Semirara Mining and Power Corporation ($SCC)

Good afternoon, everyone. Thank you for joining the Fourth Quarter 2025 Analyst Briefing of Semirara Mining and Power Corporation. I'm Hannah Chan, Investor Relations Officer of DMCI Holdings. I'll be walking you through SMPC's financial and operational performance for the fourth quarter and full year of 2025 before we open the floor for your questions. Joining us today are members of SCC's top management team as shown on your screen, led by our Chairman and CEO, Mr. Isidro A. Consunji; and our President, Chief Operating Officer and Chief Sustainability Officer, Ms. Cristina C. Gotianun. Before we begin, please take note of the following. First, this meeting is being recorded. [Operator Instructions] We will try to address as many questions as time allows, and any remaining questions will be responded to via e-mail after the briefing. This session is intended for analysts and investors to gain insights to SCC's financial performance and strategic direction and management may also discuss forward-looking statements regarding our plans, expectations and growth prospects, and these statements are based on current assumptions and beliefs and do not guarantee future performance. Actual results may differ due to various risks and uncertainties. With that, let's begin the presentation. In the fourth quarter, results moderated amid softer energy prices and lower coal shipments and power sales. Net income reached PHP 3.2 billion compared with PHP 3.9 billion in the same period last year. Looking at the full year, 2025 was a year of stabilizing energy markets, but strong operational performance for SMPC. Net income reached PHP 13.1 billion, down 33% year-on-year, mainly due to lower coal and electricity prices as markets continue to normalize as well as higher production costs. Despite this, the group delivered record coal production of nearly 20 million metric tons, the maximum allowed under the environmental compliance certificate, along with record power output. The power segment also posted its best ever generation electricity sales, supported by improved plant performance during the year. On the capital management side, SMPC paid an additional PHP 5.3 billion in special dividends last November 20, bringing total dividend payouts for 2025 to nearly PHP 14 billion, and that represents about 70% of the 2024 net income, well above our 20% minimum dividend policy, showing our continued commitment to strong shareholder returns even in a more moderate market environment. So turning to the coal market. Coal prices continue to stabilize in 2025 after the exceptional highs seen in previous years. Average newcastle prices declined 22% year-on-year, while ICI 4 prices fell 15%. Toward the end of the year, discussions about a possible reduction in Indonesia's production quota to around 600 million tonnes for 2026 began to support regional coal prices. And at the same time, geopolitical developments, including the tensions in the Middle East, introduced some uncertainty in energy markets that could potentially lead to fuel switching from gas to coal, which support -- may support coal demand in the near term. As of March 6 or last Friday, newcastle and ICI 4 stood at $129.5 and $58.2 respectively, indicating firm prices at the start of the year. In the power market, spot prices continue to ease as supply outpaces demand. Average WESM prices declined 27% for the full year, reflecting wider supply margins in the Luzon Visayas grid. Supply increased as new capacity entered the system, while demand remained broadly stable. Other contributing factors included the short-term extension of a 1,000-megawatt gas-fired plant, lower fuel cost for coal and gas plants and cooler weather conditions. Looking ahead to 2026, prices may remain moderated as additional 4,000 megawatts in renewable capacity and a new baseload plant comes online, further expanding supply margins. Meanwhile, developments in the Middle East could introduce volatility in global fuel markets, particularly if they affect gas prices. Now moving to the earnings breakdown. Both quarterly and full year earnings were lower mainly due to softer coal prices and equity losses from our cement associate. That said, fourth quarter earnings rebounded strongly from the previous quarter, quarter 3, more than doubling on improved production and lower cash costs. We also saw a shift in the earnings mix with the power segment contributing a larger share of the group earnings. Power accounted for 41% of fourth quarter earnings and 54% of full year earnings, given the more stable nature of the contracted electricity sales. For the year, return on equity stood at 23% compared with 33% in the 2024. Turning to our profit and loss statement. Revenues declined due to softer coal and power prices, although record power sales helped caution the impact. Cash costs declined in the fourth quarter as shipments and power sales fell along with lower government share. Importantly -- but more importantly, the group continued to deleverage with total debt declining to just 2% of total assets, putting us on track to become debt free by 2027. Now let me turn to the coal segment. So similar to the group, the coal segment's balance sheet also remains very strong. Debt now stands at just PHP 280 million with a debt-to-equity ratio of below 1% based on a PHP 31 billion in stand-alone equity. With over PHP 26 billion in total assets and about PHP 31 billion