Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to Whitehaven Coal's June Quarter 2022 Production Report Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I'd now like to hand the conference over to Mr. Paul Flynn. Thank you. Please go ahead.

Good morning, everybody, and thanks very much for taking the time to dial in to our June quarter production report for 2022, which rounds out production results for the financial year 2022. As usual, I'll just go through the highlights and then we'll get on to the individual discussion around mines and open up to Q&A. As everyone knows, the market is very solid. So our average price that we've achieved during the course of this period on an A dollar basis was $514, which is a significant uplift on what we've previously seen. And for the FY '22 period as a whole, A dollars, it's $325 per tonne achieved prices, which are fantastic. Subject to order, of course, we do expect our EBITDA for the year to end up in around $3 billion, which is a significant result. Run-of-mine production for this quarter was actually very good at 6.4 million tonnes. And for those watching the report, they'll notice that we've actually changed the structure of the report to a quarter-on-quarter comparative basis. So you'll be able to see the trends. June quarter total equity sales have produced coal 4.4 million tonnes. It was up 23% on the March quarter, which is a solid result. Managed sales of produced coal of 17.6 million tonnes is in the middle of our range, which is a good result considering all that has gone on during the year and we'll get to that a little bit further. As a result, again, we've got our accounts to be finalized and so on. But as a result, we've got a net cash position of about $1 billion and significant cash generation during the final quarter this year, $1.4 billion during the period. And that is after actually executing 3/4 of a buyback of the buyback that we had planned, approximately 100 million shares. We purchased 76 million shares already, dedicated $362 million to that. And if you would have seen the announcement previously that we've upped the capital to achieve that 10% buyback to $550 million. On to safety. Look, safety has been quite good. We've been very pleased with the second half performance here, and we've managed to bring our TRIFR down to 5.4%, which is a very good result, a significant improvement of 8% on the year before and 22% improvement over the last 5 years. Just the overview. I mean, the context is obviously an interesting year, of course, but an interesting quarter as well. I mean the year has been characterized by lots of disruption, not the least of which is COVID, which everybody has been experiencing. We obviously had floods, which locked us out of our sites for a couple of weeks back in December. And then the rain has been quite significant during the course of these last 6 months and absenteeism and labor shortages have been significant during this period. So we're pleased with the results, having been able to land within our guidance on every front. So just as you'll see the tables there about managed production sales and stock volumes, again, just noting for you that we've -- we're looking at the quarter-on-quarter change as opposed to the previous corresponding quarter. But that those numbers are also there for you to work through. Importantly, just in terms of our equity numbers from our own financial results, you can see that we're at 5.245 in terms of ROM equity for the period versus 4.1 versus the previous net quarter of March '22. Our equity saleable coal production of just over 4 to nearly 4.1 versus 3.6. These numbers are all closely aligned to the managed numbers above, but we've obviously had a slightly better performance on the mines that we own a higher percentage of relative to the managed totals. But good results all over. Equity coal stocks at the end here at 2 million tonnes. That's a little bit up on the last quarter, although we have been drawing down stocks to achieve decent sales during the quarter as I'll get to. Over at Maules, as I say, Maules had a decent result for the quarter at 3.1 and for the year as a whole, landing at 11.22, slightly less than what we would have hoped for Maules at 11.3, but a very solid result given that we've had significant intermittency as a result of rain and COVID-based absenteeism and then labor shortages more generally. I know everybody has been reporting that across the resources sector and other sectors, of course, with COVID, but given all of that, I think we've managed ourselves reasonably well to get through the period ended up with decent results. The saleable coal production of 2.6 million tonnes is in line with the previous quarter. Our sales volume of 2.8 million tonnes, 15% above the previous quarter. Met coal split has been 23% of Maules Creek, which is a good outcome for the quarter. And our stock, as I say, up a little bit, but 1 million tonnes here, we'll draw that down pretty quickly as we continue to rail during this next quarter. But overall, a very solid result and just pleased given all the disruptions that occurred during the course of the year that we've been able to achieve that. Narrabri has been on a solid pathway as many will have observed at 1.5 million tonnes, slightly up from 1.4 million in the previous, but that's really just a good result to get to the end of 110A, and we're in the step around now. And we do expect to be in the commissioning phase in 110B within the next week. So that's very positive. So let's look forward to a seamless ramp-up into 110B. But overall, a pretty decent result at a total of 4.8 for the year. And at the upper end, I suppose, the range that we've given full guidance, which is nice to see. Tonnes are modest in terms of stock at 0.3 or 300,000 tonnes, which you would imagine in a step around. So we'll probably clean that out during the course of the next few weeks. Our Gunnedah operations have had a big quarter, as you knew, they were going to. So that's been pretty solid, but they had some ground to make up as you knew, based on the wet weather that we'd achieved -- that we'd received. So overall, we've got good results there at 1.754 For the quarter and just under 4 million tonnes at 3.98 for the full year, which is a positive result. Going into the individual mines themselves, Tarrawonga produced 1 million tonnes for the quarter versus 363 in the previous quarter. That's a big result and 2.4 overall for