Stanmore Resources Limited (SMR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Stanmore Resources Limited June 2026 Quarterly Activities Report Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Marcelo Matos, Chief Executive Officer and Executive Director. Please go ahead.

Thank you. Good morning, everyone. Thanks for joining us as we take you through our second quarterly activities report for 2026. With me today is Shane, our Chief Financial Officer. Overall, this has been an excellent quarter. Operations recovered well to deliver a rebound in ROM production following a weather-affected first quarter. And most importantly, this was achieved safely. This has supported year-to-date saleable production of 6.5 million tonnes, which is tracking comfortably within our reaffirmed full year saleable production guidance. At this point in time, we are aiming to conclude the year at the upper end of the saleable production range with the second half production profile supported by healthy opening ROM stockpiles of more than 1.2 million tonnes and a significant pre-preparation works completed over the second quarter. On the project side, we submitted the environmental impact statement for the Isaac Downs Extension project during the month of June to the Queensland and Commonwealth governments in line with our expected time line. I will let Shane discuss in more detail, but we have also been busy on the corporate side with the completion of a refinance of our senior corporate debt facility. The successful transaction received an overwhelming level of support and enhances the debt profile during a period of business and operational stability. I will now move on to a summary of our safety and operational performance. I'm pleased to report no serious accidents were recorded during the quarter with the serious accidents frequency rate remaining steady at 0.5, which remains below the industry average for open cuts. We remain laser-focused on maintaining the strong and consistent safety performance as we enter the second half, supported by our principal hazard management plans, which has been recently updated in line with Queensland legislation changes. All 3 assets delivered a strong operational performance in the quarter, rebounding strongly from the wet weather disruption earlier in the year. At South Walker Creek, despite a 14-day routine shutdown of the CHPP in June and routine maintenance of one dragline, ROM and saleable production remained relatively stable quarter-on-quarter. Moreover, the mine sequence at South Walker Creek has been set up such that the second quarter is likely to end up being the highest level of quarterly stripping and pit preparation activity for the year. With that in mind and together with healthy closing ROM stocks as of 30 June, we are confident that South Walker Creek is positioned for a strong second half performance. Poitrel delivered another exceptional performance with ROM volumes of 2.1 million tonnes, an increase of 16% over the average of the last 2 quarters. A deferral of the CHPP shutdown from June to July meant that consistent wash plant feed was maintained, supporting a step-up in saleable production to 1.3 million tonnes, with a year-to-date saleable production of 2.5 million tonnes tracking ahead of our annual guidance run rate. Isaac Plains Complex also saw the benefits of mine planning and improved weather management from the prior year with ROM volumes recovering to 800,000 tonnes and saleable production steady quarter-on-quarter. As we move into the second half, Stanmore is taking on direct control of key mining activities at Isaac Downs. The operating model is transitioning from a full contract mining services scope into an equipment dry hire arrangement with Stanmore assuming operating responsibility as we await the transition to the Isaac Downs expansion. As highlighted earlier, the EIS for the Isaac Downs expansion was submitted in June, in line with our planned schedule. Recent feedback from regulators on the submitted EIS has been positive, with the relevant department determining that the EIS can proceed to public notification stage. This means the EIS will be published for public consultation 2 months ahead of our ambitious schedule. Meanwhile, we have been keeping up the pace on the Eagle Downs and Lancewood projects. The Eagle Downs development studies are progressing well and on track for completion within the first quarter of 2027. At Lancewood, we have received encouraging results from detailed interpretation of our 2025 3D Seismic program. Turning now onto the coal markets. During the quarter, we saw premium hard coking coal prices trade between USD 230 and USD 245 per tonne. This was largely driven by ongoing supply constraints from Australian producers, while domestic metallurgical coal availability in China was also tightened following a major mine accident and subsequent mine closures and safety inspections, which remain ongoing. The latter is rumored to have impacted production for this year by around 20 million tonnes domestically in China and has contributed to keeping domestic coal prices stronger and very close to seaborne prices once adjusted to a net-backed FOB Australia basis. This is meaningful in the context of the overall size of the metallurgical market, particularly as it relates to the seaborne market, which is a smaller subset of the total met coal market. Overall, steel market conditions remained competitive through the quarter, with Chinese steel exports picking up pace despite the expansion of safeguard measures in India as well as blast furnace restocks, mills and potential protection measures being implemented in Europe. For Stanmore specifically, we achieved an average sales price of USD 154 per tonne over the quarter and USD 153 per tonne across the first half. When benchmarked against the simple average of the PLV index over the first half, this reflects an average realization of approximately 65%. This is lower than the first half of 2025 and has been influenced by the slightly higher weighting towards PCI sales compared to last year as well as lower relativities of the PCI index against the PLV index. However, a straight comparison with the simple average of the indices in the quarter is not necessarily the correct way to estimate actual relativity, given the backward-looking nature of our sales contracts with respect to index pricing and quotation periods for specific shipments in a given period, meaning that price changes can take a little time to flow into our average sales prices. With that, I'll now hand over to Shane to update you on our financial position, guidance and the refinance.