in equity, segment remains very well positioned to pursue opportunities going forward. And looking at the stand-alone results as flashed on your screen, revenues declined in both fourth quarter and the full year period, mainly due to lower selling prices and reduced shipments. Cash costs also declined alongside shipments and the effect was more pronounced in the fourth quarter when shipments dropped by around 40%, while the noncash cost fell by 42%. Overall, stand-alone net income for 2025 reached PHP 7.9 billion, down 42% year-on-year. On the operational side, production remained strong during the quarter. Coal production increased by 66% to 48 million metric tons, supported by better access to coal seams at the Narra mine and the ECC expansion, allowing us to end the year with nearly 20 million metric tons in total production. Shipments declined during the period, mainly because of commercial grade inventory at the start of the quarter was low. It was around 300,000 metric tons as of September 30, which limited export volumes. China remained our largest export market, while Indonesia emerged as a new destination, helping broaden the market for Semirara coal. With stronger production during the quarter, total coal inventory increased to about 5 million metric tons, including 1.7 million metric tons of commercial grade coal, improving the availability for shipments going forward. For the power segment, revenues declined slightly in the fourth quarter due to lower sales. However, full year revenues remained broadly stable as higher dispatch volumes helped offset weaker spot prices. Cash costs declined in the fourth quarter due to lower dispatch and fuel costs. For the full year, costs were largely flat at PHP 13.8 billion as higher dispatch levels, spot purchases and maintenance activities helped offset gains from efficient fuel management. Core EBITDA margins remained stable at 41% for the year. Other income increased slightly due to a partial insurance claim related to the SLPGC Unit 1 rotor incident in 2023. The remaining insurance claim was received last month. As a result, full year stand-alone net income for the power segment reached PHP 7 billion. The segment also maintained a net cash position with debt levels declining significantly, while SLPGC remains debt free. On the operational side, plant performance during the quarter was mixed. Overall availability remained broadly stable as stronger performance from SLPGC helped offset outages at SCPC. Average running capacity declined mainly due to SCPC outages, which affected generation and sales during the quarter. In particular, SCPC's average capacity fell by 42% from 506 megawatts to 296 megawatts, mainly due to a series of planned and unplanned outages, including a 70-day maintenance shutdown and a turbine rotor incident late in the quarter. At the same time, BCQ sales increased, allow accounting for 60% of total power sales, up from 44% last year. Average electricity selling prices rose by 6% supported by higher BCQ prices and the larger share of BCQ sales, although this was partly tempered by softer spot prices. As of year-end, 46% of the group's dependable capacity was contracted, providing a more stable revenue base. So looking ahead, our focus is preparing for the coal operating contract bid round while managing evolving market conditions. The DOE, Department of Energy launched the bid process last February under the Philippine Conventional Energy Contracting Program with application submission scheduled for April 28. Proponents will be evaluated based on legal qualifications, technical capability and the 5-year mine work program, which covers various items from development, exploration, production to safety, community relations and rehabilitation and financial capability. Operationally, the opening of the Acacia mine, improved mine access and higher inventories should support coal production and shipments, while we continue to expand markets for the mid- to low calorific coal. That said, we are closely monitoring water seepage conditions in the Acacia mine, which could affect the timing of the mine's full commercial operations if conditions worsen. On the power side, we remain focused on strategic contracting and operational efficiency focused by steady economic and industrial demand. At the same time, we continue to monitor our market volatility, regulatory developments and geopolitical risks, including tensions in the Middle East, which could affect global fuel supply and prices. Fuel accounted for about 42% of the group's cash cost in 2025, so movements in fuel markets remain an important consideration. Overall, our priority remains efficient operations, disciplined capital management and preparing for the next phase of Semirara's coal operating contract. So to summarize, 2025 was a year of strong operational performance despite the softer energy markets. Record coal production generation and dispatch helped cushion the impact of lower prices. And at the same time, the power segment provided a more stable earnings for the group. Importantly, we also continued to strengthen our balance sheet with significant deleveraging that further improves the group's financial flexibility. This places us in a solid position as we prepare for the upcoming Semirara coal operating contract bid round, which represents the next phase of our coal operations. So with that, this ends my presentation, and we open the floor for -- to your questions.

