Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Whitehaven HY '22 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Paul Flynn, MD and CEO. Please go ahead.

Good morning, everybody, and thank you for taking the time to join us for Whitehaven Coal's half year results presentation for financial year '22. Today with me, I've got Kevin Ball, our CFO; and Ian Humphris, our EGM Ops; and Sarah McNally is our Head of Investor Relations. As usual, I'm going to go through a short presentation and we'll get to the Q&A. Given the fact that everybody is seeing the operational outcomes for the first 6 months in any event, we'll probably focus on the financial component and scoot on to the Q&A as we can. I'll just draw your attention to the forward-looking disclosure statement given that we are talking about guidance today. So draw it up to your attention, and we'll move off to our slides. So in order to set the scene for you a little bit, let's just quickly recap on our customers and who we are. We're obviously 100% exporter into the premium markets of Asia. You can see the split of customers here in the various jurisdictions that we service. And so Japan, Korea, Taiwan and India being the mainstay of our business and expanding into Vietnam and Philippines and Malaysia in more recent times and Indonesia with boutique markets there. I mean the obvious exception here is the fact we don't sell anything into Mainland China, which I think everybody understands. Our premium products and the split of sales during the period, you've got here, which is there for you to see, again, no major changes in too much of that. Majority of the thermal coal goes into Japan, Korea, Taiwan, as you know, and then steelmaking, smelting and other purposes goes into India, Korea and Indonesia. Japan is in the other component here at the moment. The backdrop of pricing, obviously, is pretty good, and I'm sure we'll talk about that a little bit further as we get into things. You've obviously seen some variability in the market moving from cyclical, well, COVID-induced lows cyclical lows, if you want to refer to them that way due to certainly a much tighter market with significant demand right across our customer base and globally more generally and then, of course, supply side constraints leading to a very good and tight market overall. In terms of the current coal market, again, price is low back in August of -- due to we saw things go low in August of '20 and then that moved further lower. And then we've seen a much better market coming through on the supply side being constrained as it is. You're not seeing any benefits to that. But there's a number of different reasons why we've seen the changes that we have. Of course, there has been stimulus being obviously injected into the markets of each of our customer economies, but global economies more generally as people trying to recover ground after the COVID-induced backward movements. So that's good. And that's being exhibited right across all of the energy complex. So you're seeing oil, gas, coal, all obviously responding to that, which is a positive thing. Obviously, supply side has been interrupted, not just by COVID alone, but COVID has been a supply issue constraint on pretty much all the producing jurisdictions you could imagine. And then, of course, there's been other features which have taken place across the globe as well, whether it be weather, in our particular circumstance here, or industrial relations type issues or infrastructure constraints, be that in South Africa or Colombia. There's been certainly constraints on either side, leading to a very tight market overall. Just with an outlook for the seaborne thermal coal market, volumes and price looks pretty good generally. On the right-hand side, you've got WoodMac's view as to where prices are going to settle, $80 more or less going out to 2035. That's up for debate that one in terms of where this lands. And certainly that's a long way off where we see sort of the forward curve and the more recent times are going to point to something settling at something north of that in my estimation. The left-hand side is quite interesting when you look at the bedrock, if you like, of coal demand. Obviously, this slide sees that China and rest of the world drift off as you move out to the 2050 period. But largely, Asia, Asia ex China is pretty stable at around 400 million tonnes, which is pretty good for the seaborne market. And just quickly, why do people like our coal? Well, of course, we've got the trifecta of benefits here. We've got, obviously -- we've got the lowest carbon intensity of any thermal coal sold in the seaborne trade so that you get more energy for the tonne that we give you, which is great. And given the educated nature of this audience, I don't need to highlight that that's -- CO2 emissions are important, and it's clearly not a pollutant whereas our coal does definitely deal with the air quality concerns of our customers and that is that the stocks and knocks out comes from using our coal much better than our competitors. And of course, the low ash profile of our coal means that there's not ash disposal issues at the back end of the use of our products. So definitely got the trifecta of benefits in that regard. Just over to our results, and I'll start with safety as we should. Safety performance has been reasonable, but not where we want it to be. The TRIFR of 6.1 is okay, but I know we can do better than that. So there's a lot of renewed focus on making sure that we continue to push this pressure -- this number down and conservative pressure across our business is necessary to make sure that we can achieve a better outcome than what we've got in this particular period. I know industry-wise, we're doing really well. And severity wise, obviously, the instances is improving all the time, but that's -- we know it can be better. So let's continue to focus on that. Just some highlights for the financial results. I'll just call out a few of these numbers here. Obviously, our achieved prices, you already knew this from the previous information we've given you over the quarters. So I know everyone should have had our EBITDA range well and truly in hand given the numbers that we've given you quarter-on-quarter. The record revenue for us at $1.4 billion is very good. EBITDA obviously at $632 million is a very good result. And that cascades down to a record NPAT of $340 million. Cash generated during the period has been significant, $567 million from ops, which is a positive result. And the Board has reflected on, obviously, the first half and declared an unfranked dividend of $0.08 per share and looking forward, has also deemed appropriate a buyback, which notifications went out this morning that we would seek to conduct over the next 12 months up to 10% of the issued stock of the company and capped at $400 million over the next 12 months. And so it really is a positive outlook from the Board's and our perspective about not just not just the immediate short term but certainly the outlook for the business more generally. These numbers, obviously, you're no stranger to this, this audience, given that we published these numbers over the past 2 quarters. So I won't really go on to this too much at all. But these numbers will be very, very familiar. Guidance for sales at 17.2 million, 17.8 million, a wrong guidance there at 19 million to 20.5 million. Kevin will come on to a little bit about deleveraging, which did reflect the fact that we've spoken in the last quarter, particularly due to COVID and weather, we did have slippage of deliveries into this quarter, which has obviously converted to cash -- significant cash during this quarter. So I know Kevin will cover that in a minute. The slides, so I'll just go through this quickly. Again, everybody is well familiar with where we're tracking with this Maules Creek, obviously was the one which was affected by weather, not just the flooded period where we had lost access to the site for 2 weeks but for essential services being helicoptered into site. But we were suffering from a consistent rainfall prior to the flooding event itself. So we did lose some tonnes in there, which we previously recorded at 600,000 to 700,000 tonnes for the year. Narrabri obviously wasn't affected the same way. It was obviously in the midst of a change out, which would have been scheduled, and that has been conducted well and on time and budget. So moving out of 109 into 110 is a positive thing with our ramp-up continuing to proceed and cutting into 110 reasonably well already. Just over on this next slide on Narrabri, just a highlight for you, the cut and flit mining preparations did start in January, but actual cut and flit won't really occur until, well, next month in March. So it is first quarter later, I think, but in this one, it refers to when preparations have started. Longwall relocation as I mentioned went well. The step around obviously comes at the back end of this financial year and the relocation is scheduled for the second half of FY '23. Gunnedah ops, Tarrawonga, unfortunately was -- like Maules Creek, affected by that weather pattern, which was hovering over that part of our basin. And that did cause us some delays there. It wasn't as badly affected as Maules Creek was in terms of access to site constraints, although the challenge there is the roads were constrained and therefore, transporting any coal, even if you could get people on site, transporting coal down to our Gunnedah pit plant was all constrained by virtue of that limited public road access due to that flooding. But Maules Creek surprisingly, which is normally the one that gets the most rainfall of all our pits, actually skated through that period in relatively good form and performed according to plan for the first half. So with that, I'll hand over to Kevin.

