Semirara Mining and Power Corporation (SCC) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining the Second Quarter 2026 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 second quarter and first half of 2026 before we open the floor for your questions. Joining us today are members of SMPC'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, just a few reminders. This session is being recorded and questions may be sent through the panelists chat box. We will prioritize questions submitted in advance, but we'll try to cover as many as possible during the session. Management may also make some forward-looking statements during the discussion, and these are based on current assumptions and expectations, and actual results may differ due to various risks and uncertainties. And with that, let's begin. Let me start with the highlights. The Semirara Group reported net income of PHP 4.8 billion in the second quarter of 2026, 17% higher than last year as stronger power performance more than offset a lower contribution from coal. Power accounted for most of the group's earnings during the quarter, while coal results were weighed down by operational and cost pressures. For the first half, net income reached PHP 8.6 billion, up 2% year-on-year as record power earnings offset a 38% decline in coal contribution. The results reflect the benefit of SMPC's integrated energy portfolio, while power providing earnings support during a challenging period for coal operations. Turning to the coal market, coal prices moved higher again in the second quarter. Newcastle Index averaged about $136 per ton, while the ICI 4 was around $64 per ton, both up strongly from last year. The increase was supported by a stronger Asian demand, tighter regional supply and the indirect effects of the Middle East conflict as higher gas and LNG prices encouraged some fuel switching towards coal. Indonesia remains an important supply variable as production caught us and the other government policies continue to evolve. Looking ahead, coal prices are expected to remain supportive throughout the end of the year before stabilizing in 2027, although supply development, policy changes and movements in competing fuel prices may continue to influence the market. On to the power market, spot prices strengthened in the second quarter, averaging about nearly PHP 7 per kilowatt hour and even reaching [ PHP 8.5 per kilowatt hour ] in June. The Middle East conflict affected the market mainly through higher fuel costs and supply concerns, which led to the temporary USM suspension and modified pricing in late March and April. After normal operations, normal market operations resumed in May, prices were driven mainly by stronger seasonal demand, plant outages and tighter supply conditions. Looking ahead, prices may remain supported in the near term, although additional generation and battery capacity should help moderate the market tightness over time. So moving -- going back to our financial results. This quarter, this was our strongest quarter since the second quarter of 2024 with power clearly taking the lead in the earnings mix. Power contributed 96% of the Q2 and 70% of the first half earnings as coal remains under pressure from lower shipments and higher fuel costs. Despite the shift in earnings mix, return on equity reached double digits at 14% over the 6-month period. At the group level, revenues rose by 25% in the second quarter, supported by stronger coal prices, higher power sales and improved dispatch. Cash costs grew faster mainly because of higher coal production costs and increased power sales. This brought core EBITDA margin down to 39%, although core EBITDA still grew by 12% and reported net income rose by 17%. Debt remained low at PHP 5.5 billion, while cash increased to PHP 18.3 billion, leaving the group with a net cash position of nearly PHP 13 billion. Overall, the balance sheet remains very healthy with debt-to-equity ratio of 0.25x and a current ratio of 4.7x, and this gives the group room to support operations and adjust to changes in the operating environment. Turning to coal, revenues were broadly stable as higher selling prices offset lower shipment volumes. Fuel and mining costs increased significantly, bringing core EBITDA margin to 21% in the second quarter. Depreciation was flat due to the absence of major capital spending since the first half of 2026. In the stand-alone -- at the stand-alone level, the coal net income declined by 65% to PHP 782 million. And after intercompany eliminations, the segment contributed PHP 191 million to the group earnings, down 90% year-on-year. Despite the weaker results, the whole business remains in a net cash position, supported by operating cash flows and the loan availment and the dividends from the power segment. On to the -- in the coal operations, production declined by 55% to 2.5 million metric tons, and this is mainly due to stripping activities in new Narra block and the limited production at Acacia because of water slippage conditions. Shipments also fell by 13% to 4 million metric tons. Aside from lower output, demand remained soft from the lower grade inventory available during the quarter. Acacia was expected to improve the product mix, but limited mining access reduced the availability of its better quality coal. On the pricing, average selling price increased by 27%, which helped cushion the impact of lower volumes and the higher operating costs. And turning to the Power segment, the segment posted record revenues and net income in both the Q2 and first half periods, supported by better plant performance, higher dispatch and improved selling prices. Depreciation and amortization declined by 27% to PHP 563 million after we reassessed the remaining useful lives of certain SLPGC assets. The reassessment took into account major plant modifications completed since commissioning and the enhanced asset management program now in place. The segment also recognized a PHP 180 million nonrecurring gain from the reversal from the additional depreciation booked in the first quarter before the reassessment was applied effective January 1, 2026. At the balance sheet, the debt level of the segment halved over the 6-month period following scheduled SCPC loan amortization. And the segment remained in net cash position, as of the end of June. The segment is expected to be debt-free by year-end. In power operations, plant availability improved to 94% in the second quarter, while outage days were nearly cut in half from last year. This helped us deliver our best ever quarterly generation and sales. Average selling price increased to PHP 5.81 per kilowatt hour, mainly because of higher spot prices. And looking ahead, our focus remains on maintaining operational continuity, while preserving flexibility as market and regulatory conditions evolve. As recall from our previous briefing last May, we have revised our 2026 coal production target to around 12 million to 13 million metric tons for the year. Achieving this will depend largely on expanding safe mining access at Acacia. Continuous pumping has kept water slippage under control, but production remains limited to areas where conditions are manageable. The pumping system is critical to Acacia's operability. Any prolonged interruption could lead to extensive flooding and materially affect access to the mine's reserves. Since Acacia contains roughly half of the Semirara Islands recoverable coal reserves, maintaining reliable pumping capacity remains an operational -- a key operational priority. We are also managing higher stripping requirements in Narra and elevated fuel costs. On the commercial side, we continue to broaden the market for our existing coal specifications supported by firm benchmark pricing. On domestic allocation, we continue to serve local customers, where plant specifications are compatible with the coal rates available. Greater domestic utilization will also depend on the blending capability and technical requirements of local generators. On power, we will continue to improve plant reliability and efficiency while adjusting to our mix of contracted and spot sales based on market conditions. We are also expanding our customer base across wholesale and retail markets to diversify sales channels and improve our earnings visibility. Overall, our technical capabilities, operational experience and healthy balance sheet provide flexibility to manage these challenges, as we respond and respond as the operating environment evolves. So to wrap up, this quarter shows the growing contribution of the Power segment to the group, helping offset weaker coal results. Power accounted for 96% of the second quarter earnings and 70% of the first half earnings. And our healthy balance sheet and strong asset base also leaves the group well positioned to support operations and respond to emerging opportunities. As we participate in the COC bid round, we believe SMPC's decades of investment in Semirara, together with our technical expertise and operating track record support a strong position in the process. So this ends my presentation, and we open the floor to your questions. And to open the floor to your questions, let's start off with questions sent in advance and we received via e-mail.