Thanks, Marcelo. Looking at the balance sheet, Stanmore concluded the quarter with a consolidated cash balance of USD 138 million, translating to net debt of $72 million. Our net debt position improved slightly on the March quarter, which, as Marcelo mentioned, is primarily a factor of the investment we've made into additional stripping during the second quarter, while our sales volumes and realization of cash receipts continue to catch up from the weather impacts earlier in the year. Furthermore, key nonoperational cash flow items included capital expenditure of USD 27 million, an increase on Q1 as we start to move into the typically drier months in Central Queensland as well as our semiannual debt repayments, including $35 million in scheduled principal repayments and $10 million in interest. Total liquidity remains very strong at more than USD 400 million, including the renewal of our unsecured working capital facility from here prior to the end of the half. Regarding guidance, we have reaffirmed our full year saleable production range and have no other changes to public guidance at this time. As per usual, we will provide a more fulsome update with our half year results in August, including the release of actual year-to-date FOB costs and overall financial performance. Nonetheless, we are encouraged by the resilience shown by our operations in the first half and remind investors that our current 2026 cost guidance already incorporates a degree of anticipated macroeconomic cost impacts from a stronger Australian dollar and higher fuel costs. Finally, we are very pleased to have announced today a successful and oversubscribed refinance of our term loan and revolving credit facility subsequent to the end of June. The refinance encompasses an upsizing of the term loan from USD 210 million to USD 250 million with a restructure to remove the $35 million semiannual amortization and replace it with a bullet repayment due only at maturity in June 2029. Furthermore, we have extended the tenure of our USD 200 million revolving credit facility from Q3 2027 to Q1 2029, just prior to the maturity of the term loan. The interest rate margin on both facilities has been reduced by 100 basis points or 1%, which reflects our operational track record, strong balance sheet and an improving lender appetite for pure-play metallurgical coal producers, of which Stanmore is one of the very few such companies in the industry. Furthermore, this transaction significantly enhances our short-term cash flow, which comes during a period of operational stability following a period of elevated capital expenditure and organic reinvestment and as we continue to advance key development projects. That concludes the prepared remarks for today's call. I'll now hand over to the moderator so we can take your questions.

[Operator Instructions] Your first question comes from Brett McKay with Petra Capital.

Just a few questions from me, if I may. Just on the guidance side of things, Marcelo, you mentioned there that you're likely tracking to the upper end of the guidance. But obviously, with the numbers presented for the half so far, very little to do to get to that upper end. What would you need to see to upgrade your production guidance for the year? And is that something that you might consider doing?

Brett, at this stage, we are not considering an upgrade. As you see from the numbers, South Walker will have a stronger second half, okay? We did have a 14-day shut in June. And that explains mostly, let's say, the performance of South Walker in the first half, given South Walker is doing just under -- in average for the year, under 600,000 tonnes per month, which means a 2-day shut is approximately around 300,000, which means South Walker will need to be -- as we always explained in previous discussions, South Walker is limited mostly by the wash plant capacity, which means we're going to be running South Walker at full throttle during the second half. Isaac this year is a bit of a different reality. I think Isaac is not CHPP constrained. It's going to be a ROM-constraint going forward, right, given we are getting close to the economic limits of the asset. We did reduce the number of fleets. So in the second half, we're going to be running Isaac at, let's say, the more steady state setup going forward, okay, with the dragline being the main uncovering piece of gear. And we're down to a single fleet and a swing digger. So it's not very likely that we're going to see, let's say, upside in ROM volumes going forward in Isaac Plains, where Poitrel is already running at, let's say, close to the top end or slightly above the top end of guidance on an annualized basis. So if anything, I think performance in the second half, Poitrel will be a steady half-on-half performance. South Walker will be pretty much in line with guidance, as we always say, constrained mostly by the CHPP with Isaac running pretty much in line with guidance. So all in all, that means I think we're still expecting to be within guidance. But as I said, around the top end of that upper range.

Okay. That makes sense. Just quickly on the CapEx side of things, just to clarify that $27 million noted of expenditure in the period, does that include any of the pre-stripping or pit development work that you did do at South Walker in the period? Or is that outside and captured on the cost side of things, the OpEx side of things?