Thanks, Paul. So let's go through the main P&L and balance sheet items. As Paul said, we certainly reported a record EBITDA, record NPAT and a record cash flows over $0.5 billion, almost more than tenfold from the previous half. We've halved our net debt from $808 million to $404 million. And over the coming slides, we'll take you through some of that material. Okay. So revenue of $1.4 billion. We did have sales slip out in the first half. That was really the wet weather and a bit of seize in Newcastle at that point. Operating costs are down a touch to $322 million, but with the reduced sales volume. That's what's driving that. Coal purchases are up, as you'd expect in coal trading because we're paying more for the product that we're trading. Net profit, underlying earnings, $340 million in the profit line. We'll talk -- take our way through the capital management framework that we've clarified in this year around here. The $0.08 dividend is around 25% of NPAT for the current period. And due to our confidence in the operations in the coal market, the Board has endorsed the implementation of an on-market share buyback for up to 10% of the outstanding shares over the next 12 months. You'll see that we've got an income tax expense there. We expect to pay tax in the second half of this calendar year. So we expect to pay tax out of the FY '22 year, but that payment will take place in December. That's when the schedule will take place. That means we have franking credits in this calendar year, and those franking credits will be able to be applied to any dividend that's declared after 1 July. So a little bit of a deep dive on some lines here at the moment, have a look at the drivers of EBITDA. Really, there's no surprise here. When you make $202 on average realization, up $121, the big impact here is price. $706 million increase came around from price. FX relatively flat, not much there. And I think the first year margin that we made last year was about $5 a tonne in EBITDA because of the COVID-induced effect on pricing, so really not much effect on volume there. You see costs -- I'll probably say to you that -- I would say to you that a portion of that $80 million is what's turned up in the $706 million because diesel is up, and we'll go through this in a little more detail. Diesel is up. And there's some cost in there from demurrage and different things around coal quality. Take you over to achieved thermal coal price. Again, there's really no surprises there. First half last year, USD 55 a tonne. This year, $146. For this half year, $146. $116 of that comes from the gC NEWC increase and there's a discount there of about $25. But that reflects Whitehaven's, the lag as we had rising prices through this period. And the proportion of coal that came out of Narrabri was higher ash in materials. So we expect that thermal realizations in half 2 will revert to averaging gC NEWC now that we've cleared that Narrabri material. And what you should see and what you can draw from the guidance is that the production and sales in the second half are stronger than the first half, so we are expecting a very strong second half to come through and be reflected in the full year numbers. Over here on unit costs, you can see the groupings at the bottom, product quality strategy, some underlying cost inflation. I think our average cost of diesel first half fiscal year '21 was $0.52 a liter. Our average cost this period is $0.78 a liter. So we've had a 50% increase in diesel costs over this period. And that's just reflected in both the operations at site and in the haulage to the ports. So that's been a big impact. Again, you can see with the coal tightness -- the tightness of the coal market and the elevation of coal price, you can see demurrage. Demurrage for us in the first half was up $2 on the previous. And we've had some impact of flooding and then the volumetric effects of those sales slipping out of the first half and the second half to get us to $83. So I would think that when the volume rises in the second half, that volumetric piece will unwind. Where diesel finishes, I think we'll probably see, again, $0.78 is below where the average is for January and February. So we should see that, demurrage probably soften in the back end of the year. And the yield will remain, I think, because of what we're washing out of Maules Creek in terms of the lower seam quality there -- the lower seams and the quality of those lower seams. So if I take you to EBITDA margin, this is the thing that warms my heart, $5 in fiscal year '21, $102 in fiscal year '22. That 55% margin on owned coal sales is an outstanding result and is what's contributing to these improved results. Over the page, we'll take you through some D&A and net finance. I know you're interested in this. The D&A, from $138 million to $119 million, driven by decreased ROM. And because of the impairment that we took at 30 June '21, there's a slight impact in there. But that translates because of the lower volume and the time-based depreciation into a higher unit cost. Again, as volumes come on in the second half, those numbers should reflect that a little bit better. On the net finance expense, we do expect to be -- well, we repaid $225 million since 31 December. Our expectations are that we'll repay the balance of the revolver in the next week or 2 and we'll be net cash in March as well. So we're expecting and we're seeing a really strong second half of the year in terms of volumes and price, and we're certainly seeing that in cash flow. So that's fed into this conversation, I think, around where the Board has described the outlook for the year. Net debt and liquidity. As I said, subsequent to year-end, we've repaid $225 million. There's only $95 million outstanding and with 6 weeks left to go until we finish the March quarter, I can very confidently say that those numbers about being net cash in March is absolutely right, and we'll repay the facility. So the strong balance sheet really is the piece that's supporting where the business is coming to in terms of returns to shareholders. And the expectations for calendar year with the tight physical market for coal and elevated prices, we really see a strong year coming. Take you over the page to free cash flow. Now over $0.5 billion in free cash or operating cash flow. We put $400 million of that to work to retire debt, which is what we said we'd do. And then we put about $90 million in the capital. You can see the breakup of that. And we will pay to support the operating and maintain safe and operating conditions in the mine. That $40 million in lease payments, which I know most of you got and the others just around this. But as I said, we expect the second half to be very strong. That discount that you saw on the slide there on revenue should disappear in the second half, and the volume should be up. So cash flow from the second half should be much stronger. Over the page, just wanted to clarify because I know we've been getting a lot of questions about this in the past. So the message here -- in here for people is we really do remain focused on adhering to a strict capital management framework. We will seek to diversify sources of capital and the work that we've been doing on getting into the debt capital markets continues. We do plan to refinance the revolver that's with the banks that matures in July 2023. We'll refinance that in the second half of this calendar year. And we will get into the debt capital market when conditions are better. But the balance sheet's in very good health, and the credit rating and positioning of the company is improving with every month that goes past, so there's no downside in doing that -- taking our time to do that and do that properly. So I said with production and sales weighted in the second half. The return of the usual mix of high-quality coal and 6,000 kcal prices. And we expect those prices to remain robust, and we expect to generate significant levels of free cash flow in the second half and in calendar year '22. Just a couple of points. The interim dividend is unfranked because the company doesn't have franking credits. But as I said to you before, we'll pay tax out of the FY '22 result and we'll put franking credits in the franking credit account in the December half. So stay tuned for the full year result. Secondly, as you understand, Corporations law limits share buybacks to 10% of the issued capital in the 12-month period. And so we envisage this buyback taking place over that 12-month period. So back to Paul and talk about how we review -- how we view the remainder of financial year '22.