the year, which was, again, a very good result. Saleable coal production there for the quarter of 0.5 million tonnes was 30% up on the previous quarter. So it's quite a big step up there. We have been suffering some road haulage sort of shortages of labor just COVID related, which has been challenging. But I think that's all working its way through now, and we're starting to see a little bit better performance on the ground coal stocks at Tarrawonga at 700,000 tonnes as step-up reflecting that production over 230,000 tonnes in the previous quarter. Werris Creek at 688,000 tonnes was essentially double what we did in the March quarter. So again, a big run home, which is very, very positive. Coal stocks, they're at 354 versus 256, doesn't reflect the same ramp-up because we have been selling that very much into the market in this last quarter. So we have been growing as much of that down as we could. The market has been very strong, and we've been able to get that coal away at very good prices. Overall on our equity coal sales and realized pricing table, I'll just call out a few numbers here for you, just so you can see the obviously, very strong market that we're operating within. I mean, just to quote the quarterly indexes just for you just to start off with a $377 for gC NEWC for the June quarter, obviously, was a significant step-up on $264 for the previous quarter. The JSM quarterly at $368 also up on -- versus $275 for the June quarter. In terms of what we've been able to achieve, I mentioned the Aussie dollar numbers, but we'll just go back down to the U.S. dollar numbers, $370 versus $377, a 2% discount, done a good job there. I think that's certainly normalized with better product quality and premiums offsetting any small discounts for the small proportion of non-gC NEWC sales that we made during the course of the quarter. And the metallurgical coal sales have also been pretty decent at $334 versus $368, so 9% down as a discount for the period. Again, given the step-up in prices period-on-period, so quarter-on-quarter, we're always going to have a little bit of a lag, as you can see the premiums that we're generating are largely offsetting the discounts for any mid-CV sale that we're making during the course of this quarter as evidenced by that 2% discount overall, which is a good result. So look, in a stable price environment, I know we'll talk about that less. But having seen prices again jump during this period has been a positive thing. So I suspect that we'll still be talking about lags as we move through the course of this new year. For the June quarter, thermal coal sales were 84% and 92% of that, as I say, were gC NEWC sales, which is a positive result, and that's why we've got -- we've been able to achieve that 2% discount overall. In terms of the market outlook. The market, look, it's still obviously very strong, and we're seeing very strong demand across the board. There's supply constraints, which everyone's observed in different areas. Our customers in North Asia are certainly desiring more coal. The Russian and Ukrainian problems have been obviously weighing very heavily on the market and we're seeing plenty of customers excluding Russian coal from tenders for new supply. We will see the European importing embargo on Russian coal commenced in mid-August, so we're yet to see what the physical impacts of that are, but we can certainly see that lots of customers already are self-limiting their own exposure to the Russian coal well ahead of that. We are receiving inbound inquiries also from Europe, which I think will be interesting to see, and we have made a couple of trial shipments already, or committed to a couple already for customers in the European market. We're clearly looking to try and find a replacement for the Russian coal that they're otherwise taking. The logistics update for us is really a post-quarter impact. You would have seen there were some floods down the line in the Hunter Valley. Railing is back up and running there. But otherwise, during the course of the quarter, we had a solid railing period and that was very much enabled us to get to that sales target that we looked at, at 17.6%, which is a positive result overall. Just on the development projects now, the only thing to really call out here across our 3 projects really is the Narrabri Stage 3, of course, was approved by the IPC, which was very welcome. But we have been notified of the EDO, this pro bono law firm has commenced judicial proceedings against the IPC and us joined in that, seeking to overturn the IPC's judgment to approve the project on climate change grounds. So of course, this is not unexpected or unusual in this industry. So I think we'll be defending that with all our energies to make sure that we can move ahead with that project on a timely basis. Nothing particularly that I'll call out for a note on the Vickery Extension Project during this period, but also during the period, just on Winchester South, you will have seen the separate announcement which improved the quality of the Winchester South reserves that we published back in the 20th of April 2022. Now that brings us to the end of our presentation. Other than to say that guidance -- we've hit our guidance along the way. Our costs, we expect our cost to be at the upper end of guidance. So unadjusted costs and unaudited, of course, at $84 that was at the upper end of our range. We are experiencing, as everybody is, significant inflation on many aspects of our business, so it's not just labor and the efforts required to make sure you're retaining people in this type of market. But all our suppliers are also experiencing disruptions from a supply chain perspective. So as everyone has been talking about across industries across the country, inflation is a real thing. And in our industry, has been going for some time and we'll see more of that. But overall, we've been able to wrap up a very good year financially. Obviously, those numbers will be confirmed with audit and published with our accounts on the 25th of August. But it's a very, very tight market. We're seeing lots of demand for our coal. The premiums are strong. And obviously, this is the time when you wish you had a little bit more production than what you've got. But otherwise, we're in pretty good shape and it's nice to round out the year despite the challenges that came with it in decent forms. So with that, I'll hand back to the operator and get on to Q&A. Thank you.