So to open the floor, let's start off with some questions sent via e-mail. So as usual, we will be starting with the coal segment. So the first question is addressed to Mr. Mark Bentayo, Head for the Coal Marketing Group. The first question goes, what are the factors that drove the huge contraction in export volumes in the fourth quarter?

Good afternoon, Hannah. So the decline in export was mainly due to the production quality, availability and the shipment timing. So during this quarter, a large portion of our production in inventory is more of the high sulfur side. And this did not meet our -- the quality requirement of our export customers. So as a result, some shipments were deferred, and we focus our shift in prioritizing domestic shipments.

Sir, next question. Are you seeing any uptick in coal demand since the war in Iran began? And how much have ICI prices risen since the war started?

Yes, there are early signs that there will be a strong demand largely due to stocking activities everywhere and to the gas to coal switching as LNG prices surge. Since the conflict escalated newcastle index have risen by around 10% to 15%, while ICI is about 5%, though we think the increase in ICI prices are driven by the reduced production quota set by the Indonesian government rather than the Iran tensions. Overall, we view that this increase is sentiment driven and dependent on how this geopolitical situation evolves.

So we move on to the next question. The next is addressed to Ms. Carla Levina, CFO of SMPC. Good afternoon, ma'am CTL, what is the latest update on Narra mine's IPH?

Good afternoon, everyone. To give update on the income tax holiday of Narra mine. Last December, the BOI has given approval for our last bonus year. So that period will cover from May 15, 2025 to May 14, 2026. So we are covered with income tax holiday until May 14, 2026. Thank you.

Thank you, ma'am. So the next set of questions are addressed to Mr. Danny S. Tirona. Our -- sir Danny. So Mr. Danny S. Tirona is the Mining Division Head in Semirara Island. So good afternoon sir DST. So first question, should we expect the coal production of 4.8 million metric tons in the fourth quarter for the first quarter or second quarter of 2026?

Good afternoon, Hannah. Good afternoon everyone. For the coal production, generally, the first quarter of the year tends to be drier and more favorable to operations. This usually allows us for higher production compared to the fourth quarter, which is often affected by interruptions or delays due to rain and typhoons.

Sir next question, why the target 2026 production declined to 15 million metric tons from 19.9 million metric tons in actual production of 2025?

As you are all aware by now, our contract, COC #5 will expire by July 2027 and the Department of Energy or DOE is currently bidding out the COC in Semirara. Given that the COC's resolution is still pending, it is prudent to manage cost this year. Thus, no new equipment will be acquired, resulting in very minimal CapEx. Until we get certainty in our COC, then we can plan our refleeting program moving forward. But for this year, we expect a reduction in our mining fleet.

Sir, last question for now. Are you on track to start production in Acacia in the second quarter?

Actually, Hannah, we already had incidental production in Acacia since the last quarter of last year, although still at lower levels compared to Narra. However, we expect production in Acacia to increase in the coming months, assuming we are able to manage the seepage issue, which you have mentioned earlier.

Thank you so much for the clarification sir DST. So we also move on to questions addressed to market team. So we go back to sir MLAB. You previously mentioned that gap between production and shipment was due to higher share of noncommercial grade coal from Narra mine that did not match the current market demand, which had led to shipment decline. Just wanted to ask if there's guidance on this for the next year and whether production mix could improve if production and shipments are likely to align more closely?

Yes. The gap was mainly due to the higher share of our noncommercial coal from Narra, which has high ash and recently higher sulfur. Our main output for this coal is largely domestic and particularly our Calaca plants, which accounts around 18% of our quality mix this year. So some export destinations like China have currently strict ash and sulfur content. So it's really difficult to put these kind of materials out there. But we are really looking and finding some markets that can absorb this kind of material, particularly in India. However, the prices seems to be low right now. So as we move from Narra and transitioning to Acacia, as what Danny mentioned a while ago, we expect better quality of coal and hoping for improved marketability of these kind of materials, which hopefully would help us narrow the gap between the production and shipment.

Thank you for the clarification, sir MLAB. So we move on to the next question that's addressed to both coal and power segment. So this question is addressed to ma'am CCG to Ms. Cristina C. Gotianun, our President and Chief Sustainability Officer and Chief Operating Officer. Ma'am CCG the question goes, can you provide some insights on how the war in the Middle East may impact the coal and power operations of SCC?

So good morning -- good afternoon Hannah, and good afternoon to everyone. We have already seen coal price as indicated earlier by Mark, that the newcastle index and the ICI index have already gone up. On top of that, we are getting higher cost for the fuel, which we need in our operations in the mine site. For the Calaca plant, we expect the cost of production to increase because a major part of the OpEx for the Calaca plant is a price of coal. But of course, this is cushioned by the fact that we use the noncommercial grade coal in our Calaca plant. We do recruit much of the fuel in the Calaca because we were able to retrofit the filing of the border. So that will have a minimal impact in our operational expense.