Thanks, Kevin. Just to get the page here and reiterate the guidance remains unchanged. So no variation from us in that regard. So I'm just struggling to move the mouse here. Obviously, our riders to that, which we explained previously were further weather impacts, which -- well, we've had rain but not anything as disruptive as what we saw back in November, December. And the COVID impacts, whilst we are still living with COVID, we are seeing that diminish slightly, that absenteeism that's associated with obviously self-isolation and so on taking place. So -- but otherwise, we're in the right zone to deliver on our guidance. In terms of just the focus, obviously, for the year, improving our safety performance, as I mentioned, that absolutely is front of mind for us, making sure we deliver on that guidance. We are maximizing the profit margins. As you can see, we've been watching more and harder and that was the $3 that Kevin's outlined just in that bridge diagram from earlier. Delivering the right mix of returns to -- or initiatives to shareholders. And as you can see, the Board has taken the position on an $0.08 unfranked dividend and for the first time, initiated a buyback over the next 12 months. And of course, just managing the impact of Omicron on ourselves and also on our suppliers and the coal supply chain more generally through the balance of not just this financial year but through the calendar year, I suspect as well. So with that, I might draw this presentation to a close and hand back to our operator to get some Q&A started. Thank you very much.

[Operator Instructions] The first question comes from Paul Young from Goldman Sachs.

Paul and Kevin, hopeful as well. First question is on capital management. You're returning a big amount of cash back to shareholders through the buyback, so that's great news. I guess the question I have is around the mix of dividend versus the buyback. Kevin, you've explained you don't have franking credits but you will have in the second half. Your payout ratio is still well below, I guess, the rest of the mining sector as far as your threshold and certainly below other coal companies. So I'm just curious around when you do have franking credits available, do you think the dividend policy will be reviewed, say, August or throughout the year?