[Operator Instructions] Our first question comes from Jiang, Chen from Bank of America.

Congrats on a strong quarter. Just a few questions from me, please. With thermal coal price is trading more than doubled the semi-soft coal, I'm just wondering how should we think of your met, I mean, your semi and the thermal coal split in FY '23?

Yes. Thanks, Chen. Look, that's certainly an interesting arrangements and distortion in the market we're all observing. You can see the splits. That's not particularly new. That has been a feature of the market for a little while now. So you can see the split that we've highlighted here for the full year for FY '22. We're not expecting a material change from that in FY '23, but obviously, we're having detailed discussions with our customers about this anomaly. And where possible, many of these customers who are semi-soft customers are also thermal customers for us as well. So we're just trying to optimize the right balance with our customers between the thermals -- the thermal coal that we're paying -- we're sending to them and also the semi-soft. So not a material change, but I wouldn't expect the distortion between the market to be the actual prices that we achieved for FY '23. But we can talk about that more when we give guidance with our full year wrap-up of the numbers in a month's time.

Yes, sure. Just a follow-up, please. Do you think most -- I guess thermal coal -- sorry, thermal coal producers, your peers, can switch producing semi-coal to thermal coal easily?

Chen, I would have thought that anybody who could do that is doing that already. So I wouldn't worry about too much more switching. The motivation has been there for some time for probably a couple of years now where gC NEWC generally had been a better answer. And so if you're able to do that without causing too much disruption to your long-standing customer relationships, then you should be doing that already.

Yes, sure. Just a second question on your FY '23 production. How should we think of Maules Creek and Narrabri? Could you please remind us the longwall movement planned for Narrabri for FY '23?

Yes. Yes. We'll certainly give our guidance for FY '23 when we publish our results on the 25th of August. But just to remind you, that's right that we do have a change out from 110B into panel 203 on the southern side and that will occur at -- in Q4 for financial year '23.

All right. Last question from me, please. Could you please give us an update on the flooding situation with the Hunter Valley -- between Hunter Valley rail and the Newcastle Port. I'm wondering what's the impact for Whitehaven, please?

Yes. Chen, you might want to give someone else a bit of a go here. 3 questions, generally at the meeting, four is definitely waiting. But the flood or railing has resumed on the line. So that's -- our mines weren't flooded. So that was very positive. The impact was really on the eastern side of the Great Dividing Range. So the Hunter Valley producers have had a difficult time. As I say, the line is up and running. Everybody is railing at the port. The port is operating under freshwater conditions at the moment. So only Panamax, not Capes are in and out of there at the moment. But we're able to move everything we could, we should. And because this happened early in the quarter, we don't see this causing us any issues for FY '23 subject to more weather later on.

Our next question comes from Hugo Nicolaci from Goldman Sachs.

Paul and Kevin, it is actually Paul Young here. Difficult to comprehend just the numbers you guys have, it's pretty extraordinary. Paul, I really got questions on the thermal coal market because I think that it's quite a dramatic backdrop we're seeing at the moment, but the big looming date and event for the commodity and the market, it's really the tenth of August where EU needs to rebalance its imports from Russia. Question I have is that based on your discussions with customers, have you seen any rebalancing yet in the thermal market? Or do you think majority of the balancing, rebalancing needs to take place post tenth of August? And if you could crystal ball, this is the, obviously the -- what everyone wants to know is that what does that do to the market from a perspective of price and just the freight market?

Yes. Thanks, Paul. We're -- I was in Japan a couple of weeks ago speaking to the customers for the first time since COVID, which was great. And yes, the market is very tight, as you observed and everyone was very keen to understand continuity of the supply and security supply. I think that was the thing first and foremost on their minds. In fact, there's very few, if any, raised price as an issue in any of those discussions other than perhaps the back end of it. So their concern's clearly the continuity. And whilst they're already taking still sanctioning steps, if you can call it that. By excluding Russian coal for new supply, they are continuing to take coal. And in the case of -- in case of the Japanese market, they've got contracts which they are seeking to fulfill, which some of them actually go from up until December, and there's a few of them they mentioned to us, they have the contracts which terminate at the end of their financial year. So they'll go through from the 31st of March. So whilst Europe is going to obviously have their challenges in a few weeks' time, the Japanese are tapering at a more measured rate, if I could say that. But it is coming. And so we haven't seen that physical impact in the market from our perspective yet. As I mentioned just briefly, we have received inbound inquiries from Europe. Interestingly, that has been on a met coal basis to start off with, actually. So those inbound inquiries have been for semi-soft. And so that is interesting in and of itself. I suspect we will see inbound inquiries for thermal as well. We are seeing that out of other jurisdictions, say, for instance, South America, so for instance. So the market is really tight. I suspect we've got more tightness to come. As I say, customers are really just worried about continuity of supply. They were quite measured in the conversations. They all understood that cycles come and go. And obviously, prices were high at the moment, but they've obviously enjoyed periods when prices were quite low. So they're quite measured about in that regard. But they're just starting to raise their attention more towards even 2- to 3-year type contracts. And it was really just about locking in that physical supply rather than the price right now.

That's all pretty positive for the next 6 months. On that basis, do you see your order book from a customer perspective changing at all in the next 12 months on the thermal?

Yes. Look, it's possible. It's possible. I think our existing customers are, as I say, they're starting to look at longer-term arrangements. So where we've had, say, for instance, an evergreen type annual contract, they wanted to do something a little bit more firm and so put a second or third year on the back of that. So we understand that. We have new customers in Southeast Asia as well. So in Malaysia, Philippines and Vietnam. And so there's certainly a draw on our thermal output, which is increasing absent these other changes. So there is a tricky balance, which we're going to have to manage here, just in terms of interest out of other jurisdictions for us, nontraditional jurisdictions and balancing the needs of existing customers who have been with us for a long time. So I do think that's all promotes more tightness and presuming a longer horizon than good pricing here.

[Operator Instructions] Our next question comes from Glyn Lawcock at Barrenjoey.

Just a question on Narrabri Stage 3 extension, and you made the comment that you'll be moving into the south at the end of the fiscal year, that's '23. Does the extension issue, if you don't get it, does that have implications because it's the first panel you're going to do plan to go into the extension? Or is it going to be a shortened panel just in the southern area. Just trying to understand how detrimental or how impactful this Stage 3 extension claim is?