So our first set of questions are addressed to the coal segment. So first off is addressed to Mr. Danny S. Tirona, our Mining Division Head. The question goes, what proportion of your first half coal production came from Acacia? And what is the status of water slippage at Acacia? And when do you expect to fully ramp up production there?

Good afternoon, Hannah. Good afternoon, everyone. For the Acacia production, out of the first half production of 8.4 million metric tons, about 26% or equivalent to about 2.2 million metric tons were sourced from Narra and -- sorry, Acacia. And at present, slippage discharge in Acacia is higher than about 30,000 cubic meters per hour. This prompted us to change our mining direction initially from our Northern blocks to our Western blocks. The Western blocks tend to have a generally -- have a higher stripping ratio. And you've mentioned about the ramping up production of Acacia. Production in Acacia really hinges on 2 things: solving the slippage issue and the resolution of our coal operating contract. And if these issues are resolved, then we can ramp up production at 16 million metric tons per year level or even more.

Thank you for the clarification, sir, DST. Now we move on to questions on the commercial side of the coal segment. So first question -- the next set of questions are addressed to Mr. Mark Bentayo, the Head -- our Head of Coal Marketing and Product Delivery. Sir, and we have a question goes, what does management think that the ICI 4 coal price will -- why does the management think that the ICI 4 coal price will plateau in the third quarter considering increased demand for coal arising from reduced supply of LNG to the region?

Good afternoon, Hannah. So while there is [indiscernible] interest in LNG -- and on the LNG supply in the region is forcing power plants in the region to burn more coal. Let's remember that these LNG switching power plants requires higher grade coal. So the effect is on ICI 1, 2 and 3 and not on the ICI 4. Also these big importers like China and India has [indiscernible]. So the result is there's no much movement on the ICI 4. So the earlier recovery is -- they will be addressing the momentum, and we think that this will all leads up to [indiscernible] by the third quarter or fourth quarter of this year.