Thanks, Paul. I might start. Rather than sort of predicting second half sort of dividend outcomes and so on, Kevin is right to obviously point out that we are, as we speak, probably tax paying now essentially having consumed the shelter that we had with carried forward losses. Paul, the challenge, as you know, with these sorts of things is trying to strike a balance because, obviously, there's lots of different approaches you can take and that reflects the myriad of views of different shareholders and their different needs. And so we've tried to strike a balance there in terms of reinitiating, obviously, dividends in this profitable period. I think that's a good thing to do. It is unfranked as we've all acknowledged. The buybacks, we're trying to balance, again, those needs of shareholders and their expressed positions in terms of what their preference are for capital allocation. And I suppose, if you like, shifting, because this will be conducted over the next 12 months, shifting to a position where you're -- well, essentially fostering a further alignment between people -- for people to stay longer in the register than what dividends only might achieve as a capital allocation initiative. So there's just a shift in focus there on that. We obviously think that the second half is going to be very good and the balance of the calendar is certainly very good. So we have no real major concerns in that regard. And -- but the second half, the final dividend will be the subject of much discussion I'm sure with the Board when that comes. But obviously, they're expressing or they're exhibiting good confidence in the outlook for the company in taking the decisions they've taken already.

Yes. Okay. Great. And then I guess the next question as far as priorities on capital allocation, does this now signal a bit of a change whereby return to shareholders is #1; brownfields expansions and potentially bolt-on, minorities -- acquisitions of minority stakes, I should say, #2; and then greenfields out on the right-hand side?

Look, I think it's -- well, I think you can see in our previous stated allocation framework, it was really getting the balance sheet in order, returning to dividends and buybacks has being part of that capital allocation returns to shareholders more generally. We stated before that we weren't in the frame of mind to be wanting to push the button on a project in the short term, and I think that remains clear that we're doing that. But that's not to say that we've stopped progressing work on those. In fact, Narrabri Stage 3, IPCs on this week, we're obviously devoting energy to that. Winchester South has recently concluded it's exhibition period with EIS. We're pushing ahead with that. And Vickery, secondary approval processes with management plans and others are proceeding. So we're working hard on that, but we're not doing much in the way of committing significant capital to these assets right now. We think the time will come for that, but it's not -- it's certainly not within, say, for instance, the next 12 months, say, for instance.

Yes. Okay. And last question for me, just on cash flow movement, not much movement in working capital during the period. But can I actually ask a question on CapEx? You only expect $70 million in the half, and you guided supplies probably batten a bit more and then potentially up to do the maths [ $120 million ] or so in the second half. Can you actually spend that? I mean, where will activity sort of step up on the capital expenditure side of things in the second half?

I think, Young, that you're answering your own question.

Yes, we'll undershoot there. We'll undershoot there. There's no doubt. I mean we obviously had -- from a cash flow generation perspective, we've highlighted the fact that we had slippage out of the first half into the second half. So there is this conversion of capital just after the half year end that obviously, we've used to repay the down further. The only thing I'd call out there for you, Paul, has been a little that goes aside -- counter to the notion that we're going to underspend generally is we are putting a little bit more of effort into Vickery, of course, and that really is just to make sure we've got the finer details of design and stuff ready. But we're not talking about big goals here at all. It really is that we -- at the time when we want to bring that project to the Board's consideration, we want to be ready to go. And that means having all the detailed design and everything else done. So there's work going on to that, which you do count in the millions of dollars, but we're not talking cheap stations here at all, but that will fall into the second half of the year. But if you -- there's probably going to be $10 million $15 million devoted to that over the 12 months from now, but that's about it outside of the normal things that we've projected to do.

Just I have to ask just on that Vickery comment there. I presume you may take to a Board with the sell-down in conjunction.

Yes, all those options will be part of that discussion, as you would imagine, Paul, because that's obviously an option for funding as well, not just long-term offtake. So yes, at the time that we consider these, it would be considered in the context of who would form that -- who would you want to take forward as part of your partners for that project, for sure.

The next question is from Alex Ren from Credit Suisse.

Congratulations on the results and cap management, but it looks like the market is not exactly taking this massive buyback program very well. So 2 questions from me. So I don't want to put words in your mouth, like the share price is at $3. Say, on weighted average price by the time you finished your $400 million, the share price could be and hopefully at $5. Is that the upward threshold you're thinking? And you also mentioned the focus is expected to, I guess, pivot towards retaining long-term holders. So the program, is that -- saying the program could potentially be extended further beyond? That's it.

Yes. Thanks, Alex. Well, of course, the buyback as Kevin has already outlined, and I'm sure you're aware, is 10% of the register without shareholder approval. And so you've got to put some limit around that rather than leaving it open as if you'll spend whatever in order to achieve the 10%. So we put a cap on it. Now the cap is, in our view, as to what represents good value or not. The cap is an assessment of what we thought was necessary to have authorized by the Board in order to achieve up to that 10% threshold. So as to how the market responds over the next 12 months, who knows? We're just signaling our intent to engage in a buyback and what we believe to be a reasonable cap to be able to execute that program. So what happens during the balance of these next 12 months in that regard, we'll just have to see how that unfolds. And no predictions from our part in terms of what goes on in 2 subsequent periods.

Yes. Understood. Very clear. And just a follow-up on that. Then how do you rank your cap management afterwards after the $400 million buyback? So at that time, your growth projects would probably start requiring major CapEx. So does that mean cap management will gradually pivot towards or prioritize -- start prioritizing internal growth for a period?

