Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to the Whitehaven Coal Full Year FY '23 Financial Results Call. [Operator Instructions] Thank you for joining us today. I will now hand over to Managing Director and CEO, Paul Flynn. Thanks, Paul.

Thank you, operator, and good morning, everybody. Thanks, everyone, for taking the time to dial in to our full year results for FY '23. As usual, I'm joined by Kevin Ball, our CFO; Ian Humphris, our EGM of Operations; and Kylie FitzGerald, of course here, who is our Head of Investor Relations. I'm going to go through the presentation with Kevin, as usual, and then we'll open up for Q&A then after. I know a lot of this information in terms of the physicals and so on has obviously come out through the process of quarterly releases. So I won't dwell on that too much and we'll get through this. I know that everybody is -- it's a jampacked day in terms of other companies releasing their data today as well. So I know a number of you have places to be quickly after this call. So we'll try and get through it relatively quickly. Over to the highlights over on Page 3, and it just call out some of the important changes in our business and results that we've achieved. Safety is continuing an excellent trend here at 13% improvement on our TRIFR to 4.7. And in this year we've had 0 environmental enforcement actions, which is a fantastic result, something we aspire to all the time, but it's nice to actually see that delivered. The market, as everybody know, has delivered very good pricing for us this year and the realized pricing at $445 per tonne is certainly a fantastic record result. Volumes for the year at 18.2, which you saw with the Q4 release. The translation volume time is at good price, obviously, with our cost base, delivered a record EBITDA number of $4 billion and NPAT at $2.7 billion, which is fantastic. It has left us in a very good position. Net cash wise, the balance sheet is in a strong shape, as many of you know, at $2.65 billion at 30 June. That's enabled the Board to approve a final fully franked dividend of $0.42 per share, which is a very good result overall. And that obviously is complementing the progression of our buyback during the course of the year where we spent nearly $950 million on the buyback during the course of FY '23. In aggregate, that adds up to a 52% total shareholder return for the year just past, and which puts us in the top 10 of the ASX100. And of course, we're paying our share of taxes and royalties during the year. Kevin is surprised, reactive when I say, probably maybe more than our share, he might think, but $1.65 billion in taxes and royalties during the year is quite a significant contribution to both state and federal coffers. So I'll move over to our markets. And obviously, for the Whitehaven watchers, this is no new news to any of you. There's our markets and our spread between met and thermal. It's no real change in our business there, but I'll just call out a couple of little deviations as we've shifted weighting. Obviously, with sanctions as someone around the world on thermal coal from Russia or all coal from Russia, the thermal coal, most pointedly has been taken up in the Korean market, so we sold less into the Korean market, but we shifted a lot of that volume into the premium market of Taiwan, which has been positive for us. And because you're not only -- is that a very good reliable market, Taiwan, which actually get longer terms than you do with the Korean market. So we like moving met coal into that market. And our footprint in Malaysia has expanded also, taking up 7% of our volumes. Now this next slide really just speaks to Whitehaven as compared to other producing jurisdictions, so a company versus jurisdictions. I know that's an odd contrast. But this goes to point out to you where we sit in the quality curve for our thermal product. And so this gives you the distribution, if you like, between the lower levels of what people call high-CV coal versus the higher levels of high-CV coal, which is more like the product that Whitehaven produces. So in FY '23, depending on how you cut this, 94% of our sales were actually thermal coal. And in excess of them -- in excess of 35%, we're in the 6,200 and above level. Now I do note that other commentators classify high-CV in different ways and that's what we're just calling out here in this slide. Some are as low as 5,600, which we obviously don't classify that as high-CV. When you see us sell 5,600, we actually call that mid-CV, just so you can reconcile the terminology that we've used in the past. And high-CV from our reckoning is the lower end of a gC NEW contract. So that's at the 5,850 level. So anything above that in our numbers normally is classified as a high-CV coal. But what you can tell from this is obviously Whitehaven's portfolio is all in the high-CV market, defined by McCloskey, and the greater proportion of it is actually in the high, high-CV market than pretty much anybody else going around. So a very good position for us to inhabit. Over to the next slide, just again, one of the reasons why our coal is in such good demand is just the relative merits of it as opposed to using other jurisdictions coal. And what this slide really just tells you, it just says that you need 63% more coal, you can use Indonesian coal to produce the same energy outcome as taking coal from Maules Creek. And so that just gives you a sliding scale across various jurisdictions and the relative efficiencies of it. You can see who our main competitors are, if you like, in the high-CV end of the market. And going from left to right, right across the extreme of the Indo sub-bit market, which