Next question, are you seeing increased demand for coal imports that are tightening their domestic coal regulations?

Well, in the Philippines setting, there will always be a demand for coal considering that we are only producing around 16 million to 20 million metric tons a year and majority of that is from Semirara, while the domestic requirement is around 40 million to 42 million. So even without the DOE pronouncement that they are -- we need to maximize the use of indigenous coal. There will still -- there will always be a demand for export. And most of these are already been contracted a long time ago by these power plants. For Semirara side, we are ready to support this announcement by DOE, and we are ready to support the domestic requirement. Unfortunately, only a handful of plants are really and really use Semirara coal because of the some technical limitations. So if there is not, then we are really want to maximize the domestic sales.

Now moving on to finance-related questions. So these are addressed to Ms. Carla Levina, Vice President and CFO. CCL, what is the latest update on both Narra and Acacia mines income tax holidays?

Good afternoon, everyone. For the income tax holiday are, [ I think each ] for Acacia mine has officially ended on May 14 of this year. And so it means that after that Acacia mine sales is already subjected to income tax of 25%. And then starting last year, we attempted to include or have, add a category for exploration and development of resources in the [indiscernible] SIPT for 2026 onwards under the category of energy. But however, in the final SIPT that was issued by [ DOI ] this June, they did not include the category on which we were supposed to apply income tax holiday for Acacia mine. So just to make it short, it means that Semirara does not have an income tax holiday for now for both Acacia and Narra mine.

Next question, what percentage of your total mining cost is attributable to diesel and equipment?

Our diesel and our equipment parts and materials account for a little bit more than half of our production cost. And therefore, the impact of elevated diesel prices, especially the second quarter really weighed down our -- increased our production cost and affected our earnings despite efforts, of course, of our mine sites to have cost savings in terms of see, reducing the cost for the fleet maintenance and parts.

Now we move on to questions addressed to the Power segment. So the first question -- the first set of questions is addressed to Mr. Charlie Robles, Vice President and Manager for the Calaca Power Complex. CVR, what are the estimated lives of SLPGC and SCPC as of the end of 2025? And what do you think will be the expansion once the assessment is over?

Good afternoon, everyone. Thank you, Hannah. On SCPC, we did not conduct assessment as the most recent review was completed in 2020, following the implementation of the life extension program for both units. On the other hand, SLPGC concluded its reassessment in June 2026, approximately 10 years from plant commissioning and upon completion of various plant modifications and enhanced asset maintenance programs with the remaining useful life of the plant estimated at 12 years from 2025. Moreover, any further extension of [ physical ] life will depend on the effectiveness of our ongoing asset maintenance initiatives, engineering improvement projects, operating conditions and the overall technical and economic viability of continued operations.

Last question. Can you already provide guidance on the planned maintenance outages of your plants in 2027?

Yes. With respect to the planned maintenance outages, adjustments will be implemented to accommodate the recent forced outages and the resulting changes in major maintenance activities. The 25-day outage for SLPGC 1 originally scheduled on August 25 this year will be scheduled to start on the 2nd of January next year. Similarly, the 60-day planned outage for SCPC 2 will be moved to October 23 this year, a month later from the original date. SLPGC Unit 2, on the other hand, will have its 25-day planned maintenance outage on February 5, 2027. These scheduled revisions are intended to optimize plant availability, while ensuring the completion of critical maintenance work. SCPC 1 and SCPC 2 will have its 20-day planned outages on September 1, 2027 and November 20, 2027 respectively.

Thank you very much, CVR for the guidance thus far. For the commercial side, may we address the questions to Ms. Oli Rivera, Vice President for Power Market and Commercial Operations. LHR, first question, could you please explain why BCQ prices fell by 9% in the second quarter despite the higher thermal coal indices?

Yes. So the decrease in BCQ prices was mainly driven by the new contracts that we were able to sign, which were priced and negotiated before the Iran conflict. So coal indices and market conditions were still high or were still stable [indiscernible]. So if you compare these contracts to the ones that were closed last year, we were able to negotiate that at fixed prices when coal indices were still high due to the Ukraine war.

Next question, can you give guidance on the Power segment sales volume and mix, BCQ versus spot for the Q2 and if possible for the second half of 2026?

Okay. For the second half of the year, we hope to close a few approximately around 200 megawatts, which are currently under different stages of negotiations. So we have already made offers to some customers, total demand of around 191 [ megawatts ] and prices already reflect the current coal indices.