Now as I said, no predictions for subsequent periods, Alex. We're certainly not making that. But if -- and you will imagine that the Board will want to bear all factors into consideration as these next 12 months unfold. So if our assessment and the Board's view is that the stock is cheap, then -- and the business is continuing to perform at a level that demonstrates that, that valuation is perhaps out of step with our own view, then that may continue on. So -- but that will be the Board's choice to make that once we get to that position.

The next question is from Rahul Anand from Morgan Stanley.

Look, a couple from me. Firstly, following on from Paul's question. I just wanted to understand whether -- I mean you step into the second half. You've got the cash. Obviously, you've got your previous dividend payout policy of 20% to 50% NPAT. Is it perhaps time to start reconfiguring that to a free cash flow-based policy, I mean, especially given the fact that you do have brownfield expansion, you do have greenfield projects available to start spending some of that CapEx? How do you see that going into the second half? And I'll come back with the next one.

So is that -- is your hypothesis that we should be paying out more? Is that what you're saying from a free -- moving to free cash flow? Is that what you're saying?

Perhaps adding to the predictability for dividend...

They can't fix the audio [indiscernible] point quickly than answering your question.

I'm sorry. So I was saying basically whether there's an opportunity here to provide more predictability of that dividend as you perhaps move into a free cash flow-based policy. So I just wanted to understand whether that's something you would consider into the second half. Or is the policy what it is basically on a go-forward basis? .

Well, I'm struggling a little bit with a question, Rahul, because I'm struggling to understand how a free cash flow based dividend policy would be less variable than currently given that we are in a cyclical industry.

Sure. So I guess what I'm trying to get at is if you do have lower free cash generation and you are investing in projects at a later period, that will allow people to be better prepared for a lower dividend, so to speak. But that's fine. Look, I can take this one off-line with Kevin if that's okay. .

Fine.

In terms of, I guess, the growth profile, Paul, if we talk about Winchester South, are there any updates there? What's the nature of work currently on? And how should we think about that project? Does it fall after Vickery? Is that a fair comment to make?

Well, yes, look, that is a fair comment to make. It does fall after Vickery chronologically. And I only say that by reference to Vickery obviously being approved, subject to the outstanding case against the federal government that's been appealed. So we're waiting on that judgment. But Winchester South is proceeding well. And so we're pleased with the progress that we've made. I mentioned just briefly earlier, it had gone through its public exhibition period for its EIS. So we're in the phase now up there of working with the Office of the Coordinator General to work through the feedback that has been received during that exhibition period. And so there may be some more work that comes out of that, that we've got to do for any questions or submissions that have been raised during that period. All the Coordinator General themselves have actually asked for more work as a result of further review of the draft EIS. But it's going according to plan and -- but it is chronologically behind Vickery, no doubt.

Okay. One for Kevin perhaps. Just read the buyback, Kevin, is that -- is it fair that you'd probably start considering the buyback after you've reached a net cash position? Or is it -- I mean, you're not very far from it. I acknowledge that. But -- or if you do find the right price, you'd be inclined to perhaps delay that net cash position a month or 2 and then take the opportunity to pick up stock.

Rahul, there's a 2-week period before you start to buy back stock anyway. The net cash position on all of my forecast is in the first half of March. And I don't think that's as relevant as people consider it. The second half of this year, this financial year, with prices where they're expected to be and the volumes that are there is going to be very strong. And I think we can do 2 things at the same time, which is manage a debt balance and manage returns to shareholders. And that's what I think we're trying to do with this in a balanced way, Rahul. So rather than wait for net debt to turn into net cash and then turn up at the end of June with a large cash balance, we thought we could do that at the half and reflect our expectations of what the full year is going to look like.

There's not going to be a mad flurry of cash out the door, obviously, Rahul, because there's a process by which these buyback are conducted and a lot of the rules around that is to ensure that you're not disturbing the market. So that will be a measured process over a 12-month period.

Okay. Fair. Okay. And then final question was around expectations for the discount. I mean the market is very strong at the moment. Is this an opportunity to perhaps realize better prices for some of that product that falls outside spec? I know a lot of that is fixed price but whatever is not. And how should we think about that discounts tracking in the second half of this year and beyond?

Yes. That's also a good question. Thanks, Rahul. Yes, look, it's -- the second half is, as we've said a couple of times in previous statements and certainly again today, we'll be averaging gC NEWC in the second half for sure, which would be great. So that's very nice to move past the legacy higher ash material that came out of Narrabri as a result of the cleanup of 109. So that will put us back in positive terrain in that regard. So we said no low CV sales in the second half of the year. So that will certainly be the case. Having said that, that's not going to allow us to fully recover and look on an annual basis, a realization of above gC NEWC for the full year, even though the second half realizations are very good as you're alluding to. So I think we'll be in the 5% to 7% range overall for the year realization-wise when taken as a whole once we get to the back end of it.

The next question is from Matthew Hope from Credit Suisse.

Look, I also wanted to just delve into the tricky question of pricing a little. So obviously, we're looking at $260 now for 6,000 kilocal. Given the impact of lags, I mean, how long would it take to expect to see that kind of pricing hit some of these contracts like Korea? Or would it not happen? I mean are we actually going to see these kind of prices? Or is that still some way off just due to the lags?

We've got a mix of contracts in various contract forms and durations. If you take a 3-month lag, you're not going to be terribly wrong in that regard. The reference that you've made to Korea is actually the longer of those lags just because that's an annual contract, most of the contracts we have in Korea. So on any given point, they're 6 months in duration at an average throughout the course of the year. But you've got others, which are far more prompted than that. So if you use 3 months, you'll be okay.

