Stanmore Resources Limited (SMR) Earnings Call Transcript & Summary

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

Good morning, everyone. Thank you for joining today's call as we present our half year results for 2026. I'm joined once again here by our CFO, Shane Young. First half of 2026 was certainly challenging with considerable wet weather early in the year impacting operations, together with macroeconomic cost pressures arising from the Middle East conflict. However, metallurgical coal market conditions have been much improved compared to this time last year. And I'm pleased to report that this, combined with the rebound in operational performance through the second quarter, has delivered a solid half year result as highlighted by a few of the opening snapshots on Slide #3. Starting with safety. Our serious accident frequency rate of 0.51 remains well below the latest industry average, continuing our consistent record of being ahead of benchmark performance for open cut coal mines in Queensland. Production has been pre-reported in our recent quarterly update. But to recap -- the half was characterized by a strong recovery in run-of-mine volumes in the second quarter following the weather-affected first quarter, which has supported salable production of 6.5 million tonnes, in line with the first half of 2025. Despite the expected second half weighted production and sales profile and the macroeconomic headwinds that Shane will unpack shortly, FOB cash costs of USD 101 per tonne sit around the midpoint of our guidance range. Operational improvements and cost discipline across the portfolio, together with improved market conditions contributed to underlying EBITDA of USD 174 million, up from USD 147 million in the prior year. After the end of the half, we also completed the reset of our capital structure through the refinancing of our debt facilities. This removes the scheduled debt term loan amortization through to maturity and provides greater balance sheet flexibility of our capital allocation priorities and future growth opportunities. Moving to the performance of each asset on Slide #4. With salable production of 3.1 million tonnes, the production profile at South Walker is planned to be second half weighted, reflecting the weather, routine maintenance and a deliberate investment into stripping in the first half. The implementation of our Chase the Blue strategy is tracking ahead of schedule, which we expect to support stable strip ratios in the coming years. Poitrel delivered another strong half with 2.5 million tonnes of salable production as the operation continues to exceed initial expectations since the investment into Ramp-10 North. Furthermore, strong opening inventories together with improved wet weather preparedness helped to buffer the impact of the significant first quarter rainfall. Year-to-date, Poitrel is tracking ahead of the annual run rate of guidance, and we are glad to report that the CHPP tailings pumping project was completed in March and the truck re-build program is tracking ahead of schedule. As previously explained, over at Isaac Plains Complex, there has been a deliberate shift to a value over volume, a strategy focused during the ramp down of the existing Isaac Downs operations while we progress the Isaac Downs Extension, which will be supported by Stanmore having taken over operational responsibilities as of July. With that, I'll now hand over to Shane to discuss our financial results from Slide #5.

Thanks, Marcelo. In looking first at the FOB cash cost walk forward, it's important to note that if we exclude the external impacts of foreign exchange, inflation and fuel, underlying cash costs actually declined from the same period last year. Year-on-year operational cost improvements of approximately USD 4 per tonne have been realized, which after allowing for volume impacts, reduced the comparative FOB cost to around USD 87 per tonne before macroeconomic impacts. Higher fuel prices, adverse foreign exchange movements and annual inflation then added approximately USD 14 per tonne, resulting in FOB cash costs of USD 101.2 per tonne for H1 2026. The cost savings are a testament to the operational improvements across South Walker Creek and Poitrel, which, together with the change in strategy at the Isaac Plains Complex, has more than offset the impact of planned lower volumes. Translating this to underlying EBITDA, higher realized pricing contributed approximately USD 112 million to the EBITDA improvement, but this was substantially offset by approximately USD 110 million of foreign exchange, inflation and fuel cost headwinds. Importantly, approximately USD 25 million of operational improvements provided an additional benefit and were, therefore, the principal driver of the overall increase in underlying EBITDA from USD 147 million to USD 174 million for the half. Turning now to cash flows and the balance sheet on Slide 6. Before capital expenditure and shareholder returns, operating cash generation moved us from an opening net debt position of USD 33 million to a pro forma net cash position of approximately USD 49 million. Then after USD 120 million of capital allocation for reinvestment in the operations and shareholder returns, we closed the half with USD 72 million of net debt. This remains at very manageable levels for the size of our business with conservative gearing supported by positive operational cash flows post leases despite the second half weighted production profile and diesel pricing headwinds. Notwithstanding this and consistent with our focus on disciplined capital allocation, the Board has not declared an interim dividend with our half year results. We remain focused on delivering sustainable shareholder returns, and we'll continue to assess distributions as our cash generation and capital requirements evolve. In the meantime, retaining additional liquidity at this time preserves balance sheet flexibility as we consider our near-term growth opportunities and capital requirements. That balance sheet flexibility has been further strengthened by the successful debt refinance completed after June 30, supported by a syndicate of high-quality domestic and international banks. The strong banking support received allowed us to improve pricing, extend maturities and materially improve the structure of the facilities. Specifically, the refinancing lowers pricing on both the term loan and senior revolving facilities by 100 basis points going forward. The drawn term loan was also upsized to USD 250 million and restructured to remove the scheduled repayments of USD 70 million per annum, while we extended both the maturity of the USD 200 million senior revolving credit facilities and a USD 70 million GEAR working capital facility by a further 18 months and 2 years, respectively. Moving on to guidance on Slide 7. We are pleased to reaffirm our full year guidance across all metrics. As previously highlighted, salable production is tracking towards the top end of the 12.8 million to 13.4 million tonne range with strong closing inventories setting up our operations to deliver well on the second half. FOB cash costs of USD 101 per tonne are currently at the midpoint of guidance and will be supported by the higher volumes and lower strip ratios in the second half. That said, we will continue to monitor the macroeconomic environment, particularly movements in fuel prices and foreign exchange, which seem to change on an almost daily basis. Capital expenditure was USD 39 million for the half against full year guidance of USD 85 million to USD 95 million. The program is second half weighted as we ramp up the implementation of the Chase the Blue strategy in H2, especially in relation to the preparation of the new pits to be mined in the MRA2C area. With that, I will hand back to Marcelo to take us through the growth portfolio and market conditions on Slide 8.