is obviously the lowest ranked coal. And I've said many times in our presentations to a lot of you, that coal generally isn't a competitive for our coal. Generally, people blend it with ours. And so just as a cost saving measure, because of its low ash nature, generally, people will blend that with ours to bring the average cost of their feedstock down. Over to the next slide, again, it's a really nice reinforcement. It would be wishful thinking to think we could build a new coal-fired power station in this country and get the benefit of this. But I just sort of highlight it again just for the sake of everybody out there. If you look at the brown coal footprint of the [indiscernible] and what that gives you from an emissions perspective and you compare it to the types of ultra-supercritical power stations that we are fueling in Japan, Korea, and Taiwan, then you get an enormous benefit from an emissions reduction perspective. So from those 2 extremes, that's a 42% difference across what our mass market solutions for large-scale energy production. So that's why people enjoy the use of our coal and are willing to pay a premium for it. Over across, again, this is a footprint with various markets. It's useful to us to actually draw the connection between what it is we do and what it gets used for. And so in the Japanese market here, you can see that we're providing 41 minutes of the day electricity for Japan. In South Korea, that's gone down to 9 minutes because of what I mentioned there before that they are taking more Russian coal and displacing the Australian coal generally. Taiwan has gone the other way. It's gone up a little bit at 15.8 minutes, and that's I'm sure nobody wants to have a blackout without Whitehaven Coal for anywhere between 41 minutes to 9 minutes. In fact, on average, across the 200 million people that have it in these 3 jurisdictions, it's on a weighted average basis, about 30 minutes of the day that we're fueling. So an important role that we play that we don't want to lose sight of. Now if we flick over, just in terms of the markets, obviously, lots of focus on the outlook. We have seen coal prices moderate from the highs that we saw in the first half of the year through to the second half. And it's always useful just to reflect on the various commentators and advisers and price decks that are published here, and we thought we'd just line them up for everyone to see how people are projecting the demand as we look through the forecast period out to 2040. So you can see here, Wood Mac, we viewed often and we still continue to do that, but we've lined it up against AME and CRU and Commodity Insights to give you a bit of look as to how they see the market going. You can see the more -- absent Commodity Insights, you can see they're all trailing down sort of in a way, more or less consistent with the IEA various scenarios that we measure ourselves against as far as TCFD perspective goes. The outlay here quite interestingly who, in more recent years, has been more right than wrong is actually Commodity Insights, which I know a number of you also use. They're actually projecting growth through this period from a thermal coal perspective in the order of about 25%. So it's quite a big change relative to the others. And I think it's certainly reflective of what we've seen in the market in more recent times, although we are talking, obviously, an out period here for another 17 years. So things can vary as we know. Flipping across to the next slide. Now when you have a look at that in relative terms and you have a look at what's the demand growth and then what's the runoff in supply? And what this points to is a very high delta emerging over that same outlook situated in the high-CV coal market in particular. So if your supply is growing and then the decline is coming up by almost exactly an equal amount, then there's about a 50% delta here in aggregate terms between what we think is the projected growth throughout -- through 2040 versus what the supply available to satisfy those needs will be. So quite a big delta. Now this is not just the preserve of high-CV thermal coal. It does also play out in the hard coal market as well. So again, this is a Commodity Insights data looking through the projected out to 2040. And then again, taking into account there is a runoff with existing production, not as dramatic. I have to say that there is a runoff in existing production, which leads to a delta projected out of 2040, so in 17 years' time of about 74 million tonnes. So quite a big difference, not as big as the thermal market, but still a big difference and at the rate at which projects get approved these days or constructed, it will be very difficult to see that an extra 74 million tonnes coming on in annual production anytime soon. So just to summarize a few of the factors that are impacting the company during the course of this year. It has been a little bit bumpy in the first half, obviously, heavily weather-affected, as everybody knows. So that's constrained us as a supplier, constrained our peers, and suppliers also. So exports through the port have been low year-on-year as many of the operators deal with excess water in their pits, which has caused lots of challenges and continues to do so for some players. But it's been record pricing, obviously, which has contributed to the fantastic results that we've had. We achieved the 1% over gC realizations for the full year, which is a very good result. And we have been battling though with a number of different constraints in the market, and that is labor has been quite challenging for us, as we've discussed over the various quarters throughout the