All right. And the other question I just wanted to look at was the met prices. Just wondering what kind of prices are you getting? Most of it is not going to Japan, going to other areas. But are they following the met prices, the semisoft, the PCI prices that Nippon's putting through or is it some other basis?

Yes. Matthew, I'll refer you just back to the quarterly reports that we put out for the first 2 quarters because in there, and there's a table in there that speaks to the realizations for our products there for you. I don't have that in front of me. But if you just go back to those 2 reports, you'll get that.

Okay. Finally -- and just also 1 final question just on Vickery. What are you thinking in terms of the timing of that? So that law case was settled and passed. Would you be wanting to start that immediately? Or would it still use still thinking sort of 5 years down the track?

Well, certainly, I'll come back to the previous remarks. So not in the next 12 months would be our view. And I suspect it might be a little bit longer than that. I mean the market's in good shape, no doubt about it. Are shareholders calling for an expansion of capacity in this period of time? Or do they want us to commit to the capital to doing that? I'm not hearing a chorus of views supporting that proposition right now, but we'll certainly be in a much better financial position than we would have been 12 or 24 months ago, of course. So we will have the capacity to do that. So that liberates you to make a decision based on when you think is the right time to do that. So -- but certainly not in the next 12 months. That's for sure. .

Next question is from Peter O'Connor from Shaw and Partners.

Paul and Kevin, just switching gears Narrabri. Thanks for Slide 16. It's a great update. Are you into the 200 mains yet? If so, what's the conditions that you're enjoying or facing and the development slate at the moment for Longwall 203 as it would? And I've got a follow-up.

Thanks, Peter. I think Ian has been waiting patiently for a question to answer. So we'll let him -- unleash him.

Yes. So Peter, yes, we are in 200 mains. We're necking them out. There's a number of headings there that we're working through and developing those. I think we talked on sort of previously manning buildup. So it's been a little bit slower in the manning build up there with largely contract resources keeping for our equipment, but that's progressing. And sorry, there was a second part to your question there.

Just the conditions you're facing, what is it like given the depth of coverage? Is it the same at the other side of the main?

Look, the conditions are better there in the shallower cover. There are some structures that we know about that we always plan to work through. And yes, we're just tackling them in the normal course of business.

Okay. Paul, Maules Creek, JV partner sale process, any update? Any news? Any movement?

Nothing I can give you there, Peter. It's been very quiet. I mean, obviously, we are all doing well out of Maules Creek in this price environment. I'm not sure whether that's playing into the speed or other or lack of it that they wanted to pursue their process. I haven't heard anything further on it. So we'll wait to see where that progresses and preserve our rights, of course.

So with that in mind and your capital allocation framework and the buyback and dividends, which I applaud, how do you think about keeping that in that capital allocation process? Do you set aside a couple of hundred million just for that time -- the day when it comes? Or just go ahead assuming it'll happen when it happens?

Look, I think I've said earlier that -- in previous discussions on this topic, Peter, that our preemptive rights allow or ensure that we are offered terms similar to what somebody else has obviously tabled. And my understanding of that is that deferred consideration has been one of the underlying premises upon which Itochu has gone to the market on. Now whether or not that remains the same in this market, I'm not sure, but that's certainly the case. And so if we were to engage in that, we wouldn't be considering that would be a large capital outflow initially.

Okay. And to Vickery, your answer to the previous question about the process. When you go to FID, is long-term offtake and/or a sell down part of that? Are they necessary? Or are they just coincident with that event or subsequent to that event?

I think it's probably preferable for my end to say -- to answer it in a sense of what's our preferred position. I mean equity would be nice from an end user. I do note that end users seem to be talking more about long-term offtake and perhaps funding associated with prepayment type arrangements. So I think there's a bit of a shift in the market more towards that rather than equity. But in either of those forms would be -- we would certainly explore and it would be part of the proposition that we would want to make sure we considered at the time that we decided to go to the Board and ask that question.

So the trigger to start the process of the data room and the JV sell down presses or some sort of third-party process for funding. Is that post the approvals in this whole deal process being paved through?

100%. 100%.

The next question is from Chen Jiang from Bank of America.

Just a few questions from me. Kevin, you mentioned Whitehaven will be looking for debt facility when the market gets better. Just would like to get some clarity of the timing and what are you looking for. Are you looking to borrow again at the time when your growth projects are approved? What's Whitehaven's gross debt or net debt target, please?

Yes, Chen. Good question. The -- when the markets improve, if you can let me know when that is, I'll be happy. It's really around -- if you look at the business, the business is really strong. There's no pressing need to go to a market to raise capital neither -- not for projects or for any reason at the moment. So the reason that we want to do this is just simply to diversify capital sources and that's all it is. It's just a natural part of how does this business grow and evolve over the next decade. And part of that is a withdrawal from a banking provider facilities in line with the way in which banks are -- their glide paths are towards 2030 and 2035 and doing that ahead of that, so people understand the investors and the debt capital markets understand your business or understand our business and understand what value proposition we offer. So there's no burning platform. There's no mad rush to do it. As I said, the revolver that's due for refinances in -- we'll do that in the second half of this calendar year. And then we'll take our time about getting into those debt capital markets when conditions permit and when circumstances permit. But in all honesty, the balance sheet just gets better and better over this next year. So it doesn't hurt us to be -- to take our time to do it properly.