A bit of catching up on first half, Brett, in general, given the very wet first quarter, okay, so that wasn't very surprising to see that. But if anything, what I can say is the dewatering and demining of the GMF pits in South Walker are progressing extremely well. They are ahead of plan, which is great because, as I said before, as part of that strategy of maximizing accelerating mining in the MRA2C area, that's an important -- it's important progress. The earlier we conclude demining and dewatering, the more we save with that project as well, right, because I mean, time is money in activities like that, and I think it's going to set ourselves up well for 2027. But other than that, nothing, no major deviations to plan other than catching up a bit on first half pace of projects.

Okay. Just to clarify, do you know how much of that or if any of that within that CapEx number, however, or more an OpEx charge for the period?

Yes, there will be a little bit of CapEx, Brett, but that will mainly come into the second half and beyond. So we haven't had too much of an impact in the first half as a result of what we're doing there on the demining.

Understood. And finally, maybe not a shift, but a little bit more information on some of the growth, organic growth projects in the portfolio with the addition of Lancewood now just some commentary around that. Can you just remind us what the plan is there going forward in terms of the near and maybe the medium term as to how we should be thinking about that as a project and how it fits in the pipeline at this point in time, please?

Brett, we absolutely -- if you recall, maybe rewind 2 or 3 years, at that time, we wanted to investigate the potential for starting a small open cut ahead of any, let's say, any more meaningful future underground development. We ruled out that option given the size, the life and size of a box cut that would be required. It would be a terrace pit. So a large strip ratio, small open cut didn't prove attractive, and we just pivoted the work to try to understand the potential for, let's say, a larger development underground with the first step of the work being ruling out any potential fatal flaws around structure, okay, which is faulting that would, let's say, compromise the ability for us to have high productive longwall mining. This previous seismic campaign was quite successful as in it didn't identify any new significant structure relatively to the ones that were already identified, which is -- it's a great, let's say, it's great news. I think we will be advancing work in Lancewood. I think differently from other underground mines, Lancewood, I think what would make a difference in a potential future development is access because I think we wouldn't need to do a significant drift development for Lancewood. We would be able to access the coal from a development standpoint from a box cut, which makes initial capital attractive. But on the other hand, for example, different to Eagle Downs, it wouldn't have surface infrastructure, right? It would be a greenfield development from a surface standpoint. It doesn't have approvals. So a big part of the work streams going forward will be doing a lot of the ecology and groundwater works in parallel towards -- I think we do intend to prove the JORC reserves in the assets. So we're going to be doing work going forward to validate JORC reserves and complete a PFS study and advancing approvals in parallel. There's a lot of work that is needed to acquire data to support approvals and submission of an EIS. So given the need for approvals, I mean, we are looking at something around 3 to 4, 5 years at least before we can see, let's say, any meaningful potential investment decision involving Lancewood. So I think it's great potential. in terms of coal quality, probably the best we have in our portfolio, okay, even relatively to Eagle Downs. But given the need to progress some -- a lot of this work, yes, I think it sits a bit in the back from a schedule standpoint, but with a lot of focus and intention to progress that work as best as we can.

[Operator Instructions] The next question comes from Glyn Lawcock with Barrenjoey.

Marcelo, could you maybe just help us a little bit on the cost side? I know you're going to obviously, you said update guidance next month. But generally, you always give us in this production report just how the quarter has gone. 3 months ago, you lifted the cost guidance by about $5 to $6 a tonne. You made comments about the Singapore gasoil futures curve. If I look at where that is, it's probably tracking 20% above what you were thinking. So does that sort of maybe help me just think about the pushes and pulls on your cost base at the moment? How did the second quarter unfold? And is the assumption you've got now maybe a little bit dated with what's now reemerging in the Middle East?

Glyn, things are on track. That's as much as I can say for now, given I don't want to anticipate the release of the actual financials here in a few weeks. But we provided revised guidance. What I can say, looking back to the first half, I think we're comfortable. We are not seeing any need to do any further revision to what we've done before. If you look at the things we can control, I think we are -- everything is on track with FX and diesel being probably the main uncontrollables going forward. If we just rewind 2 or 3 weeks ago, probably I think things were very comfortable as far as diesel prices are concerned. Obviously, we need to watch. I think things are very volatile again with spot prices being a lot higher. We did not have any effect of QP, okay, quality premiums, in June, for example. It is a lagging practice with our suppliers. So I think that those things are actually -- they have a 1-month lag on how spot prices materialize in our costs, including potential quotation -- sorry, quality premiums. So we need to monitor. For the moment, we are not seeing any need to do any meaningful revisions. And I think we are comfortable with what we've provided before as a range.

I mean, obviously, yes, we will reassess as we get closer to the end of August. A lot of things are moving very quickly, as you know, in this space, but I said we're comfortable with the range as it stands.

Yes. But I mean, I guess your assumption was $120. If I look at the SGO today, it's probably more like $140 or $150. Is that right?