year. And of course, inflation is rife in our business, well over what you hear is the stated inflation rate for the economy as a whole. I think everybody observes that the mining industry itself is experiencing inflation well in excess of what the national experience is, and we'll speak to a little bit of that later on in our pack. So going on to the results. I'll just deal with our safety first. As I said, safety has been a very good story for us with our trend in safety continuing to improve year-on-year at 13%. And with no environmental non-compliances here, that's a really, really solid result and something, obviously, we should be very focused on replicating in this new year. Our engagement with the community and our people is -- continues to be very strong. And these steps, I'm sure, are very familiar to many of you. And I'll just call out the material changes in here. Our female representation, our workforce is actually jumping quite significantly. Actually, that's been quite a focus. And so 17%. Now that's certainly improving quite dramatically. And you can see that the comparable stats there was 15% last year and 12% the year before. So making good progress there. Our workforce engagement has actually recorded a really nice bump as well. And so that's very positive. So our people are more engaged despite the fact that there is -- it's a very tight labor market as we've repeatedly talked about. So it's beholden on us to make sure that we keep the people we have, let alone find the ones that we need to continue on our merry way. Obviously, indigenous representation, our business has always been a high and very strong as has our devotion to spending our money locally with various businesses in our region. So that's from Tamworth to Narrabri shares that $350 million across a host of local businesses. Financial highlights. Again, you've seen most of this. I won't dwell on it too much, but they have very good results, $445 per tonne has been a great result. NPAT at $2.7 billion was quite an extraordinary outcome off the back of $6 billion in revenues, $4.2 billion in terms of cash generated from our operations. Our unit cost of $103, so you can see the manifestation of inflation in our business and lower volumes for that matter as we commentated through the quarters, driving our costs up to some degree with inflation quite significantly affecting that. And total shareholder returns during the course of the year at $0.42 fully franked dividends, an excellent result, $1.6 billion in total returns to shareholders with the buyback and dividends together. That means that's the dividends paid during the year, plus the actual shares in the buyback program bought back during the course of the year. This gives the aggregate number of 1.6. And as I mentioned earlier, 52% total shareholder return, I think, puts us #9 on the ASX 100, which is a pretty solid result. The ROM waterfall, we thought we'd just break this out for you. You've seen this obviously across the quarters, but just categorize into the areas where we've had some differences from where we were in the previous year. Obviously, the flooding, you can see the flooding effects on both the smaller and larger mines being called out there. We are heading into a dryer period by all accounts. So that's generally good for mining. Although, as I mentioned earlier, everybody has plenty of water and having only been through droughts in 2018, '19, we put a lot of drought proofing related infrastructure in our business anyway to withstand a drought, if that -- or drought period of that reemerges in the short to medium term. Narrabri had a very good half -- first half of the year. That was actually really good, relatively unaffected by the issues associated with weather for our open-cut mines and -- but it did have a slower exit of 110B as we moved into that very extensive change out, which we'll talk about a little bit later. Again, I won't go too heavily into this because you've seen all the results for our operations through Q4. But Maules Creek certainly weather affected. Q3 was flat and then Q4 was very solid, bringing home the results for the year. Our guidance for the new year is 10.1 to 11.2 in the new year in FY '24. And hopefully, obviously, no weather. Our labor is in a better position, I'm sure, which will be a priority to some Q&A at the end of this discussion. And there are some AHS constraints, which we've already spoken about in our last call, which we factored into this as we transition by the end of this calendar year into full in-pit dumping and the need, obviously, to keep our AHS project separate, segregated from our land fleet in the short to medium term. Over to Narrabri, again, we've spoken about this at some length already. I think the key here to call out is really guidance for the new year. 6 million to 6.7 million tonnes for the year. As I say, the slower rigs in the 110B and we're now cutting away, obviously, in 203, which is very positive to be back on that side of the mine. And so that will be the total for our ROM guidance for Narrabri this year. Now just moving over to -- segue into 203, we've got our cut and flit operation now complementing the volumes coming off the longwall. And I'm going to talk a little bit about this a little bit further because we've to provide some more detail on just the CapEx associated with the 200 series of panels where we currently are and versus Stage 3, which is the 300 series of panels, and I'll deal with that a little bit later. Gunnedah Open Cuts, the overall ROM of 3.4 million tonnes for the year from the 2 operations was 15% below the previous year. So that was obviously heavily weather affected. It