Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Whitehaven FY '20 (sic) [ FY '21 ] call. [Operator Instructions] I would now like to hand the conference over to Mr. Paul Flynn, CEO. Please go ahead.

Good morning, everybody, and thank you, everyone, for taking the time to dial in today to participate in the conference call and webcast for Whitehaven's Full Year Financial Year Results Presentation for 2021. Obviously, due to the health orders here in New South Wales, we are based in separate locations so we are quite IT-dependent today. So with me, I have Kevin Ball, our CFO; Ian Humphris, our EGM of Operations; and Sarah McNally, our Head of Investor Relations as well. Now firstly, I might just start off on that theme of IT, of apologizing because we seem to have got our information to you late or we didn't. But the ASX seemed to have some challenge in processing the information through their system this morning. So I do acknowledge to everybody that you probably had less time to look at this information despite our best endeavors of depositing it in time in order for you to do so. But I'll just acknowledge that upfront. And certainly, we'll be available for questions not just after this discussion today, but later on during the day, of course, as required. So Kevin is going to go through our finance section, Ian is going to go through our operations and we'll get to that Q&A session in the end of it. Always a danger of having me controlling the slides, but I'll just highlight for you our disclosure slides. So we are going to discuss some forward-looking statements with our guidance today. So I'll bring your attention to the disclosure requirements here for forward-looking statements. And of course, competent person statements also there, which is most relevant to the reserves and resources, which we have released today as well. Over the page, I just want to set the scene with our results looking forward and then we'll outline what's happening to the global coal scene as the context before we move into the details of financial outcomes and operations. So moving across to our markets. I know everyone is familiar with this slide, just giving you customers numbers in metallurgical and thermal terms and just to make a couple of quick statements. And of course, our thermal coal is very high quality and only really fuels HELE quality power stations and customers who are signatories to the Paris Accord. Of course, we do sell metallurgical coal for steelmaking and then we have some boutique smelting customers as well who favor our quality of coal, but a growing footprint in customers across the Asian market. Again, you would have seen these slides before, so familiar to you. Our thermal products across Japan, Korea and Taiwan. And then, of course, from metallurgical coal, we've got a similar sort of spread across the markets as well. India is our largest met coal market there as well. No thermal will get sold there at all. But for Taiwan, no sales to China. Now looking at this slide, I think this is certainly an interesting slide and certainly been the topic I'm sure of much of the Q&A as we get to the end of the session today. Over the past year, we've seen quite a remarkable recovery in coal prices, both in gC NEWC and API5. And in Aussie dollar terms, we are seeing record high prices in Aussie dollar terms. I know there's a lot going on in this space, so I'm sure we'll get to the supply-demand dynamics in the Q&A section of today's presentation. But we're certainly seeing strong demand -- or we're seeing strong demand across the broader energy complex, be that oil, be that LNG. Certainly, coal is competitive even at these elevated price levels for both those alternative fuels. So we're seeing a very, very robust market. And given that we're now about a year, I suppose, since the Chinese import restrictions have been imposed on Australian coal, I mean that -- as we can see, that disruption has caused a lot of changes in the market flows, but that has largely settled. And then in the more recent context, we've obviously got some supply-side tightening with various matters that both -- well, all the markets, in fact, you've got the Russian market experiencing challenges, you've got Colombians, also South Africans with some rail issues, logistical problems, Canada has obviously had their bushfires. And so -- and we've had our own logistical challenges here in Australia, and particularly in New South Wales with our recent challenges with the NCIG shiploader out of the Newcastle market. So overall, a very, very tight market and we think supporting some pretty significant prices over an extended period. Now underpinning all that is the fact that we've got quite an obvious dip in terms of the COVID impact for industrial growth, but quite a return to form in 2021 but certainly with growth stretching out into the out-years of this slide. So that's very positive to see this underpin what we see to be a concept of economies in our neck of the woods and across the world more generally, stimulating their economies in order to re-enliven them after the impacts of -- terrible impacts of COVID. Over to this next slide, I'm over on Slide 8. Now this chart is divided into 2 sections. And so if we look at the chart -- look at our charts now in terms of market penetration, electricity generation requirements in our area are significant. And if you look at the capacity required over the years, this certainly underpins a very robust outlook for us. And then if you look at, most importantly, at the ages of plants in our region, in particular, it's no surprise that with old plants in the Northern Hemisphere closing that coal demand has dwindled in that regard. But of course, in Asia, the average age of the coal plants here are very young and growing in installed capacity terms. And so certainly, that underpins a growing outlook for us as a significant high-quality coal producer. And then when you move across to what the supply side is doing, what this graphic is trying to depict to you is essentially a growing divergence between the underlying demand and the capacity of the market to supply that. So I think we've spoken about this before, but certainly, this graphic does highlight to you where that underlying gap is emerging. And so it underpins a significant divergence there between supply and demand over this outlook period. With the improvement in coal technology over time, what we're seeing is the proportion of HELE-based technology being deployed in the power generation sector increasing, again, which drives demand for the type of coal that we produce. Of course, there are other markets which have good quality coal as well, we're not the only ones, but certainly Australia is, in terms of in terms of Asia, is obviously in our backyard. But of course, Russia and to the extent at these prices, Colombia also can supply into that market if prices were to remain as high as they are. And I know you've seen this, but it's worth restating, of course, our coal being a high calorific value, you need less of thermal energy output delivered and it enables our customers to facilitate meeting certainly their air quality concern, be that sulphur or nitrogen emissions from their plants. And of course, ash disposal is an issue in many, many markets, some markets less so where it is used as a secondary product in cement making. But generally, that's a cost imposed on our customers, which they would prefer to have more energy per tonne rather than ash being products they can't burn. So it certainly bodes well for our continuing supply into these markets. Again, just a graphic, which I know everybody has seen before. But as you move through the technology curve in terms of the old state, subcritical power stations fueled by brown coal or lignite, and I've got Victoria on the left there. And you can see as you go through the various elements of technology and add increasingly better coal into it, we're referencing 2 there, Hitachinaka and Isogo, both plants that we supply with our quality coal and giving rise to significant emissions reductions on a large scale, not -- these are talking about thousands of megawatts here rather than the individual small-scale renewable type contributions from an emissions reduction perspective. So overall, we're seeing a very, very strong market. You've seen the thermal market, obviously, very strong in more recent times. Metallurgical coal, also looking very positive. So from our perspective, we see that -- and you would have note, everyone would have seen the price jumps more recently with met coal and certainly even the Platts numbers for semi-soft now starting to jump as well. So considering the underlying demand here for steel and cement, we see this also levered to the market -- the growing markets of Asia. We're in the right place, selling the right products and we'll benefit from this continuing demand for these very important materials, particularly as these economies come out of COVID and the stimulus package, as I've mentioned, that each of our customers' economies are now engaged in. Over to our results. From a safety perspective, for the rolling 12-month TRIFR result, we ended up at 5.86. And this is not our best, unfortunately, but certainly, the trend is going in the right way. We've done well and we've got the right relationship in terms of our growing footprint as a business and our safety performance improving. But this job is never done, as everyone knows. But it's a decent result considering the challenges that we had underground last year and our growing presence at Maules Creek. A couple of our operations had significant milestones in terms of the Gunnedah prep plant and our Rocglen site, which is rehabilitation, both having significant milestones in terms of 3,000 days of incident-free performance. From a sustainability perspective, a couple of highlights here that I wanted to call out for people because it's not all just about the financial side of things. The sustainability side is very important to us in this day and age. So as you know, we are largely a local workforce, 75% of our people, company-wide, are posted around our businesses. 9% of our people identifies as indigenous people, which is very good. We try and direct a lot of our spend into the local community, and $344 million is a significant contribution to local suppliers between the breadth of, say, Tamworth right up to Narrabri. 267 hectares of land rehabilitated, which is also a significant contribution. And as you would have seen today, we have released our sustainability report. And included in that document is the important considerations for TCFD where we have tested our resilience against the published scenarios under that framework, and our business is robust in that sense. The numbers, I won't drill on this too long because you've seen these numbers come out in terms of our progressive quarterly reporting through the course of the year. We ended up at 20.6 million tonnes in ROM production at a managed level for the year, pretty consistent with the previous year. Sales volumes, similarly, again, numbers that you've seen before, so I won't dwell too much on this. Managed coal sales at 19.8 million tonnes. And we'll get to our guidance when we turn a little bit further through the pack. Maules Creek, in amongst all that, though, did have a very good year. And at 12.7 million tonnes, that is a record for the site having fulfilled now 6 full years in terms of its time that it's been operating. So a very good result. And our guidance for the new year, as you can see there, is hitched at the 12.1 million to 12.5 million tonne level. But the site is doing very well. We did have a big first half from a calendar year perspective, obviously, the second quarter in terms of the financial year perspective. So the split between the production for that guidance in this new financial year '22 will be 55-45. I'm over now on to Narrabri. And as everyone knows, Narrabri had a bit of a tough year during the course of this last year as we dealt with ongoing geological challenges associated with an unidentified fault in mid-panel, which is very difficult. I don't really want to go over that too much given that we've been through that at length during the course of the quarters. But we are using the additional drilling -- geosensing drilling tools to identify whether or not there's any unforeseen structures. And certainly, we've done that work in the balance of 109, certainly nothing there that's material. We've done it in terms of 110A before the step around, and again, satisfied with what we're seeing there, and we're currently in the midst of 110B. Guidance for the year at 4.3 million to 5 million tonnes for this new year. And I do acknowledge there's an element of conservatism, but I think justifiably so given the year that the mine has just passed through. Gunnedah ops at 3.8. Again, these numbers are familiar to you and will be consistent with what we're seeing in this new year. No reason for any particular change there. So I look forward to a reliable performance out of Werris and Tarrawonga as we've seen in previous years. So that gets through that part of it. And then we'll move on to our financial section here. So I'll hand over to Kevin to go through the highlights for you.