Yes. Glyn, that's a good question. Look, in the case of continued operations there, there's no immediate concern because 203 and the 200 Series panels generally are actually in what we call Stage 2. Stage 3, as you know, was the potential to drive those panels longer. And the first issue for us, timing-wise, will just be about laying down some of the infrastructure necessary, which will serve later panels in the 200 series, but also be complementary and necessary early workings for Stage 3 in the 300 series panels when it turns to that. So we don't have any immediate pressures, but by the same token, this is pretty annoying. But it is expected because these things seem to happen with some regularity when the project gets through the IPC. So we're going to -- we've got to make sure that we divert all energies to that and trying to resolve that as quickly as possible.

Could you give me a feel for like is there a period when we start to get problematic in terms of like if it's -- if this delays the approval for Stage 3 extension by 12 months? Or is it 2 years? Like when do I start to get nervous?

Well, as to when you get nervous, I'm not sure. But I'd be nervous in a couple of years.

Okay. Good. And then maybe, I think you said, Kevin might have been there. Just your comment on the front page of the release about paying frank dividends. Could you just remind me -- I mean, obviously, you haven't been paying tax, but you're obviously going to be due a big tax bill based on the earnings just gone. So how does it work? Do we -- if we wanted to frank the August dividend, does that mean we're going to be paying tax early in the half? Just to put my mind at ease on that.

I'll let Kevin deal with the mechanics of that.

That's a very exciting question, Glyn, when you start talking about the mechanics of a franking account. So you pay the tax in December, but -- so your franking account needs to be trued up every 6 months. And because we paid the dividend in September and pay the tax in December, they get trued up in the same period. So you fully frank the dividend for fiscal year '22.

Okay. So you can -- you don't bring it forward to enable the payment of the dividend, it's fine that it's paid after?

But we will end up being a substantial taxpayer over '22, '23 on current numbers.

I would think so.

We're going to help with the deficit.

The New South Wales budget deficit for royalties as well. That's clear.

[Operator Instructions] Our next question comes from Alex Ren at Credit Suisse.

Paul, Kevin, and Kylie, congrats on the results, $800 million net debt and to $1 billion net cash in 12 months, which is stunning. Just one quick question from me on cap management, please. So is the 20% to 50%, I guess, EPS payout policy still relevant these days? Just the first half of the capital management program was $480 million versus $300-something million NPAT, that's already above. And now you've got probably $200 million left for the existing extended buybacks, potentially another 10% to come. Could you just share a bit of color on how you and the Board guys thinking about dividend returns? Any special -- any potential for like a special beyond the current policy given you're pretty much printing $400 million, $500 million free cash flow a month these days. And first a follow-up question is just do you have a net cash war chest target in mind for future growth projects, that's it.

Thanks, Alex. I'll hand over to Kevin. He can answer that one well for you.

Thanks, Alex. The -- we put that update to that capital management framework out in February with the results. And then we started the first buyback for the business and we've gone reasonably quick on that buyback and we're really happy with those results. So our expectations are that the Board will make a decision on final dividend. As Glyn referenced, it will be fully franked, where the policy came out basically saying that between 20% and 50% of NPAT would be the preferred range for capital management and that includes both dividends and buybacks. If you take the $550 million, there's still room in there for a reasonable dividend at the back end of fiscal year '22. And I think that will become clearer when we push out the results for the year and explain where we're going. You asked about a target. I think your words were war chest. Look, our view on that is that we'll take each as they come along. We'll have a look at what forecast CapEx looks like. We'll have a look at where we're going. Historically, we've never -- we've returned cash to shareholders in different forms. Our expectation is that continues. But I'd probably say to you that the balance sheet and the funding structures, we'll reconsider as we move forward, just simply because of the cash that's in the business. And you can see a number of banks across the market with decarbonization strategy. So we're taking all of that into account, Alex.

Our next question comes from Peter O'Connor at Shaw and Partners.

Big numbers. Paul, firstly on Narrabri, you talked about the Stage 3. If you -- can I just give you a hypothetical, if Stage 3 isn't approved with blocks back to where they were, the shorter blocks. What does that mean for mine life longevity at Narrabri?

Yes. Thanks, Peter. Yes, look, I might just step back a little bit and -- with this question, we're already focused on the shorter blocks, as you know, although the Stage 3 approval does give us the option to go longer blocks, if we wish. But the shorter blocks is our preferred plan, which we've been discussing with you all now for perhaps 12 months now. So that's our preferred plan. The Stage 3 approval covers all of that work. So the existing approved, Stage 2, which we can continue on with and the new essentially, what was otherwise a 10-kilometer panel that's being now 4 and 6, a second panel 6 kilometers long. There is some shared infrastructure that we do need to put in place for deeper panels in the 200 series that would be beneficial also for the 300 series. And most notably, there's some shaft work that we need to get done, as I mentioned, the time frame to Glyn earlier. That needs to be done in a couple of years' time. So look, I'm not concerned overall that this is one of those things which is done to waste people's time and money. And I'm pretty confident that all climate change deliberations conducted by the IPC and the government before that, obviously, in recommending the project for approval to the IPC has been pretty thorough. And this notion that the EDO and I forgot their name, it's Bushfire Survivors or someone like that association. I'm pretty sure that they've got nothing new to consider from a climate change perspective that the government and the IPC hasn't already done. So we'll work our way through this and get to the end of it. As I say, we've got -- it would be annoying if we couldn't get the shaft work done within the next 24 months, that will be annoying. But otherwise, we'll just put our heads down and get this sorted out as soon as we can.

So just to be clear, when you talk about infrastructure, it is just the shaft work and development to the base of that shaft. It's not related to main gate formation of drive heads and concrete works that long-term establishment. So all that's supposed to be Stage 2.