is sadly for Werris Creek, the mainstay and the provision of coal under the coal reservation policy, which was not very popular, as you can imagine, with us or any of the coal producers. And we'll see that, that's going to go through until 30 June of this year and then obviously up for discussion as to what happens then after with that. But our guidance for the new year, 2.6 million to 2.8 million tonnes for the Gunnedah Open Cuts acknowledging that Werris Creek finishes up early in the new calendar year in this financial year. Over to the operational performance. Now our drive in this year is to improve the operational consistency and reliability of our business and Project LIFT is our business improvement program to focus on doing that. And really, essentially, we're just trying to make our business a little bit more consistent along the way and drive productivity benefits, particularly at a time when we're seeing significant inflation in our business. Cost out in a period of inflation and resource constraints and labor constraints, in particular, is still quite challenging. So productivity, we believe, is the key to moving the dial here. We have put in place a range of labor initiatives to try and mitigate not just turnover, but find the people we need for our expanding business and -- which is yielding good results. In fact, on the basis that we keep a couple of fleets in AHS operation at Maules Creek for this year, and that's the basis of our budget and our guidance for the new year. The 2 fleets remain in that form. We're close to fully manned there at Maules, which is a big improvement on where we've been in the past. But Project LIFT is definitely a focus, not just a year-on-year thing. This is actually a year-on-year improvement for our BI team and looking forward to seeing results coming out of this over this year and the future. I'll just look over quickly to our early mining of Vickery, very exciting progress for us. Yesterday, clearing of and removal and storage of top source started yesterday and on site. So that's actually very, very exciting, quite a milestone. As everybody knows, this is really just a small version to take advantage of the existing capacity down at our Gunnedah prep plant and our haulage capacity down to it and I'll take a pay obligation. So we're starting in here early. It's a low CapEx start-up with a $150 million, which will be spent entirely during this year. But nice to see that getting underway and we should see the beginnings of coal at the end of this financial year. But we're in the process of obviously assembling a workforce with Werris coming off. We've got quite a few people over at Werris who want to come and work for Vickery. And generally, I have to say the community and employment interest are coming out of Vickery has been -- was really quite positive. So not often you get to see a new mine startup, so quite a nice milestone for everybody to witness. With that, I'll hand over to Kevin to deal with the financial results.

Thanks very much, Paul. So we'll have a look at the 5 years of history. In here, you can see really the 2 strong years in '23 and '22, 2 years before that was COVID affected in '21 and 2020, but really a record result for this year, average coal price, $445 a tonne. $6.1 billion in revenue, EBITDA of $4 billion, as Paul has said, and NPAT of $2.7 billion. And after paying down our senior debt facility in FY '22, we've really been delivering returns to shareholders in the form of franked dividends and a buyback program. We've decreased the shares on issue by about 19% since February 2022. And in addition to providing return to shareholders, we've also built balance -- cash on the balance sheet, which really does provide some balance in the share price. Over the coming slides, I'll take you through some headline numbers. So on to the EBITDA margin. A 75% EBITDA margin compared with 72% in the previous year, 2 really strong years. Our average realization was about $413 after purchase coal, coal reservation and royalties. Average costs were about $103. Now that's a whole of company cost and we'll take you through that on slide -- in a few slides to come. But there's some really good news in here in terms of we have delivered a premium to gC NEWC, which we expect to do on a regular basis, a $310 margin on 12.7 million tonnes of owned coal sales. So a really strong year. Let's turn the page and have a look at EBITDA. Really, the driver here was the increase in price, a $1 billion increase in EBITDA, $430 million from FX. Our strategy in the year continued. We really washed coal hard. We could see the premiums in the high-CV market and we were working hard to provide a product. It came with an increased cost and we'll talk about that a little bit. But we're able to utilize those high-quality washed coals to blend up coal, lower CV coal from Werris Creek and Narrabri into the high-CV market. Only 14% of sales being mid-CV in the year, which I think is pretty good. And 80% of sales volumes are above 5,850 NAR. The blending benefits from that washing strategy contributed about $270 million in EBITDA to the business. So you can understand why we do it. Higher costs were $238 million of the -- on the bridge input driven. Our diesel pricing was 36% higher. Our explosives were 21% higher. Our OEM suppliers took the opportunity to negotiate increased prices, and you'll see that through those guys, which would be the likes of CAT and Hitachi. Our wages and salaries reflected the difficult labor markets that exist in the fierce competition for labor and because our volume was down, that impacted the cost across the business. FX, not really FX did contribute