Thank you for that, Paul. Firstly, the main P&L and balance sheet items. Our EBITDA for the year was $205 million compared with $306 million in FY '20 and a net loss after tax but before significant items of $87 million, and I think they line up with the view in the market. We did take an impairment of $650 million before tax, bringing the net loss after tax and significant items to $544 million, and I'll talk to that in a few slides. As Paul has already mentioned, the biggest influence on our underlying earnings performance was the coal price, which reflected the impact of COVID-19 on industrial activity in our export markets. The pricing impact more than offset the improved operational performance of the mines, which delivered a decrease in unit cost of $74 a tonne, down from $75. And as always, there's a slide in the appendices where you'll find how we calculate that so we're fairly transparent on that. What you do see with the challenge of fiscal year '21, we were pretty disciplined on CapEx, and we'll talk to CapEx in a little while. And we maintained a strong balance sheet through the cycle, maintaining strong liquidity levels. We finished the year with about $808 million in net debt. But since year-end, we've repaid $178 million of the revolver. I'm over the page now on to the profit and loss and there are a few line items I'd like to draw your attention to. Firstly, the revenue, while sales volumes were broadly the same with FY '20, the revenue line is lower because of COVID's effect on the coal price. There was a $10 decrease in coal prices between FY '21 and FY '20. While operating expenses at an absolute level were relatively flat, it increased about $5 million out of $700 million. Unit costs have decreased by $1 a tonne, and that's despite an almost 20% increase in CHPP washery feed tonnes. The proportion of coal that's being washed has increased. And you'll be aware of this, we've increased our washing volumes now to capture as much as possible the better prices being paid for better quality, 6,000 kcal-plus product. Our coal purchases were down on the previous year, about 2 million tonnes in FY '21 compared to 2.4 million in FY '20 and the price we paid for that was lower. But our coal trading business continues to make welcomed and reliable contributions to EBITDA. If you come down the page to rail, port, marketing and royalties, the royalties were down as prices were down, but rail, port, marketing costs were relatively flat given the flat volume sales. I'll take you through DD&A in a little while and some interest. And I have a slide coming on the impairment, so I'll talk to that also, if you don't mind. If you come down to the tax benefit, clearly, with the benefit of the tax loss -- or the benefit of the loss, we've reported a tax benefit. But just so you know, there's about $600 million in tax loss shelter. And so accounting taxes don't actually reflect the actual cash tax paid position. I'm over the page now on to the significant items. And look, Whitehaven share price performance has lagged that strong price and coal price rises. And the share price at 30 June '21 was well below the net assets per share of Whitehaven. So in accounting standards, this is an indicator of impairment and which causes the need for an impairment assessment to be completed. So we did that and the outcome of the assessment was to impair the carrying value of mines that do not produce 6,300-plus kcal NAR materials, and that's Narrabri and Werris Creek. It's well understood Narrabri's mine life extends to the early to the mid-2040s. We are following the conclusion of the optimization plans for the mine has been a reduction in the reserves at Narrabri. Werris Creek has also been impaired reflecting the revisions to its mine plans, which has production ending in FY '24 and the uncertainties that exist in the market at Werris Creek services. Those assets, which are producing high-quality coals of 6,300 kcal-plus were not impaired -- they're unimpaired And when we did the impairment assessment, we adopted some conservative price assumptions. And the last element there is the rail intangible. You'll recall, in 2012, we secured some access rights for -- to ship additional tonnage on the Maules Creek to Boggabri rail spur. And we now expect the coal from those lines won't use that route, so the intangible rail asset was impaired. Moving on to the EBITDA bridges between FY '20 and FY '21. While there's been a strong recovery in coal prices in 2021, as you see on the graph that Paul put up earlier, August gC NEWC is now a touch over USD 170 a tonne. And with an Aussie dollar at $0.72, it's pushing well up towards AUD 240 or AUD 250 a tonne. The realized prices in U.S. dollar terms for coal in FY '21 and FY '20, we're a long way away from that, and they were very similar. So you can see that on that graph: $68 played $66 and $85 played $89 on the met coal side. But -- and so from a price, we had a bump on the EBITDA of about $30 million. But then FX for the year rose from $0.67 to $0.75 and this took $149 million of revenue off EBITDA. Our volumes of own coal sales were flat, but the improved cost performance helped to lift EBITDA by about $1 a tonne or $15 million. And that's the bridge between $306 million and $205 million. So turning to the next slide is a bridge of unit costs. Unit costs decreased by $1 a tonne to $74 and that is despite the challenges of COVID and getting people safely to work, the operational challenges that we had at Narrabri, the impact on open-cuts performance a year that was 35% wetter than average and 60% wetter than FY '20 and despite the logistics interruptions on the rail at the Port of Newcastle due to the storm damage at NCIG. The point I'd make here is that Maules Creek had a good year. In our biggest mine, we're seeing the benefits of our STRIVE program there on productivity and utilization. And we found that there's a bit more coal in the lower seams than was modeled, helping us with our strip ratio. Narrabri's geological and resulting operational challenges have been well canvassed, and they cost us in FY '21. You'd also see the decrease in commodity prices in FY '21 fed into lower diesel prices and that gave us a little bit of a benefit. As I