating cash flow burn in the second quarter. We had high CapEx, so that exacerbated, call it, the net mine cash flow position that was also a burn. But I think it's important to realize that for the second quarter, I think the best indication I can give you as we said, yes, there was cash burn in the quarter, CapEx is coming down into the second quarter, so these prices, you probably would still see some cash consumption, but it won't be as extreme as it was in the first half because the CapEx is coming down and the cost savings are washing through.

Barrie, you dropped out a little bit when you were answering the question. It did for me anyway. So just if I think about that then, so what you're saying is $92 a tonne is a good number. That's cash. And I could multiply that by your salable production, say, 18 million tonnes, right? So we're looking at a business that's sort of $1.65 billion cash from a mining perspective. And then I've got my royalties and everything else, I guess. I'm just trying to make sure that's a true cash number, what you think, $92, as opposed to -- because it does jump around as you say, inventory, but that's a good cash number. Okay.

[ All net ]. I mean you need to [ look at the ] second half, et cetera, but I think that's a fair cash number.

Okay. And then just on the Oaktree debt, and I appreciate you're going to test the covenant at the end of the September quarter, and it's -- I think you made a comment that it's not as onerous as normal. It's set for a low price environment. But given the lag on pricing, I mean, myself and the market is expecting you to report negative EBITDA for Q3 given the pricing is pretty much locked away. How do you pass the covenant test with negative EBITDA? Or are we missing something in the testing?

The EBITDA will be the EBITDA. If you look at -- and the financial results will come out, and you'll see what the second quarter EBITDA was. But that was pretty much line ball for the second quarter. So again, as you see volumes lift into Q3 with the expansions, we'd expect that to be a plus and not a minus. A bit more detail on those covenants, so the thresholds are looser, but then the test will work on an annualized quarterly EBITDA. So you'll go Q3 EBITDA times 4, and that will be the basis of the test. I mean technically, you're right, if you make an EBITDA loss, you've got nowhere to go, but that's not our assessment of what Q3 is going to be.

Okay. No, that's good. And then just to finish off, if I may, given all the cost initiatives, capital reductions, you've made the comment about ABL and Stanwell agreement expected to meet current needs. Does that mean the sell-down of Curragh or other portfolio adjustments are now off the table and you feel you've done everything you need to get through?

As we said, in the current market and prolonged outlook on pricing being range bound, we're looking at all options. So there's a lot of speculation about what we're doing and aren't doing. We don't indulge in the speculation. We have a plan and we stick to our plan. But to make sure that, that plan considers all prudent options, we keep the door open and looking at what makes sense. And as you said, minority sell-downs have been spoken about a lot in the market recently. We're having inbound inquiries. I think most producers in Queensland are getting inbound inquiries because the world is pretty nervous about what is Queensland going to do with the royalty rate and the pressure that's on these operators, will there be sustained growth into the future because the product is clearly going to be needed. We're hearing more and more blast furnaces getting relined and arc furnace projects being deferred. So product demand into the future is going to be there and people are concerned that supply is not going to be there. So with us having growth projects and producing product that clients want, there's a lot of interest. So we will prudently assess those and determine if they're right for our business. But what we've done as a team is built ourselves a very secure runway even in this really hard market to make decisions in a timely controlled manner that are right for all of our shareholders.

[Operator Instructions] Your next question comes from Daniel Roden from Jefferies.

Just wanted to ask, I guess, your commentary on Mammoth has been fairly light in terms of how it's going. I just wondered if you could provide a bit of an update on, I guess, the operational progress. Are you seeing any challenges from the continuous miners touching into the respective sections? And I guess are you seeing confidence that you're going to be hitting production guidance into half 2, and any indication on where and how that performance might go into half 2?

Daniel, thank you. As I said, we've put the third continuous mining unit into production. So we've got now 3 panels. The permanent vent fans have got in the underground infrastructure for material handling. Conveyor belt systems and the like has gone [Audio Gap] on the portals in December, late December, to where we are now where we fully built out 3 panels and got all this infrastructure built into the mine and all crews mobilized and trained and delivering. We're now standing in a position where we've got enough space that's been built underground for these units to operate productively and go through the ramp-up curve. And we've built the enabling infrastructure like ventilation districts and appropriate ventilation controls so that they can operate optimally. The equipment itself is performing well. We are, like all projects, going through a period of learning as we build out the mine. That's what this first 6 months was intended to be. We've got those, and we understand the geology and the geotech around it. And most conditions are playing out the way that we anticipated them to be. So we're in a good position for the ramp-up for the rest of the year. The product that we're producing out of the mine, as we said, is the same product that we produce out of the northern open cut mine. But clearly, it's been extracted in a different manner. So through continuous miner, it's a lot finer. And we've been running a number of trials, as we've been alluding to in this quarter, on how do we put that product to the prep plant, how do we tie that infrastructure in just like in the U.S., where we've been doing tie-ins and shutdowns to enable putting that product through the prep plant and seeing what upside opportunities do we have, particularly using our bypass circuit and having some upside capacity not only on prep plant throughput, but then also on yield side of the product that will come out of that mine. So those are some detail on how Mammoth is going, but we're in a great position now for the second half of the year for the teams to take full advantage of what they've been provided in ramp up.

Yes. You touched on my follow-up there a little bit, but I'm just wondering if there was any expectations on product mix, like price and mix changes into the second half with the ramp-up of Mammoth. You kind of touched on yields and product quality there. So I guess, is there any expectations on those kind of changes?

We're talking to a number of our clients that have expressed interest in some of the products that will come out of the mine going forward. For example, there's a really good PCI that we could put through out of Mammoth. We packaged up some samples and sent those to clients. The other that we're seeing in the U.S. with the Northern Longwall District and Southern Longwall District is we've got slightly different products that are coming out of the South with different reflectance, as an example, and clients are expressing interest in those. So we will explore different products with our clients going forward and seeing if the value is there. But we don't see material change to the products that we're going to be producing or what the market is seeking from us. So we'll keep our uptake mix pretty standard going forward.

Okay. And I guess I appreciate that you're still in your ramp-up curve for Mammoth between the 3 continuous miners. But I was wondering, I guess from a cost front, are you seeing the costs to come in broadly in line with where you expect them to be at this point in time? And do you think you'd be able to hit that? I guess the cost guidance that you put out on the project before is around $9 a tonne from memory. I guess is that target still realistic? And just probably addition to that, inside of the operating cost and CapEx guidance for '25, does that CapEx include a portion of capitalized costs for Mammoth? Is it going to ramp up still?

So the easy way to answer that is yes, yes and yes. So from a Mammoth managing its costs, absolute dollar spend and across all of our business, if you look at our results, the team have done a great job of reducing costs if you compare quarter-on-quarter and year-on-year, particularly at Curragh. So Mammoth is spending actually slightly below budget at the moment. It's the denominator at the moment because obviously, there's much smaller tonnes that are coming through. But as those tonnes ramp up, we very strongly anticipate to get to the numbers that we've put out previously and what you've quoted. And then in the ramp-up, yes, there is development meters that would be defined as capital that will serve the mine for the mine life, and those will get defined as development get capitalized. And yes, that is in the capital numbers, the cash capital numbers, that Barrie referred to.