to ours as the dollar fell from $0.73 to $0.67. There was some impact in costs in that, but more than sucked up by the FX on pricing. And I'll take you through the cost bridge in a little while. Coming over to pricing, again, I'd leave you with the perspective that generally, we expect to get a -- to be trading at a premium to gC NEWC over a year. In a stable pricing environment, we would expect that slight premium and you see that in fiscal years '19, '20 and '23. And then you see the impact in '21 and '22 of coal quality from Narrabri and that rising coal price in FY '22. So moving to unit costs, which I think is where everyone is trying to -- everyone's got some interest here. Our unit cost moved from $84 to $103. We've seen some temporary cost drivers, the impact of flooding on the volume of coal that we produce, move, and sell. And as previously indicated at the half year, the benefit of having higher coal price has played a role in the rise of cost for the same product quality strategy sees us washing more coal to produce a better quality product. Cost increases also reflect the underlying inflation that I talked about diesel costs, explosives, labor, OEM parts. So there's not much we can do about diesel that just come through. And I'd say that this year, our procurement team spent a large proportion of their time dealing with demands for suppliers or from suppliers for increased costs. This is probably the first year I think where procurement hasn't actually returned a multiple of their own investment. So that tells you that there's pressure in the margin or in the market for costs. The NCIG, as we've talked about, the acceleration of the amortization of debt from NCIG because we expect coal prices to remain strong, we expect to see that cost continue for several more years. I'd say to you, you can calculate our unit costs off the face of the P&L. We're transparent. Have a look at the appendices in the presentation to see the calc and our unit cost as a whole of company unit cost, not a mine unit cost. So you should bear that in mind. Come over the page to our invested -- investment flows or total investing capital of $307 million. We spent about $240 million in the business on development projects and operations. So $154 million in open cuts, Narrabri sustaining CapEx, the Narrabri 200 series mine development and the Narrabri 200 series precinct and small CHP upgrades. Some other spending [Technical Difficulty] and regulatory remains a spend that continues to grow, I think, in coal these days, and I don't expect to see that go away. And you can see down on the acquisitions, and we've categorized those deferred payments for the acquisition of EDF's interest in Narrabri, a further deferred payment on the Narrabri private royalty, internalizing the Gunnedah Basin haulage business and some other investing spends. But $307 million in total there. Come over the page, I mean this is a page that warms the cockles of a CFO's heart. At the start of FY '23, we had a net cash balance of $1.04 billion. I'd say here we delivered $3.6 billion of operating cash flows. So let me say that again, we delivered $3.6 billion of operating cash flows. And at the end of June, we had $2.7 billion of net cash on the balance sheet. We put $307 million into the business, which we just talked about. We returned $1.6 billion in cash to shareholders in the form of dividends and share buybacks. And there's another $70-odd million there in lease payments and some other things in there where we had to populate the employee share trust for [indiscernible]. So that's the equivalent of the cash. I guess some people will ask us what we're doing with the $2.65 billion. This is a pretty good story. We're going to give the government $889 million. We pay them $52 million in June. We'll pay them another $835 million in December. We've got a final dividend here of $337 million and that leaves us with about $1.4 billion on the balance sheet, a balance sheet that's in robust health would be the way I'd say it, and gives us plenty of optionality. Net cash and liquidity, I don't plan to spend too much time on this strong cash position. We completed the refinancing in June. We sourced the contingent credit support facilities, which really guarantees our environmental bonding, rehabilitation, biodiversity, port and rail. And we are going to retain some cash on the balance sheet for operating the business and for capital purposes. So just to remind people of our capital allocation framework, I'd say this is not a tough piece of math. So we've got $2.7 billion in NPAT. Between dividends and share buybacks for the year, we will have allocated 1.35% or 1.50% of that. So we do maintain -- we do invest capital to maintain or optimize operations. We put some cash on the balance sheet, which you've seen. But we are in the business of returning capital to shareholders and providing value to shareholders. So after all of that, if there are opportunities that make sense in the form of growing the business either through the development projects we have, through additional returns to shareholders or M&A, that's where the decision comes down to. But it's all built around value and what's the value for shareholders. Turn the page. I think I can say we did return 20% to 50% of NPAT to shareholders through dividends and buybacks. And if you look down this page, we've done that in all about FY '21 where we had a COVID-impacted year. So I think it's a pretty good answer. The payout ratio of 50% includes $609 million for dividends, which is a touch over the 20% that we've referred to and $724 million in share buybacks. So it's a good story. So Paul, coming back to you.