said before, we made the decision to wash more coal than the previous year, and we washed harder to produce a higher-quality coal at Maules Creek and Tarrawonga, so that we can blend other products up and avoid the prices associated with lower-grade coal. Let me just take you to our STRIVE program. STRIVE is building an improved focus on consistent operational capability, on optimizing equipment use and on driving -- and to drive a sustainable culture of continuous improvement. And that's what we see with the Maules Creek performance over this last 12 months where STRIVE has started to kick in there and starting to deliver some benefits there. In FY '22, we'll build on and realize the benefits from the cost-saving initiatives we are implementing, and that's the green column in there that's gone from $20 million to $30 million between 31 December 2020 and 30 June '21. And what we're expecting to do is build capability within Whitehaven through training, upskilling and developing our people so that we really do embed in that business a business improvement culture and then we roll that out from Maules across our other operations in preparation for being able to deploy at development sites in due course. I want to turn over to depreciation and amortization. I think the analysts in the room will probably be a little bit light on their depreciation charge in their models. The FY '21 depreciation cost by mine per tonne is about $14 to $15 a tonne for all of the mines but Maules Creek. So Tarrawonga, Werris Creek and Narrabri about $14 or $15 a sales tonne and Maules Creek is about $20 a sales tonne because it has that acquisition cost from the 2012 merger. That leads you to a group number of about $18 a tonne, just to help you bridge that. And the increase is really due to depreciation on the excavator and haul truck fleet as well as some higher ROM production from Maules Creek as a component of total sales this year. If we look at the net finance costs. Net finance costs went from $39 million to $62 million, but the FY '20 number included an $8 million gain on refinancing the debt. So really, it's $47 million played $62 million. And that increase in cost is about $8 million increased interest costs. So the revolver debt is priced at BBSW plus a leverage-based margin. And because we had an increased drawn balance over the year and leverage increased over the year, that led to an increase in interest cost. The other thing that's in there is we refinanced the debt in 2021 -- or sorry, in 2020, and that led to us incurring upfront costs, which are being amortized. So there's about $6 million of amortized upfront costs. But if you look at that, the details of net interest expense are set out in Note 4 in the financial statements, and I'm happy to talk to anyone about it. Moving on towards CapEx. Over the year, we've historically managed CapEx tightly and I think that's pretty evident in this slide. In early 2020, we throttled down CapEx as we observed COVID spread across the globe. In FY '21, we spent about $28 million on fleet major overhauls; we spent about $26 million in sustaining CapEx across the platform; about $6 million on things for water security, environmental compliance and biodiversity; $3 million on mains development. And that's the total of $63 million. Over on the AHS side, we spent $2 million. And across the 3 projects, we spent $22 million. So there's a bit of color there in those spends. Moving on to net debt and liquidity. Rolling into FY '21, we were very aware of the uncertainties that were going to come into that year and we went into there with a strong level of liquidity. We finished the year with a strong level of liquidity. So at 30 June '21, there was $407 million of liquidity comprised of undrawn senior debt of $312 million and cash on hand of $95 million. Now I'm pleased to say that we've increased that liquidity. We've repaid that senior bank facility by about $178 million since year-end. And the strong cash flows that you're seeing from that slide that Paul put up on coal prices and a steady cost margin is delivering strong cash flow into the business, and that's being used to retire debt. If I turn the page, I'll take you through the composition of debt at 30 June. I'm expecting this to be substantially different at 31 December and substantially different again when we get to 30 June. You go run your models at those sort of prices with that sort of cost base, we'll punch a hole in that $688 million -- we punched a hole in the $688 million in 2 months and I'd expect we'd punched a bigger hole in that over the next 10 months of this year. So fiscal year '21 was the year of COVID. From a funding perspective, we're happy to have finished the year and we're taking advantage of improved margins to retire debt. We're also looking at ways to lengthen the tenor of our debt and diversifying our capital structure. We're aware of where banks harvest their policies and where they expect to be in 2025, 2030 and 2035 and we want to be ahead of that game. But as you can see, Whitehaven manages the complexities of maintaining liquidity, sourcing diversified capital and we manage capital so that near-term maturities are avoided. And we've got a plan that's probably half a decade ahead of where we are. So we're viewed in capital managers -- capital markets as prudent, conservative capital managers. And COVID has probably caused us now to be a little bit more conservative when it comes to leverage. So I'm over the page into debt metrics. I think this -- it was the year of COVID and the level of uncertainty that COVID brought has led us to move what, a few years ago, we would have thought were cautious debt metrics and we're going to move them a little bit more to the cautious side. So perhaps the main point is that we now expect to manage our leverage average tenor and minimum liquidity positions with a more conservative stance. That means lower levels of leverage, increased levels of liquidity and we have plans to lengthen the tenor of our debt and further diversify our sources of capital. You'll note our dividend policy remains unchanged at 20% to 50% of NPAT before significant items. And with that, I'll turn it back to Paul, and we'll deal with guidance, I think.