That's correct. Yes.

For that segue to the inflationary pressures. You talked about those in your comments. Could you -- or can you give us a sense of the pie chart of what happens is cost structure looks like and specifically talk to wage growth and wage push, what that's running at and what it was, what it is? And also the impact on diesel across the site? And are there any other standout consumables that we need to be aware of?

Yes. Look, I think there's a range of different things you mentioned there. I mean, our EA negotiations thus far have been pretty reasonable, I have to say. We've been able to settle those at very reasonable levels. That's nice. That's not to say that all of the ones that we've settled recently came before the government's 5% basic wage inflationary adjustment. So who knows what happens with any subsequent EA discussions then after. But we have been paying voluntarily, Peter, retention bonuses for people to make sure that they're -- in our instance, we're paying on a quarterly basis, just to make sure people stay put because the market is very, very tight. All the miners are running hard, as you know. And then the government obviously is competing for the same labor with all the infrastructure building they've got going around the country, stimulating the country. So the government is contributing to a lot of the inflationary pressure by their own actions here. And so that's challenging for us. Diesel, Kevin can get to that. And there's a few other notable examples there, just where we see this supply chain constraints from COVID manifesting itself. I know that one of our tire suppliers wanted a 26% increase in the cost of the tires. And obviously, tires are -- we spend a bunch of money on tires every year, but I mean that's not the end of the world to see that in a relative term, but that's indicative of the supplier constraints that we see in some of the materials that we use. Diesel, Kevin?

Diesel, I think, Peter, to your point, if you roll down the expense 1/3 of the business is -- 1/3 of the business cost is port and rail. Demurrage has probably been a bigger number. I think we're going to pay at an equity level, we've probably got a number with 40-something in front of it as opposed to 4 in the previous year. Diesel -- In June, diesel was about $1.50 a liter, up from $0.50-something a liter in fiscal year '21. And that's a function of a crude price that was over $110, increased margins in refineries, and it then comes down to a lower Aussie dollar. So that's quite substantial but that's affecting everybody across the business, and that's pushing cost curves up. Labor, as Paul talked about, generally, the workforce wants -- when you sign an EA, that's fine, but then what you need to do is actually be competitive in the market, and that's really the retention structure that's there. Some suppliers are looking for increases in basic equipment where they've been held tight for the last couple of years as a result of COVID. Skills and trades. You could imagine with 3.5% unemployment in this country, trying to find electricians and boilermakers and fitters and turners becomes particularly difficult, diesel mechanics. So across -- the inflation you see across the whole industry, we see. I think the rise in cost to 84%, we signaled that back in February -- or back in December, I think, actually. And it was really around flooding and coverage impact on that. And you're seeing that play out across the industry. So I don't expect that there'll be much more inflation coming through, but I do expect that it will remain whilst ever global economies remain tight and supply chains remain difficult. I do know that shipping these days is starting to improve. Time on the water is coming down and ports are starting to free up. And I look at some of the base metal side of the world and see that they're all softening. So maybe the world is starting to soften a little bit there. So that's a good news. Bad news story, costs are coming down, but does that mean that the world is getting a bit softer?

The demurrage piece will only be a function of weather, rather than a function of the business. When the business is operating at its normalized level, the demurrage conversation is a background conversation.

The demurrage conversation is less than 50%.

I didn't understand your 4 versus 40. What does that mean?

Those are millions. Those are millions, Kevin was citing millions. Total demurrage in a year versus what we'd otherwise see it. When we're operating normally, it's just those floods and the backlog and then the consistent range during the course of the year. Not just flooding other mines, but then causing the rail interruptions during the course of the period as a fresh water effects on the port as well. All those things contribute to [Audio Gap] to, unfortunately, a lack of coal flow in the last 6 to 9 months. And so, Peter, if we say for instance, when our coal is tied up with -- our coal's tied up with, say, someone is putting some -- one of our competitors coal in a boat, and there are supplier constraints there, then demurrage goes up.

The other thing driving that, Peter, is that charter fees on boats have pretty much doubled since 2020, they bottomed in 2020. You pay charter fee.

Our next question comes from Rahul Anand at Morgan Stanley.

I've just got some further follow-ups, Paul, perhaps on Stage 3, if you can help me understand that. Look, your medium-term guidance there was 7% to 8.5%. And I just wanted to understand at what point do you transition out of Stage 2 into Stage 3 in terms of years? So FY '26, if we talk about that first up, is that being fed through Stage 2 and Stage 3 is not producing at that stage? Am I understanding that correctly?

Yes, that's right. That's right. We won't be into Stage 3 before that period '26. So as I said, the issue is really just if there's any restrictions on us putting in those ventilation shafts that I mentioned, in particular, which will be shared between the 200 panels and the 300. So that's the key thing that we are focused on. But otherwise, we'll be in the 200 series panels for the next few years. And that's not impacted by this action from EDO.

Understood. Okay. And the stage 3 main development, what year do you start doing that? Is that FY '27 then or '26?

I don't have that in front of me, Rahul, but I can come back to you on that one.

Okay. Perfect. No worries. And then, look, just to touch upon the cost question that Peter had. You also have some positive impacts next year in terms of in-pit dumping, obviously with Braymont. And then Narrabri perhaps would be much more predictable than this year, I would hope. So some of those could offset that cost inflation. I just wanted to understand how these positive impacts looking going into next year for that cost side? Is everything to plan and all the cost savings looking good? Or is there any sort of change in mine plan or anything that we should be aware of that could sort of not provide that positive offset to the cost inflation?