Thanks, Kevin. I'll just move over to our outlook and talk about some of our guidance again, just to restate that. But from the market outlook perspective, the market actually is quite interesting. If you look at thermal and also met, both prices actually look reasonably well supported in what's otherwise relatively subdued time. So the thermal side of things, obviously, the mass scramble for every molecule of energy last year and combined with a mild winter in the north, did leave people overstocked for this period of the year. And so incremental buying has actually been relatively muted. But despite that, I think you've seen coal prices pretty steady at reasonable levels. And despite the turbulence you're seeing from a growth perspective, particularly in Asia and China, with that discussion, Europe being quite flat. The met coal pricing also has actually been pretty good despite all that. So the fundamentals we think for the outlook are actually pretty solid. And those factors that we've seen before seem to be underpinning a pretty good year for us in this new year. So over to our guidance. As I mentioned, I've gone through the mine-by-mine guidance but I haven't touched on the sales. So managed coal sales, we're looking at 16 million to 17.5 million tonnes. The equity number there at 12.7 million to 13.9 million tonnes. Cost base, as I mentioned, we've got a range here, $103 to $113. That is a decent range and we're just acknowledging the types of inflationary impacts that Kevin's outlined in some of the key ingredients to our business already. And then, of course, CapEx now, the CapEx is stepping up at $460 million to $570 million. That's quite a significant portion of it. And I do want to spend a little bit of time just to work through this quickly for you. The key thing that's easy to able to exercise from that number is really just obviously Vickery. So you can take the $150 million straight out of there because we've talked about that, and that's easy to understand. But we are -- we do have a step-up in CapEx associated with Narrabri. So as I mentioned earlier, we do get lots of questions on this, so we wanted to try and help you all out and understand a little bit more about Narrabri and what's going on there. So there is obviously -- it is an underground mine. So it does have higher sustaining CapEx and the open cuts do and there's obviously lots of -- it is CapEx hungry because a lot of the work goes in before you actually cut any coal. And so as everybody knows, the operating cost is actually -- the active cutting the coal is actually quite minor. And the rest of the cost to produce is actually amortization of costs incurred in early before that or in fact, in previous periods where it'd been for development mine and so on. So I will just scroll forward just over to a slide just to remind everyone here. This slide, thank you very much. Just to remind everybody what's going on here. We've obviously finished those panels -- the 100 series panels on the right-hand side of this slide. Now we're now into 203, the start of the 200 precinct, but there's still a lot of work there to establish the full 200 precinct. And then Stage 3 is -- everybody has heard us talk about for a long time now is really the 300 series panels. And so there's lots of work here. And I just really wanted to remind everybody about some of the important features of this transition from, if you like, from right to left on this picture. We are -- we have got a thinning seam as we progress to the left. Our longwall that we've had since the beginning of the mine won't see the full life of this asset. It now goes to 2044. So as we've always said, we will need to put an order in for a new longwall and it will need to be reflective at slightly thinning seam as you go to the south or to the left as it's depicted on this picture. And so acknowledging that, there's an opportunity for us to perhaps own that a little earlier, which is what we've said we would like to do. And then we would have 2 longwalls not operating concurrently, but operating in sequence. So we'd have a walk-on, walk-off arrangement between a panel in the 200s and a panel in the 300s. So that does necessitate CapEx being spent earlier in order to facilitate that, but obviously, you gain continuous production over the period that you're able to operate sequentially those 2 longwalls. So that's just to remind you of the context of that. I will go back a slide now and just focus and give you some numbers here to work with on Narrabri. So the 200 series panels themselves, the CapEx spend for that over the '24 to '26 year period -- FY '24 to FY '26, I should just be clear on that, is $250 million to $300 million and that includes $145 million for mains. Last year, we spent $34 million of that and -- or sorry, in '22. And in last year, we spent $77 million of this total $250 million to $300 million, so everybody understands what the bucket for the 200 precinct looks like. Now as I mentioned, we do need to set up the 300 series panels as well so that we can actually walk-on walk-off once we've got 2 longwalls. And so