Thanks, Shane. Our organic development pipeline is underpinned by a significant reserves and resources base of 571 million tonnes and more than 5 billion tonnes, respectively. Our key focus remains on each of the Isaac Downs Extension, Eagle Downs and Lancewood, and we have sought to set out the key milestones for each of these projects on Slide #9. For the Isaac Downs Extension, the focus remains squarely on approvals. In the best case, we are looking at receiving approvals by the end of 2027, at which point we can commence an approximately 12-month construction period for the haul road connecting the new pit to the existing haul road at Isaac Downs, bridge over the Isaac River, flood protection levees and an initial box cut in the Southern extension area. We were encouraged by the recent news that the adequacy review stage of the Environmental Impact Statement has been satisfied approximately 2 months ahead of schedule. Turning to Eagle Downs. I'm pleased to share some good news received recently. You may recall that during the June quarter of 2025, we paid AUD 38 million in stamp duty and that we have launched a formal objection to that assessment. We have recently been advised that our objection was successful. And as a result, we expect to receive a refund of approximately AUD 35 million in the near term. We are very pleased with this outcome, not just financially, but because Eagle Downs remains an important project for the future of the industry here in Queensland. For the project itself, we are ramping up the pace again with a view to finalize the ongoing studies in the first quarter of next year. The timing for development and the production ramp-up at Eagle Downs has always been anticipated for early next decade, but it could certainly be accelerated if desired and if the right conditions align. In light of this, we are ensuring project readiness to preserve time and flexibility within the portfolio strategy. If and when we decide to proceed, we currently envisage approximately 30 to 36 months from FID to first longwall. The first priority once and if an investment decision is made, will be to complete construction of the access drift, which is already approximately 40% complete and sink the ventilation shafts to get to pit bottom. Finally, at Lancewood, now that the mine layout has been confirmed following the positive results of the 2025 3D seismic campaign, the priority has shifted to completing the pre-feasibility study and establishing a maiden reserve statement, which is targeted for the first half of 2028. Subject to those outcomes, we would then move into a definitive feasibility study. And in parallel, we will progress the environmental studies to support the required regulatory approvals. Moving on to a brief of the market on Slide #10. Overall, we've been glad to see markedly improved conditions from this time last year. This has been predominantly supplied driven with the Australian weather-related disruptions early in the year and outages in China with ongoing production controls following the Shanxi accidents in May. Given this, the market remains relatively tight despite this being a seasonally low period amid the Indian monsoon season. In the long term, on Slide #11, India is expected to remain the growth engine for seaborne met coal demand and continuity of supply from the seaborne market will be paramount to the steel capacity growth ambitions. Meanwhile, we expect that the supply side will remain structurally challenged by increasing strip pressures, rising costs and challenging regulatory policy settings. Further, the supply and demand balance is forecast to be dependent on new supply even within this decade and that new supply must compete for capital in a challenging investment landscape. This is something that will need to be delivered in the context of an Australian production profile that has been in structural decline since 2012. Overall, as metallurgical coal reserves become increasingly scarce, we believe this positions our portfolio and particularly our development pipeline very well. That concludes our prepared remarks. And I will now hand over -- back over to the moderator to handle the Q&A session.