Thanks, Kevin, for that detailed coverage of the finance section. Looking forward, our expectation for financial year 2022, we wanted to play for you now our '22 guidance video. This goes into a little bit more detail underpinning each of the operations for you. So hopefully, this will be a useful resource for you to refer back to not just for today but then later on. And we'll lead off within summarizing our operational plans for the year for each of our mines and overall our group run-of-mine production guidance for FY '22. So I'll hand over to you, operator, to start that video. [Presentation]

Hello. My name is Ian Humphris, Executive General Manager of Operations at Whitehaven Coal. Before I outline our expectations for financial year 2022 run-of-mine coal production, I'll first give you a brief refresher of our operations. All our operating mines are located in the Gunnedah Basin, in Northwest New South Wales. As you can see on the map, we have 4 mines in relatively close proximity to each other. All of the production from these mines makes its way down to the Port of Newcastle by the Hunter Valley rail network to then be exported to Asian-based customers. Now to our mines. Firstly, to our largest mine, the Maules Creek open-cut mine. Maules Creek is licensed to produce 13 million tonnes of coal per calendar year. The mine produces high CV, low-ash thermal coal and semi-soft coking coal. Mining utilizes conventional truck and shovel techniques with overburden removal being undertaken by 5 800-ton class excavators and 45 ultra-class trucks. The mine operates 24 hours, 7 days a week. Looking at Maules' production profile, you can see that we've been ramping up towards the 13 million tonnes per annum limit. For the past financial year, FY '21, we reported a production of 12.7 million tonnes with 7.4 million tonnes mined in the January to June period. Considering our license limits, this will result in an FY '22 production spread of 45% in the first half and 55% in the second half of the year. With the scheduled mining of lower seams in the southwest of the mine in conjunction with the lower volumes of Braymont as compared to FY '21, we are guiding a total production for financial year '22 of being between 12.1 million and 12.5 million tonnes. As you can see on the mine site aerial, during FY '22, the operation will progress in 2 directions, to the southwest of the pit with a view to completing this area in FY '23 and to the east. These areas are highlighted in green. In-pit dumping will be undertaken where pit bottom has been reached, and this is highlighted in blue. Overall coal yield for FY '22 will be slightly higher than FY '21 at 78%, reflecting a higher percentage of bypass coal being processed. By the end of this financial year, we anticipate approximately 50% of overburden will be dumped within the pit, which is consistent with the natural progression of the mine once pit bottom is reached. In-pit dumping benefits are twofold. Firstly, it decreases the cost and time associated with moving the waste out of the pit to emplacement areas. Secondly, it is an integral part of site rehabilitation as we are filling the void created by the extraction of coal to achieve the required land forms. By the end of financial year 2025, over 90% of waste will be dumped in-pit as we achieve steady-state mine progression. Another priority for the team at Maules Creek is the progression of the automated haulage system, AHS, of the overburden fleet. The benefit of having AHS is it allows for the increased equipment utilization with the result in production increases. In FY '22, we are scheduled to roll out a software upgrade across the existing AHS fleet to improve operational efficiency and streamlining the interface with the manned coaling fleet. We are planning for a second AHS fleet to commence operation in FY '22. During the year, the team is also looking at a number of opportunities to maximize operational performance, such as bringing mobile crushers on to site so we can get more bypass coal onto the product stockpile, further optimizing the on-site coal handling and processing plant to increase yield and throughput and increase the productivity of our excavator fleet for both coal and overburden movement by the implementation of the STRIVE initiatives, including the mine operating systems principles. Now moving on to our 2 smaller open-cut mines, Tarrawonga and Werris Creek. Tarrawonga produces high-quality thermal coal, which is an excellent product for optimizing the coal blend across our portfolio. The mine runs at about 2.4 million tonnes per year on a 24-hour, 5-day roster pattern. During the year, further evaluation will take place to optimize mine design and potentially increase production levels. Werris Creek has now completed the deeper section of the mine and is now progressing towards the end of its mine life with 3 years of production remaining before the mine moves into the rehabilitation phase. During FY '22, the mine will be producing around 1.4 million tonnes per annum. So all up for the year, we are guiding that the Gunnedah open-cut mines will be producing between 3.6 million to 4 million tonnes of coal. And now to our underground mine, Narrabri. The past financial year has been operationally challenging at Narrabri but has now returned to more normal production levels, having transitioned out of the fault and dyke affected areas. An extensive drilling program continues during FY '22, utilizing surface and underground inseam techniques combined with the geosensing tools to continue to enhance our knowledge of the resource. As you can see on the mine diagram, during FY '22, we will extract the remainder of longwall panel 109 and then relocate the longwall to panel 110A and commence production. We have scheduled the move of the longwall to Q2 FY '22. As outlined in previous communications, after a comprehensive evaluation process, we have elected to step around the faulted zone located within panel 110. This decision minimizes the production risk, reduces the potential for equipment damage and improves coal quality by avoiding the need to ramp the longwall up out of the preferred mining horizon to traverse the fault. This step-around is scheduled for Q4 FY '22 and splits the panel into what we refer to as 110A and 110B. In FY '22, we're introducing Cut and Flit mining in panels 201 and 202, which you can see highlighted in dark blue on the diagram. So now we will be mining in 2 separate sections of the mine concurrently. Mine development in FY '22 will include completion of the installation and take-off roadways for longwall 110B, continued development of the maingate and tailgate roadways for panel 203 and the commencement of developing 200 mains. For geotechnical reasons, there is a requirement to excavate longwall panels 205 onwards in a north-south direction opposite to panels 203 and 204. This requirement drives the need for the establishment of the 200 mains, which in turn connects to the 201 mains that allow coal to be transferred from panels 205 onwards back to the main trunk conveyors. The establishment of 200 mains will also have the benefit of providing access to Stage 3. The commencement of 200 series development activities, including the refurbishment of development equipment, conveyor structures and belt, ventilation changes and the rehanding of the longwall, accounts for a large component of Narrabri's FY '22 capital expenditure. The introduction of Cut and Flit mining allows us to accelerate the access to high-quality coal in the shorter 201 and 202 panels by utilizing a continuous miner and a mobile bolter. The production of this coal supplements both the quality and quantity of the longwall. The introduction of this mining method also allows us to evaluate its scalability and potential access to other parts of the mine that are not suitable for longwall extraction. The Cut and Flit operation will be contracted out and is scheduled to commence in Q3 FY '22 and will be capable of producing up to 600,000 tonnes on an annual basis for approximately 6 years. Taking into consideration the expected conditions extracting the longwall panel at 300 meters-plus depth range and factoring in the longwall move and the step-around, which is only partially offset by Cut and Flit production and adding a measure of conservatism, we are guiding 4.3 million to 5 million tonnes of production for the year. In addition to the explanation of FY '22 activities, we are providing details on what is scheduled to occur in FY '23 at Narrabri. You will see that longwall 110B is fully excavated and then we return to the southern panels with lower depth to cover from early 2023. This will see run-of-mine production significantly increase. In addition, the panels in the 200 series are 4 kilometers long, reducing the impact associated with relocating a longwall. With the additional coal from Cut and Flit mining of the 201 and 202 panels concurrently with the longwall mining, we anticipate this mine will be able to produce up to 8 million tonnes per annum in the more favorable conditions. At a total group level, the combination of Maules Creek, Narrabri and the Gunnedah open-cut mines, it is expected we will have a managed run-of-mine production for FY '22 of 20 million to 21.5 million tonnes. Now I'll hand over to Jason Nunn, who is responsible for the coal sales, marketing and logistics.