So we move on to the first 2 questions addressed to power marketing in the power segment side. So with us is Mr. Aris Policarpo, Manager for Power Market and Commercial Operations. So Aris, first question goes, have spot prices risen since the start of the war in Iran and by how much? And how has this affected your contracting strategy? And are you now securing contracts at better prices?

Good afternoon, Ms. Hannah and good afternoon, everybody. We could not say with certainty that the recent increase in coal prices is a direct effect of the conflict in Iran because it was initially attributed to the production quota of Indonesia. However, we are anticipating that this will aggravate the coal prices. And since we are anticipating the increase to happen in the next few weeks, given that we are incorporating that risk in our negotiation table with our prospective customers. And yes, the conflict will increase our cost risk, but it will also increase the demand for secured and stable contract. Thank you.

Next question, how long are the terms of the 363 megawatts of contracted capacity? And do you see this number increasing further or lessening this year?

Majority of that contracts are -- have a duration of 1 to 2 years. This is a deliberate approach in terms of agility of our commitment with our customers. Again, we have ongoing negotiation with prospective customers, but the closure or execution of this agreement will depend upon our terms agreement with this contract if the terms are viable -- commercially viable and the risk factors are already incorporated. Thank you.

So the next question is about the Saint Raphael expansion project. So we have ma'am CCG to answer our question. So ma'am can you provide updates on the Saint Raphael expansion? Is there any -- is there interest from Meralco to partner on this project?

We do not have any information about the interest -- possible interest of Meralco on the project of SLPGC as of now.

How about updates on the Saint Raphael?

Well, we are doing all 3 evaluation of the EPC with the contractor and procurement of the equipment as of now. We're also looking at the market of the SLPGC generation at the same time, looking at the NGCP finishing the transmission line.

Thank you, ma'am, for the explanation. So ma'am next question, what is the -- we move on to the questions addressed to the corporate side. So the question goes, what is the current status of the Semirara coal contract rebidding? And does it seem likely that it may be awarded to some other companies?

Okay. The DOE launched bid around last February 27. And so far, we have -- we know of 3 entities who procure the documents, and that is us and the group of Manny Pangilinan and the group of Ramon Ang. So that was last February 27 and the bid documents are -- we will have a pre-bid conference sometime next week, March 19. So we will find out what are the interest of those who procure the documents, whether we're going to pursue bidding or not, maybe yes, but the documents submitted sometime in April 28.

And on that, what details can you share regarding the bidding terms for the mining contract covering the 10 coal blocks on Semirara Island?

So what we know is that the bid will be evaluated in terms of 4 areas. One is the legal requirements. The other one is the mine plan and the technical competencies. Third one and the fourth one will be the financial component of the mine development and exploration.

Thank you so much, ma'am CCG. Now the next question is addressed to sir, IAC, our Chairman and CEO. Good afternoon, sir IAC. Question goes, are we certain that the selection criteria will be based solely on technical qualifications rather than financial terms? And do you expect many you will submit bids on April 28?

Good afternoon, everybody. As mentioned by our President, there are 3 components of the bid. One is legal, which is just pass or pay. Is the entity qualified to bid or not qualified to bid. The other one is technical, which says you have to show a mining plan, okay? If you win the bid, what is the mining plan? Are you going to produce 1 million tonnes a year, 5 million tonnes a year, 10 million tonnes a year or 20 million tonnes a year for the first 3 years. So I assume that whoever produces the highest mining plan in terms of production will probably be the winner, okay, as far as technical is concerned. And the other one is the -- it will also show also whether you have the people and the management team that can support this mining plan. The fact they have people who can manage the seepage. They have people who can manage the power plants necessary. They have people who manage the heavy equipment, what kind of heavy equipment you're going to put in. There's quite a rigid criteria to be performed. So our discussion with DOE is that the most superior mining plant, which probably the volume and no interruption in -- after takeover will be the winner. And the third qualification is the financial. Like, for instance, if you are going to bid 10 million tonnes a year, you have to show the balance sheet that can support 10 million tonnes a year, you have to support the -- what we call the operating cash flow for one whole year working capital in order to produce that much. So assuming it's 10 million tonnes and your cost of production is PHP 2,000 per tonne, we have to show a PHP 20 million liquid cash assets in order to support the mining plan that you are going to present, okay? So given that, if that is the case, and I think there is a prebidding conference on March 19, am I correct? In March 19. That is our understanding, and we will verify that at on March 19. If that is the case, I think Semirara has a very good chance of being able to present the best mining plans. And as far as we know, there are only 2 groups who have bought bidding documents. Bidding documents does not only refer to Semirara. It refers to 2 other mining areas, one in Isabela and another one in Cagayan, okay? So 2 companies bought, one of Manny Pangilinan, the other one of Ramon Ang. I don't know which one, whether they're interested in Semirara, whether they're interested in Cagayan or whether they're interested in Isabela. But I will probably assume that they would be more interested in Semirara than the other 2. Because the other 2 are not operational mines that have still to be subject to exploration and development, okay?