Yes, Rahul, I think the key -- are you still there?

Yes, right here.

Yes. Okay. No, just the screen dropped out in front of me, sorry. Look, I think in terms of the -- our expectations for Narrabri and its reduction of costs and increase in volume, that still remains. So we're not concerned in that regard. The thing for FY '23 is that we'll only have a very small impact of operating that shallower ground in FY '23 because the changeover 203 doesn't happen until that last quarter. So there will be a period of ramping up, but we certainly will be guiding more tonnes than this year. I mean, this year has been a pretty solid year as far as Narrabri's performance has gone. So we're happy with that. But there will certainly be a step-up in expectations, of course, in operating in 203 and beyond. So whilst the full effect of that won't be obviously in FY '23 when we give you that guidance on the 25th of August, there's no reason why we shouldn't expect savings and lower costs associated with increased volume in the southern panels at Narrabri.

And in-pit dumping at Maules is to plan?

Yes. That's going well.

And any sort of update in terms of types of numbers you're expecting there in terms of saving costs?

Well, we've given numbers previously on that. So you can go back and refer to the investor presentation, I think about 2 years ago, it might be 3 years ago now, we gave a presentation on that. But creation of in-pit dumping space in the pit is going well. And I'd go as far as to say within 24 months, might be -- it might be 18 months now, Rahul, that we'll be completely in-pit dumping in fact, at Maules Creek. And so there will be savings associated with that there, no doubt. And yet to see what happens with the commercialization of autonomous haulage as well. That also is going to be an interesting phase over the next 6 to 9 months there.

Okay. Perfect. And you're expecting the trials of that, as you said, 6 to 9 months, is it?

6 to 9 months, yes. We're about to embark on setting another fleet loose in autonomous form, which we're looking forward to see how that goes. And obviously, the critical item for us to satisfy ourselves over the next 6 to 9 months, really 9 months now is just to assure ourselves that the manned and unmanned interaction is obviously robust enough to want us to roll it out on a broader scale across the pit.

[Operator Instructions] Our next question comes from Peter O'Connor at Shaw and Partners.

Kevin, circling back to your question or the comment about the cash that you're generating and talked previously about looking at bonds and particularly Asian bonds, do you still have an appetite for having that financing in your arsenal going forward?

To answer your question, Peter, and it's a really good question, is we're still doing the work on it. We've got the, eventually offering memorandum in draft form in front of us on a regular basis. So we maintain that and keep it up to date. Clearly, when you're carrying $1 billion in cash, the carry cost in today's disruptive markets for debt makes that a little difficult. So my answer to you is we're maintaining a watching brief on that market. We think our credit position where our credit rating improves quite considerably. And so we'll just wait and see where this plays out. Clearly, we have no need to raise funding. So we'll need a supportive market, a strong balance sheet and I'm enjoying watching the cash flow through the front door, Peter.

Nice change. And Paul, for your comment about -- you've got a lot of demand and you love to have more coal. And just thinking about the Hunter Valley supply chain in its totality, you're one of the big players, you purchase a lot of coal. In a market where you need more or you'd love more coal, is there opportunities from other players to pick up more coal? Because we see your sales books pick up and bloat out with -- not bloat out, but expand with more sales to customers on a third-party basis. Is that a likely outcome? Or is it too tight to change the sort of numbers we're seeing?

Yes. Peter, I think the market is really tight. And I think everybody is doing well selling their own coal. And even the lower quality producers are obviously selling their coal for numbers, which are obviously making them very profitable too. So look, I don't -- look, our current view of the market is there's not a lot of coal laying around. And absent this recent flood in the Hunter Valley, which sort of knocked out the rail for a week or so, absent that, the shipping queue was coming down, but we do note that most of the shipping queue that was there was actually there for reasons of coal supply. So people obviously were short on coal, not us. We produced well during that period. Obviously, we didn't have the same level of operational disruptions in the weather because we're on the other side of the range. But most of those people are short on coal anyway. So getting your hands on other people's coal has been very, very difficult. So I wouldn't be predicting that you see our purchase coal numbers ballooning out in this area. I wouldn't forecast that.

Could you just talk to your comment about distortion between semi-soft, met and thermal coal? The distortion is extraordinary. What is driving that in your view? And you're using your customers? And what would change that to be at a level which it should be trading at? And when, given that backdrop would it realistically be likely to occur?

I think we need a separate meeting for that one, Peter. But I'll try and give you a quick update on what I think about that. Look, I mean, the met coal market has softened. And demand-wise or otherwise, relatedly, the index comes down, the semi-soft index comes down with it. And so look, that's interesting. Most of that -- the semi-soft market isn't very deep anyway, as you know, and we haven't been chasing that. And most people have been, to the extent they can, the previous question was asking about, moving that semi into the thermal market. So it's a real strange phenomenon at the moment. And so we're just working our way through that delicately with important customers. We're certainly not -- we're not indulging too much new customer inquiry whilst there is this spread. So it's better off focusing on the fill. But we do have important customers who obviously acknowledge that there is obviously a spread that is quite inexplicable at the moment. So we are looking at alternate pricing scenarios in terms of how we can still meet them, allow them to meet their requirements and then obviously achieve a sensible outcome financially for us.

Peter, you're got to go back into the '70s when this last happened. And largely, that's just about inelasticity in demand for energy and people will pay what they need to in order to get energy. And what you see is a softening in the steel market, which is driving the met coal price and all the met coal relationships, but the thermal side is being driven by a shortage of energy across the globe. As I said, based on that, I was going to say it's like twice in 50 years is the way to think about it.