Kevin, just a follow-up on that market condition, what market conditions are you referring here? How is the debt market like for pure thermal coal company like yourself?

Pure play coal companies can raise capital in the debt capital markets. We're an inaugural issuer. It's not like we've been there. We're waiting for and bond markets to stabilize, digest the various conversations around whether there was 5 rate hikes from the Fed or 7 rate hikes from the Fed and how does all that play through. If I talk to my advisers, their view of the world is you need to see the world settle down a touch and see all that get adjusted and that leads you to a conversation and say this is probably after the full year results rather than the half year results. But we'll be ready to go if conditions improve. And that's what we're planning on doing.

Kevin, just another question in regards to your tax comments. From -- because you mentioned that you -- Whitehaven will pay tax in the full year. From my memory, Whitehaven had tax losses. Just wondering if those tax losses can be used and the timing when Whitehaven's planning to use those tax losses?

Chen, good question. We had about -- at the end of 30 June 2021, we had about $600-and-odd million worth of tax losses. Those losses will be fully consumed in the FY '22 year, if not having been fully consumed at today's date. So the tax that we're talking about is an income tax payable calculated on the 30 June '22 financial statements. But under the PAYG system Australia has, that tax is payable on the 1st or the 2nd of December in 2022. Not to bore you too much, the franking credits -- the franking accounts need to be brought back into balance every 6 months, so that's at 30 June and 31 December. So we'll make our payment in 31 -- in the December month. And that puts us with for the expected franking credit balance in the first half of fiscal year '23. But that would be a period in which any final dividend would be considered. So it's likely that any dividend out of the full year will be franked.

Right. So the tax losses -- so based on what you're saying -- it's okay. Right.

They're gone.

Yes. Okay. Yes, clear. Sorry, just a last question to Paul, please. Just on the thermal coal market. If China continues to intervene its domestic thermal coal market, like they did in October last year and then the thermal coal price plummeted after that, do you see any downside risk to the thermal -- to the stable thermal coal price if China continues to intervene its domestic thermal coal market?

Yes. Look, I think it's a challenge. I mean it doesn't obviously affect us directly as you obviously -- is the premise of your question. What China does or doesn't do, I can't predict. I think it would be better for all if normal trade flows resumed. That would be nice to see if Australian coal could access the Chinese -- the Mainland Chinese market again. So it will be hard to say. I mean, obviously, everybody around the world is consuming more energy than what they were a year ago. And so -- and that's driving the tightness. My only comment on that really about in terms of internal Chinese sort of market dynamics is that it's obviously a much more regulated market than this. And so if they decide they want to constrain internal market prices, they can. But there's obviously -- it's not so bad when you're a vertically integrated energy company, but it's not that great if you're a mining company, and you've got a cap put on your -- the price of which you can sell internally. So what they do, I can't predict. Sorry, Chen, it's just -- we'll just have to wait and see what happens. But I think generally, it's -- it would be a positive to the market more generally if we were able to normalize traditional trade flows of coal.

Sure. Understand. Sorry, just the last follow-up on the timing and the pace of your buyback please. Sorry, that's my last question.

Over the next 12 months, Chen, that's what we're planning to do.

Do you have any preference for the pace? Is that going to be relatively equally spread in the next 12 months?

Well, there are rules around this. There are rules around how much you can dip into the market. So the general premise is don't disturb the market by doing that too much. And so we'll conduct the buyback in accordance with the rules that govern this type of process.

Next question is from [ J.C. Evensen ] from -- a private investor.

Paul, congrats on the results. Just one for me. The 25% to 50% NPAT capital management range. Just kind of looking to FY '23, with Vickery and Winchester not being approved, what would be the use of free cash flow beyond capital management given the state of the balance sheet? Or to put more bluntly, your net cash with no growth projects approved, any reason to cap capital management at 50% of NPAT?

Thanks for the question, J.C. Look, this a good question. There's obviously, with the outlook we are seeing that there's -- it's going to be a pretty robust time for us going forward. So all -- what we're signaling here obviously today is that all forms are on the table in terms of capital allocation. But whilst the stock is cheap, there's definitely a case of continued buyback, but that will be something that the Board will have to look at. And you might say, let's -- those buybacks -- the project will have to compete with the buyback alternative as well. So I'm sure that's not a concept that's foreign to anybody on this call. And so we will be in a position to be able to do that. It won't be within the next 12 months as I've reiterated today. But all those permutations will be considered by the Board during the course of the year as it unfolds.

Great. And then you commented earlier about the state of the credit and bank markets looking to see them settle down before potentially approaching the market. But given coal prices and the tightness of and it's globally right now in your premium product and you talked about customers interested in the Vickery product and the Winchester South product and definitely a lower cost of capital, would access to debt factor into management and the Board's decision on when to go forward with Vickery or Winchester South if Winchester South is approved versus buying back more stock?

Yes. Yes. I think all those things are important considerations. Yes, there's no doubt about that. Access to debt, I'm not worried about that too much. I think Kevin's commentary was really just about timing. We were significantly prepared to go earlier, but with the Chinese property market gyrations that, that causes in the bond market, we stepped away from that whilst that was unfolding. And in this new year, of course, as Kevin has noted, again, commentary on where rates are going, is something we'd like to observe a little bit further. And certainly, our advisers are telling us that's the case. And we support that. So again, all these same variables will have to be assessed at the time. But yes, we're not worried about the access to the debt. That's not something that weighs too heavily on us. If you move into those markets, of course, that's a little bit higher priced market than what we've been historically using with the corporate facilities here domestically. I think everybody accepts that.