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

I'm going to jump straight to the growth aspects of the business because obviously, that has now moved into a bit more focus. If I just start on Isaac Downs Extension for a sec. Obviously, you've been through this process a few times before with incremental expansions and new pit developments at Isaac Plains. Can you just remind us what's different this time around, if anything, around the permitting and approvals environment, maybe both on the positive and the negative side?

Brett, maybe I'll talk to the positive side of things first. Things are progressing extremely well as far as the interactions with the departments in Queensland are concerned and to a certain extent at federal level. So it's been pretty constructive. Things are progressing well. As far as we can get, let's say, support and contribution from regulators in coming back to us within or earlier than the statutory response period, they have been doing that. And so I think we've been -- it's a tight schedule, but it's been really productive, which is good news. I think on the negative side, I think there's obviously -- there's always a concerns around potential delays as a result of objections to the mining lease and the environmental authority that could lead to, for example, land court processes, which is probably, I mean, usually one of the key risks. It's a project that is -- it's not greater in disturbance than what we are doing in Isaac Downs, have a great relationship with the Isaac Shire Council (sic) [ Isaac Regional Council ] with the Barada Barna people with landowners in the area. So I think as far as directly affected persons, I think people -- we are in pretty good shape, okay? So I think we are confident in that space. Overall, I think it's so far pretty positive, Brett. I think we need to, of course, see what happens when the project goes for public consultation.

Can you remind us when that is?

It's happening as we speak.

Just if I jump over to South Walker Creek quickly. Again, just given there is capital investment going into the Chase the Blue strategy and there seems to be a bit of a second half weighting coming through this year. Can you just again remind us exactly what that strategy entails and really what it's meant to deliver over that period of time and certainly into next year and beyond? You mentioned earlier in your presentation, the ideal -- or sorry, the outcome being delivering stable strip ratios. But maybe just a bit of a recap on what you're spending the money on this year and just how that's going to deliver those outcomes over a fixed period of time?

A bit of money this year into dewatering and demining the F and G pits. Focus later this year is going to be on the G North pit, which is going to be the first to be mined -- water, if you just recall, those pits have been mined in the past and mining have ceased when, of course, they approach the Creek. We have diverted the Creek as part of the MRA2C project. And those pits were basically water storage void for many years. So we are now having to dewater and move water to other pits and demud the F and G pits starting with G North where the mining will start. Things are progressing well, actually ahead of what we were planning, which is good news. Actually, we're going to already mine some run-of-mine coal from G North. So that's basically when we talk about a little bit of capital that's been accelerated in that area, that's pretty much what it entails. As far as Chase the Blue is concerned, as explained in the past, it's about focusing on accelerating mining in the Mulgrave area, okay, which is the MRA2C area. The idea is that we're going to send the two draglines there faster than previously anticipated and concentrate, let's say, a maximum number of fleets in that area to maximize area in those low strip ratio pits. Obviously, there's only as much we can fit there. That will mean that some other central pits like the Z North pit, for example, that was usually mined with the dragline will become a bit more marginal with trucks and excavators depending on coal prices. So Chase the Blue will basically mean accelerating mining in the Mulgrave area. making, let's say, bringing forward more cash flows to the -- for the next 5 years, plus/minus and potentially not necessarily have to stretch limits on volume because we will be able to park a couple of fleets at South Walker Creek, which means we won't be bottlenecked as much by the wash plant. This may represent opportunities with a plant that's not going to be as bottlenecked to look at opportunistic volumes depending on coal price scenarios. This could also bring an opportunity for us. We are looking at the proof of concept potentially for a ring-fenced autonomous trial at Z North, which will become a more competitive pit if we are able to basically have autonomous trucks were, of course, we would expect to have lower cost. So a few things we are looking. But I mean, Chase the Blue is basically generating more margins in the next five years by maximizing volume in the lowest strip ratio areas and opening up some opportunity for us to, let's say, to capture market -- good market prices or some opportunistic mining in some of the pits depending on, of course, margins.

So would you say that the sort of the steady state case would be keeping output levels at that maximum rate, but cash cost being maybe a little bit better, all things being equal. Would that be sort of a five year window that we're looking at that sort of stable outcome?