Hello. My name is Jason Nunn, Executive General Manager of Marketing and Logistics at Whitehaven Coal. Over the past year, we have seen coal prices in all market segments stage a remarkable recovery. In fact, both gC NEWC and API5 thermal coal price indexes in Australian dollar terms have reached all-time record highs, while metallurgical coal prices have more than doubled over the first half of 2021. Global economic recovery post the initial impact of COVID-19 and increasing worldwide energy demand is expected to underpin continued strength in coal prices across FY '22. It is now almost a year since China's import restrictions on Australian coal are imposed and this disruption has driven a redistribution of trade flows in the global seaborne market. And in doing so, a greater demand for high CV coal from Australia. Another result of this disruption is a record differential between the gC NEWC and API5 indexes, driving producers to maximize high CV sales. Also, both coal producers and traders are incentivized to blend lower CV products into high CV products, increasing margins, and at the same time, increasing demand for higher CV coal. Furthermore, the Chinese restrictions have also significantly reduced the spread between gC NEWC and semi-soft coking coal prices. In fact, gC NEWC has reached parity with the Platts semi-soft index in FY '21 for the first time historically, which continues to favor sales of high CV thermal coal over semi-soft in the current market. Within the global seaborne coal market, Whitehaven exports both thermal and metallurgical coal products. And Werris Creek and Tarrawonga mines produce low-ash, low-sulphur and high CV thermal coal. These products achieved both ash and energy premiums to the gC NEWC index and are sold into the premium Asian markets predominantly Japan and Taiwan. Maules Creek and Tarrawonga also produced low-ash semi-soft coking coal products that are sold to steelmakers across Asia. Whitehaven also produces both thermal and metallurgical coal from our Narrabri and Werris Creek mines. Werris Creek thermal coal is sold mostly into the Korean market and Narrabri thermal coal is sold into a more diverse range of markets, which includes Japan, Korea and Taiwan, amongst others. The metallurgical products from both Werris Creek and Narrabri are highly regarded by Indian steelmakers where most of this product is sold. As mentioned previously, the emergence of the widening price spread between low and high CV thermal coal has incentivized Whitehaven to minimize or eliminate exposure to low CV markets, where possible via blending. Given that there will be some exposure to lower CV coal from Narrabri in the first half of FY '22, blending to higher CV products will be executed, wherever possible, to optimize margin. However, we do expect discrete sales of mid-CV to account for approximately 20% of sales in the first half of FY '22, albeit at excellent realizations in the current market compared to that across FY '21. The percentage of mid-CV sales will drop significantly in the second half of FY '22, bringing mid-CV sales for FY '22 to approximately 10% to 15%. As we've done in previous years, Whitehaven will continue to purchase coal to optimize product quality and blends and maximize trading margins. In the logistics space, Whitehaven will continue to run up to 12 trains operated by both the Aurizon and Pacific National to deliver our products to the Port of Newcastle. We ship from both the NCIG and PWCS coal terminals where we have the necessary port and matching rail capacity secured under long-term contracts. Our logistics arrangements provide us flexibility to accommodate the needs of our customers and efficiently manage our port blending requirements. Like any supply chain, the Newcastle coal chain can be disrupted by weather events and unscheduled outages, such as the heavy rains in March 2021 cutting the rail network or damaged caused to shiploader 2 at NCIG in November 2020. I'm happy to report that shiploader 2 is now back in full service and vessel queues at NCIG have returned to normal levels. At PWCS, vessel queues have decreased substantially and are expected to return to normal levels in Q2 FY '22. Considering our forecast ROM production profile for FY '22, which Ian has already outlined, and the current favorable coal market environment, we anticipate our managed sales for FY '22 will be in the range of 18 million to 18.6 million tonnes. This is above our FY '21 managed sales of 17.8 million tonnes, reflecting steady production and drawing down on ROM stock accumulated at the end of FY '21. The current differential between the gC NEWC index and semi-soft will continue to incentivize the sale of high-CV thermal in a spot market over semi-soft for the foreseeable future, although we will maintain sales to our strategic long-term semi-soft customers. Across FY '22, sales are forecast to comprise of 15% to 20% metallurgical coal, 10% to 15% mid-CV thermal coal with the balance being high-CV thermal coal, which is where we are currently seeing the best value for our products. Finally, with regards to our customer base, our thermal coal products will be sold primarily into the premium high-CV markets of Japan, Taiwan and numerous other destinations in Southeast Asia. Our mid-CV products will be sold primarily into Korea while our metallurgical products will be sold into India, Korea, Japan, Vietnam and Indonesia.