The next question is addressed to Ms. Carla Levina to CTL. Ma'am assuming successful tender is favorable to Semirara. Can you provide guidance on production targets and CapEx this year and beyond.

Okay. When Semirara would win the bid, then if course, we would -- the first thing that we would want to do is to continue with the refleeting so that we can resume back our production to normal levels. But of course, that is with consideration of order lead times with our OEM. So for 2026, given the prudent decision that we have on the capital expenditures, we expect our production levels and CapEx to be the same for 2026 because of that consideration of order lead times. But for 2027 and beyond, so that is something that we are looking into and studying because that will be part of the mine plan that we will submit to the DOE as part of our bid.

Thank you so much, ma'am CTL. So we proceed to the last few questions that are addressed to sir IAC. So sir question, have you had discussions with Meralco about potential partnership in either coal mining business, the power or both?

Yes. As a matter of fact, a senior Meralco executive came over about 3 weeks ago -- about 2 weeks ago and discussed the concept of working together with Meralco. We said we are very much open to it. But after that, there is no structure, there's no other follow-up meeting. So my assumption is they are trying to assess the situation because that was before the feed documents were out. So that will probably take some time. As of today, they haven't come back to us. Thank you.

Sir, there are 2 follow-up questions sent in the chat box. The first one is, will SCC also bid for other coal areas like the ones in Isabela and Cagayan?

We have looked at those a long time ago. That's under PNOC. I think PNOC gave them up. These are very low grade coal and very high strip ratio that the only viability is you put a plant in the mine mouth power plant inside the area. And other than that situation, we have no interest at all because we just run the numbers. If the revenue of the coal per tonne is half of the revenue of Semirara and the strip ratio is almost the same, it doesn't look very promising from a financial point of view. So we're not that keen. Otherwise, a lot of people would have looked at it because PNOC had that one for more than 25 years. But I guess, that's my hunch. I'm not sure.

Sir, last question before we close. The most important question, what is the management's dividend outlook for 2026?

You should wait for the next meeting. We are preparing our balance sheet for the bid. So we postponed the announcement of the dividend until the next board meeting or until after the bid results, but the company is quite liquid and healthy financially. Thank you.

Thank you. So sir, before we end, maybe request our Chairman and CEO for your closing remarks.

Good afternoon again. First of all, we're quite disappointed that the DOJ changed their mind about our eligibility for the extension of the contract. However, our discussion with DOE and the criteria of the bid indicates that the current operator, which is Semirara, we probably have a very good chance of winning the bid considering that the best mining plan should be awarded the contract. And since we're already there, I think it seems to be very difficult for a new one to compete given the time constraint. And that's my opinion. Also, we have a technical issue. We have a chronic seepage problem, which we hope we can solve by closing the cut fall within the 4 to 6 months. However, in spite of all of this, this quarter's production of coal will be the highest ever in the history of the company. As of today, we have exceeded more than 5 million tonnes already for the quarter, and we'll probably be above 5 million tonnes for the first quarter of this year. If my memory is correct, it's the highest ever, although the prices of coal is not as good as where we want it to be. And about 25% is below commercial grade, which we can consume in our power plants. The other good thing also is even before the Iran war, the prices of coal has gone up significantly. I think because of the effect of the Indonesian curtailment on the production of coal, I think also nickel as well. And electricity prices have also significantly gone up because of the summer, but it probably will not last so much because one of the issues is the aggressive RE or renewable energy program of the government. And these RE contracts is a must run priority dispatch, so which eases out operators like us. However, I don't know whether this -- the projected coming in of this renewable -- what we call that energy will come into play because historically, those have been delayed significantly. And again, thank you very much for joining us, and I hope that you join us and support our bid for the new contract. [Foreign Language] Thank you. Good afternoon.

Thank you, everyone. This concludes our briefing for today, and thank you to everyone who joined us from our panelists and attendees, and we appreciate your continued interest in SCC. So a copy of the final presentation materials will be uploaded within the day for your reference. And should you have follow-up questions, please feel free to reach out in our e-mail. So thank you again for your time, and we wish everyone a good day.