Based on the way we see the landscape in Europe into the question before about the tenth of August and just how things play out, this is not a month or month. This is potentially a multiyear.

Someone asked me this back in February. And I think the best analogy I've got for you is to go back to the first world. First World oil shock. It took about 5 years for alternative forms of energy. Now it's a bit more complex on the globe today between gas, thermal, nuclear and oil and each of them have their own transition periods or each of them have their own ability to resupply. That's why I said this is a long meeting conversation, not an update on the quarterly. But it's complex. And it's difficult to see alternate forms of energy coming into the market without certainty of offtake and certainty of price.

Can you just throw in China import restrictions? Is that just a political play? Or is that something that's going to change its dynamic?

I'll wait and see how that plays out. Peter, it's -- I haven't seen anything official yet. Generally, it didn't bother us too much at all, that restriction. It's really the 5,500 people that bore the brunt of that. So look, to the extent that there's -- I think everyone looks at what's going on with Russia and says, well, China is going to help them out. Well, that, Russia has a reasonable quality coal. So that doesn't really answer all of China's needs. China does need to have more of that 5,500. So I suspect there may be a benefit for them out of that. And probably the loser, if you like, out of that would probably be Indonesia. I would say, more generally. But the world short of energy as Kevin's just highlighted to you, and as you all knew. And so I'm not expecting too many challenges to come from that. Certainly, from ours, we didn't benefit from it greatly. And I don't think we'll see any too much negative from a gC NEWC perspective. They don't buy any of that anyway, as you know.

Our next question comes from Shishir Prajapati at Audant.

My question is just around royalties. We've seen the royalties updated from the Queensland government about a month or so ago. Can you just talk about your views on New South Wales and potentially the risk of out-of-cycle rate hike?

Topical question that one for sure. Look, New South Wales obviously put their budget out without any change predicted there. I mean, I don't -- it's hard to sort of speak too nicely about that what's going on in Queensland. I think that's very negative one way or the other. And from the Queensland government's perspective, but lack of consultation and just the dramatic nature, I mean, it's clearly not a royalty, it's a tax. And so look, we hope -- certainly, there's no change to the position in New South Wales and we'll be making sure that New South Wales government leading up to the election in March next year understands the critical role that the resources sector plays in New South Wales and that the need for further investment requires certainly in that regard. And so unpredictable nature of things, such as occurred in Queensland, don't really foster the confidence necessary to commit billions of dollars of capital to lots of projects that this industry typically spends.

Our next question comes from Paul McTaggart at Citi.

There was really a follow-up on this royalty issue. A lot of the value, as you know, is being at the right time in the right place when you get the commodity price burning in your coal price and you kind of meet money for a period. And many coal companies will do Monte Carlo simulation around price assumptions. So in the case of Queensland now, you've now taken a lot of the kind of value out of the upside with the introduction of these royalties in inverted commas. How does that change your thinking about Winchester South?

Thanks, Paul. And I look forward to your pricing in a few of these bucks in your model for Winchester South going forward, if we're going to get a lot of values through those periods. Look, it's obviously concerning generally just the unpredictable nature of what's going on in Queensland. And it's quite dramatic as to say, not with consultation and not just a small adjustment, but a material adjustment. Now when you come back and have a look at it, I mean, we haven't been using a price deck, which contemplated the upper ends of the scale that they're taxing now. And so in that sense, it's not a material effect on our proposition as far as Winchester South goes. But as you say, and you rightly point out that in this industry, you need those spikes to capture a lot of value in a cyclical business. And if the Queensland government is taking part of that top side away from you, then obviously, people are going to look differently in terms of how they rate that region as being prospective for further investment. So it's a general negative, I have to say. And so there's going to be -- there's going to become quite a topic, I suspect even political thing over the next year or 2.

And so the follow-up does -- do you think they care about future investment in coal? I mean that's kind of my take on it, maybe they don't.

Paul, I think they do. I think they do. There's -- it's a significant piece of the Queensland economy. And I think, well, my personal view is this is a reaction to the budgetary problems that got not actually their view on coal mining generally. They just think this is an opportunity to fill a hole in the budget. And I suspect the voting populace in Queensland, we'll have a view on that at some point.

We'll take the final question from Peter O'Connor at Shaw and Partners.

So Paul, I only just asked my question, but I've got a follow-up. So in Queensland, given the changeover price was about USD 200 where the new royalties really kick in a bit, Kevin, you've obviously run the numbers on Winchester South and IRRs and NPVs, I guess this is more a function about your price deck than it is about the royalties or it's a bit of both. Can you quantify impact?

About 3%. 3% of the NVP of Winchester South.

Excellent.

And that’s on a lower price deck that you're talking about.

Right. Okay. And Paul, Milestones, Vickery, the pathway to FID, what is next on that pathway?

Yes. I think as we said before, Peter, on previous conversations around this that we wouldn't be coming to the market within 12 months with that project. I think that still holds firm. The work that we're doing, in fact, as we speak, there's a bit of ground truthing going on in the rail corridor, just to -- as we've mentioned before, firming up the estimates of costs for the building of the rail corridor work and then also the geotechnical ground conditions for the mine infrastructure area itself. In the meantime, there's management plans, which are about 3/4 done, I have to say. So we're doing well with that. So -- but there's still about 1/4 of the management plans yet to be signed off. And then all the while, we're obviously looking at going back to the conversation about inflation previously, what that means for our estimate of the cost to build the Vickery project. So -- but I think that still -- you still got 12 months here of work to do.