Hello. My name is Kevin Ball. I'm Chief Financial Officer of Whitehaven Coal, and I will outline our guidance in relation to unit costs and capital expenditures for Whitehaven Coal for the financial year ending 30 June 2022. Unit costs in FY '21 was AUD 74 per tonne excluding royalty. FY '21 was a challenging year for much of the coal industry with the impact of COVID-19 on coal prices and on operations. But Whitehaven FY '21 was more difficult because of the mining challenges experienced at our Narrabri underground mine. Ian has already provided you with a summary of FY '22 ROM production guidance and Jason has provided guidance as to the FY '22 sales program. With that knowledge, we expect our cost for FY '22 to fall within the range of AUD 72 per tonne to AUD 76 per tonne, excluding royalties. Across the platform, we're expecting diesel costs to be about 10% higher than in FY '21 as a result of the rise in crude oil costs over FY '21. Rising diesel costs impact our open-cut operations and our rail haulage costs. We're also expecting that rising gas and ammonia prices will impact our open-cut explosives costs. At Maules Creek, our FY '22 costs are expected to be flat with FY '21. Our strip ratio is expected to increase and our input costs are expected to rise. However, we expect our improved operational performance, combined with improved CHPP yields, to largely mitigate the impact of the increase in strip ratio and the rising input costs. For the Gunnedah open-cut, we plan to wash the majority of coal from Tarrawonga so that we continue to have high-quality coals available for blending. We will be washing Tarrawonga a little harder in FY '22 than in '21, which will increase Tarrawonga's costs by about 10% to 12% but will provide us with materials to blend other products up and we believe this to be a margin-positive strategy for the group. Costs for our Werris Creek operation are expected to feel the impact of diesel prices. And our Narrabri operation is expected to perform better in FY '22 than in FY '21. But following our experience in FY '21, we've adopted a conservative approach to costs at Narrabri. Let's talk about what makes up unit costs at Whitehaven Coal. Well, Whitehaven Coal's unit cost can be calculated from the face of the profit and loss statement using the equity own coal sales volumes reported in the quarterly production report. Whitehaven's unit costs include all operating, selling and distribution, administration and share-based payment costs. What are our drivers of unit costs? Well, operating costs in coal mining operations are most affected by productivity in both equipment and labor. The cost of running our truck and shovel fleets and our longwall and development units are relatively fixed in the short to medium run and it is productivity that drives cost outcomes. Productive truck and shovel fleets and productive development and longwall mining units consistently produce high volumes of coal very economically. When we have consistent productive mines, we are then able to use our installed capacity to process and transport the coal to market smoothly, which then delivers good processing and logistical cost outcomes. A second key driver in our open cuts is from commodity costs: diesel, explosives and tires. As industrial activity across the globe rises and falls, so do our input costs. Because of our distance from port, diesel is an important input cost in our logistics chain. The unit cost of our different open-cut mines do vary mainly because of strip ratio and washing strategy. Maules Creek, the strip ratio is between 6 and 7:1. At Tarrawonga, the strip ratio is about 10:1. While at Werris Creek, the strip ratio is about 8:1. Washing strategies are aligned to market dynamics. In times when high-quality coal is achieving $60 a tonne more than lower-quality coal, it's good economics to be able to wash harder and achieve higher margins, albeit that it comes at a higher cost. Both Tarrawonga and Maules Creek wash to produce products that are typically 6,300 kcal-plus NAR, while Werris Creek is a simple crush-and-screen process with 100% yield. Werris provides materials for blending with products from the other mines, and Narrabri has a 98% or 99% yield. So let's turn to our STRIVE program and what we expect that to deliver. STRIVE is building an improved focus upon consistent operational capability on optimizing equipment use and in driving a sustainable culture of continuous improvement across Whitehaven's platform. Our unit cost guidance includes expected benefits from STRIVE. In FY '22, we will build on and realize the benefits of the cost-saving initiatives that have been implemented. At the same time, we're building an improved operational capability within Whitehaven through training, upskilling and developing our people. Our aim is for consistent, reliable production and improved productivity across the group. Turning now to capital expenditure guidance. Whitehaven has historically managed CapEx tightly and you can expect that approach to continue during FY '22. Guidance for FY '22 shows a commitment to maintaining the excavator and haul truck fleet to support productive operations. Our expenditure on major maintenance is expected to be in the range of $30 million to $35 million. We're demonstrating a steady approach to sustaining capital expenditure. And this year, we have a small step-up in CapEx for productivity improvement initiatives that are emerging from the STRIVE program. We expect to spend between $35 million and $40 million in this area. Environmental compliance, biodiversity management and water management activities are an ongoing item and we expect to spend between $10 million and $15 million in this category in FY '22. As Ian described in his presentation, the 200 mining precinct in the shallower ground in the southern area of the existing mining lease will commence establishment in FY '22 in readiness for longwall production in FY '23. Our spend to establish the 200 precinct includes items such as 200 mains conveyor, the supply of those and the engineering works around them. We'll have work on the downcast and upcast shaft. We'll do work on mains high tension cables and 66 kV aerials for power supply. And we'll be looking at ventilation, gas monitoring and communications, compressed air in portable water. All of these are assets that are needed as we step into the 200 precinct. As well, we'll be driving the 200 mains to support longwall production via the 201 sub-mains from longwall panels 205, 206, 207, 208 and 209. As Ian explained, we will be mining these panels in a north-south direction, and longwall coal will be conveyed from these longwall panels to conveyors in the 201 mains then to the 200 mains before joining up with the main trunk conveyor that we have already installed in the mine. We expect to spend between $55 million and $65 million in driving the 200 mains and establishing the 200 mining precinct in FY '22. In relation to our expansion and growth projects, our AHS project is coming to an important phase and so there is a sum of money here. In FY '22, we expect to roll out the second AHS fleet. And with our growth projects moving through their respective approvals processes, we expect to refine designs and improve costings for them, which means consultant costs and the cost of the project team together with some necessary land purchases and property compensation payments. Lastly, there is third of 5 payments to EDF in relation to our acquisition of EDF's interest in Narrabri. Now I'll hand back over to Paul for his closing remarks.