Not necessarily. I think the next two years, probably output levels will be similar around above 9 million ROM and close to 7 million product, okay, between 6.5 million and 7 million product. But as we park fleets as a result of focusing on the Mulgrave area and maximizing mining there, that's one of the key cash drivers here. It's about freeing up cash by not necessarily having to have the same trucking and pre-strip capacity, okay? So we may see actually volumes slightly lower if you look at maybe not in the next two years, but maybe year three, year four, year five from now, but making higher cash flows. So that is actually making more cash by producing slightly less. And it's a much lower risk plan with significantly lower risk because we are not pushing the wash plant and requiring every single operating hour. But on the other hand, it creates opportunities. So we're actually looking at that as an opportunity because we are looking at if we can free up some of that wash plant capacity, where else can we go and mine some coal in the deposit to benefit from that spare capacity, okay? So it's -- there's a lot going on there. But on a stand-alone basis, Chase the Blue is about mining higher-margin coals in the next few years but not necessarily having to produce or push the plant as much as we do now.

Okay. Understood. And just finally, if I might, on Lancewood, given that you have moved that project into the PFS stage, is it possible to give us a bit of a high-level overview of what sort of production outcomes you might be looking for? I appreciate that there's still a fair bit of water under the bridge and it is longer dated in the portfolio. But just in terms of what you would be looking at in the PFS as a stand-alone development, can you sort of talk us through that at this point? Or is it too early?

A bit too early, Brett, but what I can say is 3D seismic results were really positive. Usually, with these things, especially with seismic, the more you look, the more you find, we actually didn't find a lot more in terms of major faults or structure that could be detrimental to productive longwall mining, okay? So a lot of the historic structure has been just validated, which means layouts and conceptual cases are -- there are no fatal flaws, okay, from a structural standpoint, which is positive. Coal quality is probably -- if you look at from a portfolio standpoint, it's probably the best coal quality we have. I think one of the issues there is approvals, right? Where we have Eagle Downs with all the regulatory approvals that it requires other than just the haul road to connect to port, which is a much simpler set of approvals. Lancewood needs to do an EIS. We need to do a lot of ecology and groundwater modeling and progress state and federal approvals. So it's still a few years away. We need to do more work to define the resource as well from the coal quality. We need to get maiden JORC reserve statement, as I said. It's -- the potential there is a longwall operation. reasonable thickness, if you look at the target Middle Seam. So we are looking at a longwall, wider box and it's anywhere between 4.5 million, 5.5 million or 6 million tonnes per annum. I think there's more work we need to put there, depending on the length of panels, premium quality hard-cocking coal. And I think the interesting thing there is cheap access because actually rather than having to sink drifts for access, we actually -- it's just a box cut, a large box cut with quick access. And that's probably one of the advantage of the project. So where we don't have the benefit of having the port infrastructure to support the project. What we do have as a positive is cheap access and easy access. But still a lot of work ahead of us and a few years ahead to compare with the likes of Eagle Downs.

The next question comes from Glyn Lawcock with Barrenjoey.

Maybe just you said that you've gone to the public review period now for Isaac Downs Extension. Have you had any early feedback from that process? Or you don't get anything early from what's happening?

Glyn, not yet. It's actually we are just less than a week live now and public. And the less we talk about it, the better, if you know what I mean. So it goes to just the third week of September. So initial submissions, these are basically submissions and then there's a process of going to submissions and addressing them together with the regulators. And it's more down the track where you would know if submissions would turn into actual objections when you actually have a draft EA. So it's -- yes, I think it's early days.

Okay. That's fine. And then maybe just on the dividend. I mean, obviously, you say near-term growth opportunities in regard to capital allocation priorities. Were you aware of the stamp duty payment coming in when you made a decision? Or did that come in post your dividend decision? And is this sort of similar to last year? We got no interim, but then you sort of gave us a reasonable final dividend. Or is this maybe a reflection you may be paid a little too much back in February this year?

It's Shane here. Yes, the stamp duty decision came in very late in the process. So -- but it was only one factor, right, in terms of what the Board had to consider in reviewing the dividend decision at this time. I don't think there was any regrets about what was declared at the beginning of this year. I think what we've seen this year, as we've talked about quite extensively is higher-than-expected wet weather earlier in the year, which lends itself to a situation very similar to last year, actually, where we saw production second half weighted with the added complexity of the Middle East conflict creating some uncertainty around fuel and foreign exchange. So I think the Board is just being prudent in this case, again, very similar to last year, but we'll reapply the policy at year-end. And by then, we'll obviously have the certainty of the production results from the second half and hopefully, resolution in the Middle East or at least some more certainty around costs in that area.