So Paul, given it's kind of a rolling 12, I think we first talked about that's probably 6 months ago. Is that a rolling 12 or is it 12 months less 6 months?

Rolling sort of things -- rolling says that you're going to have a perpetual rolling, and that's not what I'm saying at all. I'm just saying from where I sit here today, I think still a further 12 months is necessary here.

Okay. So FY '24 would be the earliest we'd expect?

Yes. I mean the interesting thing about this, Peter, just to add some other commentary, which I know it wasn't part of your question, but relating back to the trip, I recently had to Japan, speaking to customers, I mean, there was lots of interest in Vickery from customers, wanted to know what our plans were and how quickly that might come on. And fortunately, because Vickery has been mined before under Rio's ownership, lots of customers understand the quality of Vickery already, know that, that's very good coal and would like to see it when they know that there's going to be structural tightness in the market for some time to come. And speaking to the customers -- across a few customers, there was an aggregate of some 3,000 new megawatts coming on ultra-supercritical plants, all of which would be ideally suited to Vickery. And there are brand new units coming on with 30-, 40-year type horizons on them. And so we're wondering where that coal of the future is going to come if people stop investing.

So you would no doubt have slapped down then, I stopped talking the talk and walked the walk, what are they proposing? When do JVs come on table again?

Yes, that's where the discussion starts. Isn't it? Yes.

Paul, we've had 2 more questions come through if we have time.

Yes, why not? 2 more then.

We'll take the next question from Lachlan Shaw.

Paul, great update. A couple of questions just quickly. So just following up on the semi-soft thermal spread. Are you hearing power customers looking to start buying met and blending up power station feeds?

No, no, generally, it's not -- they get a very good outcome there because the different characteristics of the coal. So no, we're not hearing that.

Okay. And then secondly, just on how the conversation with customers has moved to security of supply, if you will. And just extending that a little bit, so do you detect any sort of structural change or signs that the debate around ESG from a customer, shareholder financial point of view? Is that debate -- has that changed? Or has it started to change given what's happened this year with Europe synergy system and this push towards supply security?

Good question, Lachlan, because I think that's definitely a feature. The sentiment has certainly moved, I have to say, no one's forgetting the commitment that each country has made. But I think everyone's looking at this and saying, well, a lot of our energy concerns -- well, put it in another way. Look, how fragile our energy system is when you have changes in the marketplace. And obviously, no one expected Russia to start a war with the Ukraine. That's a terrible thing to do. But it's obviously sent ripples right around the world in terms of the finally balanced nature of our energy systems more generally be that gas, oil, coal, you name it, the whole lot. And at the same time, obviously, the world has been incentivizing intermittent sources of energy into the system with the hope that, that would do the same thing as baseload infrastructure does, which it doesn't. And so everyone's looking at that going well, what do we do about that? So I suspect energy security will be re-rated as a priority. And certainly necessary in jurisdictions such as Europe, and it will just be something which people knew before was important, but we'll have to reassess in terms of the priorities that it's given in areas where they're not directly exposed, but everybody is indirectly exposed around the globe to what's going on in Europe. Everybody. And so everyone is going to have to take a new view on this.

And our final question will come from Michael Harrowell at Harwind.

Just a very quick one, I guess. If Russian coal from the Urals becomes the marginal supply of the -- marginal price supply of coal in Asia, given that there are some Asian countries that are still not really signing on to sanctions, what would that do structurally to the long-term thermal coal price given the current consensus is at $80 a tonne?

Yes. Well, Michael, I don't think $80 is going to hold. That's my view of it, but you probably expect me to say that anyway. But I think that's -- it's unrealistic to think that $80 is going to be the answer. Anyway, I just don't see how that settles at that level. Well, some countries will continue to take Russian coal. I think as you rightly observed, China is doing it. India is doing it. But I don't think that satisfies all their needs in any event. So one way or the other, this is going to be a tight market. So I think where it settles, that's a good question. Again, one of those questions, which is a longer-term meeting rather than just the last question of the quarterly call. But I think $80 is not a chance that it's going to settle at that level, I think, long term. Kevin?

Sorry, just that the structure of the question is to give some dimensions and numbers around the possibility for recasting the $80, right? So if the marginal coal tonnes, if you're going to be short of coal here structurally until the war in Ukraine is over and then even after that, there might be some reluctance to take Russian coal, which leaves Russia, 200 million tonnes of exports and 40 million tonnes of exports granted to Europe, finding another home which will be to those marginal, not sanctioning type customers. And if you had to ship coal from the Urals to Asia, I mean it's probably like $100 a tonne at least, which by its nature, will then lift the cost curve from $80 or whatever the forecast. I think it is, it is lifted by $100.

Michael, I think your observations are interesting. I think the better observation is that each of the analysts who have a long-term view of coal have a reinvestment rate with a return of something like 15% as their implied marginal tonne coming into the market. And if you think 15% is the reinvestment rate upon which coal is currently being priced, some people are producing those charts, need to redo their analysis. And that's the point that I would raise here where is a huge disconnect in long-term pricing in most models based on a piece of economics, which implies a reinvestment rate that's unrealistic.

Thank you, everyone. Paul, I'll hand back to you for any closing comments.

Yes. Thanks, Tara. Thank you, everybody, for your time today. I really appreciate the questions and the focus on Whitehaven's final quarter for the year. Look forward to catching up with you all through the course of the rollout of the full year results on the 25th of August and beyond. But if there's any questions in the meantime, you know where to find us. Thanks very much for your interest.