As we look forward to the year ahead, Whitehaven is well positioned to take advantage of the strong coal price environment, which Jason has outlined. With group ROM production guidance at 20 million to 21.5 million tonnes, managed own coal sales at 18 million to 18.6 million tonnes and unit costs within the range of AUD 72 to AUD 76 per tonne, we are set to report strong earnings for FY '22. As Kevin outlined in the CapEx guidance, we will be maintaining our disciplined approach to capital expenditure. So cash generated over the coming year will be used to pay down debt and maximize returns to shareholders. Thank you for taking the time to review our financial year 2022 guidance with the team. All right. Thank you, everyone. And I hope that video was informative for you in terms of giving you a deeper insight into the construct of the guidance for the year and what's going on operationally for this new year. And of course, it's a resource, as I mentioned earlier, that you can refer back to the extent that any of the details of that have escaped as a layer of useful resource. So I won't go through these slides again because that's been part of the video. So you'll see that both these numbers are the same as we've just discussed here with Kevin, which really brings us now then to the closing part of our discussion today, and thank you for your patience as we've gone through this. I know it's been a little bit long. In FY '22, considering the strong coal price environment and our sales guidance, so we are, as we've said to you, forecasting strong cash generation for this year. In the near term, the cash service, as we said, will be used to repay debt. And our dividend policy, as Kevin has mentioned, remains the same at 20% to 50% of NPAT. And certainly, based on what we're seeing here, our net profit should be within our grasp in this year. Operationally, STRIVE is going to deliver again in this new year, and that's certainly an investment worth making. And at Maules Creek, particularly, an increase in productivity, moving through more coal and overburden. Narrabri, I think, is certainly this transition year will see us move from the last of these deep panels into the shallow ground in 2023. That's certainly a benefit for us, and Cut and Flit will emerge in the second half of this year as a contribution to not just coal volume but coal quality as well in that area where we know there's a lot of sweet coal. The marketing team will be focused on blending as much coal as possible to maximize the returns given the big spread in the market. And so from our perspective, we see this as a real opportunity, as I say, to wash more. Of course, a little bit extra cost in that washing, but the spread is so large it's well worth doing to maximize the proportion of coal that remains in the high end of the market. So with that, we'll move on to the Q&A session. Look, I know that we have 2 forms through which questions will be leveled today, so through the teleconference section and then also through the webcast itself. I might suggest that we answer the ones on the call first only just to -- and then we'll move into the webcast questions, which we will repeat for the benefit of the people on the phone and then attempt to answer. So with that, I'll hand back to the operator.

[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley.

Look, if we can perhaps start with Narrabri, the 20% cut to the reserves there and obviously the increase in the proven category, I think that's a good thing in terms of production going forward, improving the predictability and you still have that mine life, as you mentioned, to 2044. I guess what I wanted to talk about was perhaps the change in terms of the quality of product that's coming out. Do you see a change in pricing for the product going forward given your sort of focusing on the higher-grade coal? And then also, what price assumptions are you using for the reserve update there as well?

Yes. Thanks, Rahul. It's Paul here. I'll share a little bit of that around. Look, Narrabri, as you can see with the marketplace itself, we're focusing certainly on the upper end of the quality curve. And we know that Narrabri, over time in the exploration license, the ash does increase over time. Having the Cut and Flit, obviously, as a sideline benefit brings coal quality -- improved coal quality from that small contribution as well, which is good. But we have focused on -- the coal hasn't gone away, but we have focused on minimizing our exposure to lower-rent coals as the seam thins as you go towards the Southwest. So there's -- that's part of what we've described. And if you take the time to have a look at the reserves and resource data, I know it's a little impenetrable at times that whole statement, but there are details in there for you, Rahul, to work your way through in terms of our approach and underlying assumptions in formulating the new reserve. Certainly, as you say, the confidence in our reserves has increased significantly and underpins the mine life, which we think is very positive. Now of course, if things were to change, and of course, you can -- everyone looks at the prices today and said, look, if you had lower-rent coal, they are selling for very good prices today. But I don't think that's realistic to say that that's going to be the case for the whole 20 years. So there has been a change there. Now look, I'll just address a little bit of just the write-off itself. I mean, obviously, we have made some changes to the mines operations. As you know, we've left 11 to later in life. There's a step-around in 10. Given the change in mining direction that Ian has gone through with everybody, the mains -- the 100 mains serve a less productive purpose than they would had you been mining in the other direction, hence, the need for the 200 mains to go in there. But that is the best way to manage reliable production of high-quality coal out of the model, the highest quality coal that it can produce. So it's really these reflections and also the Cut and Flit operation being implemented as well gives rise to a number of different strategic changes there at Narrabri, which we've taken account of in that impairment consideration. Ian, is there anything else that you wanted to add to that?

No. I think you've covered that, Paul. I mean, obviously, decisions are going to have to be made as to what a profile and what equipment we're going to use when we select the new longwall. But yes, that analysis is being done on sort of the longer-term pricing to come up with those selected profiles of mining high.

Okay. Perfect. And then perhaps one on Werris Creek as well. Just looking at that mine plan now, how do you think about production going forward? If I look at this year's guidance, if I was to put Tarra at about 3 million tonnes per annum, that leaves a lower production run rate, I guess, for Werris. I just wanted to understand sort of how are you viewing that asset going forward given the change in the mine plan as well?

Ian, I'll leave that one to you.

Thank you, Paul. Look, we're intending to run Werris Creek out at similar levels as still we've put in guidance for FY '22. So sort of some of the changes we've considered is running the mine harder for longer and trying to keep all the equipment there for as long as possible. There obviously needs to be a staged ramp-down. You can't fit it all into the mine. But that's done to, I guess, consolidate the life to as short as possible, which deliver the best economic outcomes for winding that operation up before we go into the rehabilitation stages.