And just on Vickery timing, with Werris Creek's life depleting or Tarrawonga's like being -- apologies, in the next couple of years, when would you have to green light Vickery to replace those tonnes in the portfolio seamlessly? Last one for me.

Yes. Thanks, J.C. That's a good question. Werris is just the one, 2 years to go after this. So yes, there's a 2-year lead time. If your only source of extra tonnes to absorb take-or-pay considerations was Vickery, then you're right. You're relatively tight on time in that regard. That's not the way we look at it at the moment. No, we think we've got extra tonnes coming from Narrabri with it's movement back into the shallow ground. So that will assist us in terms of making sure that our take-or-pay considerations are dealt with, with the production that we have or the later production capacity we have within the business before we push the button on Vickery.

Great. And Werris Creek, any equipment can be recycled or deployed at Vickery to reduce CapEx?

Yes, there's a little bit of that. Working through that currently. That's right, yes.

The next question is from Glyn Lawcock from Barrenjoey.

Paul, I just wanted to understand a little bit more just the cash flow movements over this calendar year. I understand Kevin said before, no tax payable or cash tax catch-up in December. Will you pay any cash flow tax between now and December? Because I'm just trying to understand, obviously, prices are good today, but as you said, it's cyclical, and it can disappear tomorrow. And so I'm just trying to understand, will you put aside cash for the tax payment? Because, I mean, with the prices for you've been doing the buyback, we've seen this happen before, where you've returned money. Price falls out and then you get hit with CapEx for a project or in this case, a tax bill, which could send you back to net debt. So I'm just trying to understand how will you manage the balance sheet over the course of this year.

Kevin, I'll let you talk to the cash tax payment scenarios.

So to answer your question, Glyn, there is no requirement for us to pay tax until the 2nd of December. And that will be out of the FY '22 results. And yes, we can calculate what the tax liability is, and we will reserve cash to meet the tax obligation not only out of the FY '22 result but the tax that no doubt will arise from coal prices and from earnings that will go out in the first half of fiscal year '23, which will be December half. So we will start making PAYG cash payments in December with the lump, and then we'll start paying tax consistently, which then should feed the franking account. Is that clear?

Okay. But -- that's very clear, but I guess you don't know what the price will be in that first half of fiscal '23. So is there a risk -- does that then -- so if you are watching coal prices fall in the first half of fiscal '23, does the buyback get pulled to slower to make sure you build the cash for taxing? Like what would you manage to like a net 0 balance sheet or you're back into net debt?

I think we'll manage to a net cash balance sheet. That's what I think we'll finish up. And I think it will be strongly net cash even with the tax payable at the back half of the year. That's always the case, that's what we're working to.

Yes. Assuming prices stay at elevated levels above the previous lows where you were burning cash, I guess.

You're an important observer here, Glyn. Where do you think prices are going? Are you forecasting significant declines, are you? Is that what you're saying?

I'm just -- know we're in a cyclical business, Paul, and no 1 forecasted to go to $200 and no one forecasted to go to $50 last down cycle either. So I'm just trying to make sure we stay conservative. That's all. I don't think any of use are any good at it.

Yes. I think we're all staying conservative. We're with you on that one, for sure.

The next question is from Peter O'Connor from Shaw and Partners.

Paul, Kevin the answer to the last question from J.C., the private investor regarding FY '23 capital returns, is the answer to that question that you have paid special dividends in the past, and that is your opportunity in addition -- another opportunity of capital allocation process to do above and beyond your 20% to 50% payout ratio on buyback?

Yes. There's no reason why that couldn't form part of considerations going forward. No reason. No reason. But it comes back to the previous comments there. We are keen to make sure we have a conservative posture that the balance sheet is in good shape. Our view is that net cash is the right position to be in. And whilst we have paid specials in the past -- it's hard. I would imagine, Peter, it's hard for people to value specials given the unpredictable nature of them. And so there's probably a good debate to be had about what value you get from doing that. Is that incentivizing long-term ownership of shares? Or is that contributing to volatility in the register?

You think, Paul, that they can be capitalized?

Yes. Yes. Probably a broader discussion for another day, that one. There's lots of variables in that.

If I finish with some -- the notion of are you pro cyclical or are you countercyclical? And your Board, your exco and what are shareholders telling you? It sounds like you're doing the tail wag the dog a little bit. Where -- which camp are you in? Which camp are shareholders in? And what's appropriate in a cyclical industry?

Well, I think we've got to make the right calls that are in the interest of shareholders. And so that's what we're charged with doing. Last time we built a project, the fuse was already lit when we bought it. And so that was done countercyclically at the time, but that was done necessarily because that was the case when the approach the company was acquired. So there's always a balance there, as you understand, Peter, between when is the right time to push the button on a project and when isn't. Are you going to get full value recognition for putting the capital to the project, putting our business in the best position financially to be able to make that call to give us the greatest flexibility to make that quality is exactly aligned to what you're saying, is that is do it when it makes the best sense for shareholders.

Congrats on the great first half results.

Thanks, Peter.

There are no further questions at this time. I'll now hand back to Mr. Flynn for closing remarks.

Yes. Thanks, everyone, for your time today. For any further questions, you know where to find us. We look forward to catching up in due course. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.