Okay. Perfect. One last one, perhaps for Kevin. Kevin, you talked about the deleveraging and obviously that's happening at a very rapid pace given where coal prices are. Perhaps to bring it back into perspective, how are you thinking about target net debt with and without growth projects? And would I be correct in assuming that you probably only pay out a dividend once you're in a net cash position now?

Rahul, I think they're 3 really good questions and so let's start with the -- with where do we think net debt is. If you go run your model, I would be expecting with prices where they are, out of your model, you're going to see us net cash second half of fiscal year '22. I think you're going to see us in the second half, it will be a question for the directors as to whether we return to dividend-paying status in the first half or the second half. But off the back of those numbers, there's quite a strong net profit and the dividend policy remains unchanged. From our perspective, I think the leverage story, Rahul, says we want at the top of the cycle to put cash on the balance sheet. And at the bottom of the cycle, we want to be probably half a turn, which is 0.5 of EBITDA on a through-the-cycle basis, which is about $300 million in net debt at the bottom of the cycle. So we'll be moving to a more conservative stance, and we'll be looking to put cash on the balance sheet. There's another question, when we talk about tenor, the current revolver is due in -- due for repayment in July 2023. And we'll be looking to refinance that out over 2022 and we're willing to put a bit more tenor in the market so we'll be looking to alternate capital markets in this next year. And on the development projects, I think you're going to -- we're going to be very cautious about those projects, again, because we look around at the market and we like the coal prices that are currently here and we think they're good prices, and we think they're here to stay for a period of time, but I'd like to get a year or 1.5 years behind me before we start getting into the discussion around development projects and doing things like that.

Your next question comes from James Redfern from Bank of America.

I guess first one just following on from Rahul's question. Just obviously, the balance sheet degearing -- deleveraging very quickly, which is great given the high coal price environment. So just wondering, how is the Board thinking about share buybacks as well? Obviously, we know the dividend policy 20% to 50% of NPAT given you will return to profit in FY '22. So just wondering how investors can think about dividends and share buybacks. And then I guess second question, please, is just maybe a quick update on the timing of the federal approval for Vickery and then how -- what are you thinking about the timing for potentially approving the Vickery extension project.

Thanks, James. Look, the question of the blend in terms of how returns are paid back to shareholders, I think that's a question, as Kevin said, the Board will take into consideration. This is going to change. It has changed quite quickly and will change further, I think, quite quickly. So all options will be considered. As you know, our dividend policy is what it is. And then -- but buybacks are also certainly a useful tool to be able to deliver the right outcomes for shareholders. But I think it'd be a little bit premature just to try and prejudge those discussions. But that's very much front of mind for the Board and given the rapid rate of cash generation that's going to occur over the next little while. In terms of the Vickery federal EPBC approval, the notional deadline for approval is actually at the end of this month. And so we've been in constant discussion with the government around the progress of this. As you know, the government has already telegraphed and registered their position to object to this decision so they will be appealing. But we also understand that -- the minister understands that in the meantime, because the appeal can take some time, in the meantime, they need to get on there and conduct their processes in approving projects. And so obviously, in the meantime, they're going to also have to evidence their consideration of this new duty, which I understand they are well down the path of. So it's -- James, it's one of these watch-this-space ones. I don't expect it to be very long. And when I say that, I mean I'm not talking about months, I'm talking about sooner rather than later. And so once I think it'd be fair to say once that happens, and let's assume the Minister does approve the project and evidence the practical application of this duty, you wouldn't have to take a giant leap to suggest that someone might challenge that. So time lines will be judged by -- will be affected by an outcome in that regard. So we are expecting some movement from the Minister certainly in the next few weeks. But then what the next move of the activist will be will remain to be seen.

Your next question comes from Paul Young from Goldman Sachs.

Kevin, well done on the new balance sheet metrics. I think that range is spot on. So congrats on that. Maybe just talking through capital allocation on a go-forward basis and with respect to sequencing projects, also, I think it's the right thing to not spend on growth -- or too much on growth for the next 1.5 years. But how do you rank all these projects now that you've got? And are you -- within the new balance sheet metrics, does this mean you have to sort of develop these projects in a sequence rather than parallel and actually resequence the order of these?

Yes. Paul, do you want to jump in there or...

Yes. I'll just make a couple of remarks there. Paul, thanks for the question. Look, we generally consider ourselves to be conservative people and we think we've taken that to another level. So appreciate the feedback just on the debt metric guidance going forward. I will just state, Paul, that we have said consistently that we wouldn't attempt to try and develop both these projects in parallel. So there'll be no notion of doing that from our perspective. So the question -- the important question about new projects and growth really is related to just the previous discussion on Vickery. Now -- and certainly, in the natural sequence of things, Vickery you would think would be the first one to get a currency in terms of development. But it has been slowed, obviously, because of these legal ructions and -- whereas Winchester South is proceeding according to plan. And so if that continues in that vein, then there will be obviously an important discussion for the Board to take on as to what is the right answer. Given that it will be sequential in nature, what's the right order in which these projects might be brought to market. And again, that will be an important consideration the Board will need to turn its mind to. Management is certainly doing that. We think in the standup 5, Winchester South is probably, as a stand-alone asset, a superior proposition, but you have to acknowledge that Vickery has broader operational synergistic benefits to the existing group as an operation, which should be taken into account as well. So I might just stop there and give back to Kevin on the broader consideration for our balance sheet posture.

Yes. And I thank you for clarifying, Paul, because I think -- look, we've always said we'd never do 2 projects together concurrently. We're cautious and conservative people and I think anyone who has thought that we're ever going to do 2 projects together clearly hasn't spoken to us or doesn't understand us that well. I think there's time between these projects, too. I don't see them being done back to back. I see time between them. And I think there'll be considerations over this, the 2020s, which is how do these projects come on in a measured way. So my advice to you and to anybody else is that we will look at alternate ways of developing. We'll look at sell-down processes and we'll look at the order and priority of those assets as we work through this. But all of these things that are things that we're discussing with the Board as they go along, but I just want to clarify there's not a hope that we're planning on running 2 projects concurrently and we're well aware of what metrics we're up to.

Yes. Kevin, it's interesting, you've called out the 2 greenfield projects. I mean, to be honest, I was probably more talking about the Maules Creek, which I know is permitting-dependent and the extension at Narrabri, the higher-returning projects, lower-capital intensity projects rather than the greenfields.

Yes. The brownfields as extension on existing assets have attractive economics, Paul.