there's a bunch of capital that needs to be spent on that as well. And we're dragging a little bit of that forward, obviously, to buy new longwall and then also set up the precinct to be able to operate within. And the CapEx for that is around the $800 million to $850 million. Now that includes a new longwall. And our recent estimates for this, if you need any more evidence of inflation, recent estimates of this is between $300 million to $350 million for a new longwall. Originally, when we talked about this concept, the numbers were less than half of that. And so it's quite an extraordinary change that's brought about due to inflation. And also, there are less of these things being produced. And so I suspect there's a little bit of strategic pricing being delivered there from the very few people now who actually make this type of equipment. So we've had a relatively modest amount spent, obviously, in FY '23. And the balance of that capital, as you can see, we're projecting out over '25 to '29. So this is an important piece of the puzzle. I know there's a lot of data in here, so I'm not going to go straight through it all now, but I just wanted to give you a sense and give you some more information. So you're able to work your way through what the step-up in CapEx is for in this new year. So obviously, Vickery, as I said, 150 plus, obviously, Narrabri taking a big chunk of that also in our guidance for $460 million to $570 million in this next 12 months. The balance, as you can see there, there are overhauls and normal things that apply to our open-cut operations. There's biodiversity offsets. There's a bit of housing investment. Of course, we're trying to make it more attractive for people to move out to our region. So we are investing in housing initiatives. We've got some money in there for emissions reduction studies and so on. We've got a bit of land, we've got to purchase as well. So I'm sure there'll be some questions out on this, which come, but we better to start off with a bit of information for you so you can actually use this for your projections going out now that we are definitely moving hopefully to the closing stages of the approvals process at the EPBC level for Narrabri now going out to 2044. All right. Now, if I can just wrap up and we can get on to the Q&A. I'll focus for the year. It remains relatively consistent with where we've been in the past. Safety and environmental management, obviously, that has to be front of mind and I'll first cap off the rank. Of course, we've been doing well, want to continue to do well. Environmental performance outstanding this year, the challenge is to maintain that this New Year and to keep the trend on our safety performance going. Operational reliability and consistency. That is something we're absolutely dedicated to improving in this year and that will be the key to delivering in FY '24 guidance. As I say, Project LIFT is very much something we're dedicated to and we want to see some really good results out of that quarter-on-quarter to just turn this into a bit more of a boring and reliable pathway through the course of the year. Cost management in this time and productivity with that has to be a focus. So you'll see plenty of effort invested in that. The safeguard mechanism, I think we're -- we have to respond to that in both -- we'll obviously pay whatever is necessary as a result of that. We have got $1 per tonne included in our cost guidance there for that, just so everybody knows. But there's also initiatives there to look at the various means by which we can actually mitigate some of our emissions, particularly from Narrabri because the underground mines across the industry are going to pay a heavier burden here than the open cuts, as we've talked about before. Early mining of Vickery, obviously fantastic to see that start yesterday and we're pushing ahead. With that -- and of course, we think there's a good year ahead of us here pricewise as well. The market looks pretty well supported and prices are starting to rise as we see it moving back into periods approaching the Northern winter again. And constraints across the whole energy complex are going to see prices continue to improve. So with that comes the responsibility, of course, to manage our capital prudently. And so we'll definitely be doing that. And the share buyback is temporarily paused, as we've noted in our announcements already this morning, while we're considering application of that capital in the light of growth opportunities that have presented themselves. So with that, I might bring the presentation to a close. And Lisa, we might move into the Q&A session, given I know that we've got only 20 minutes there, and people have got a hard stop and told us at 10:30. So operator -- and so Lisa, can I just ask everybody to -- once you've got the mic, let's not rattle off 3 or 4 questions. That's not really fair to everybody else on the call. So can I ask you all -- we'll get to you all at some point whether it be today in this call, but later today. 1 to 2 questions, please, just to make sure everyone get to go.

Sure. Thanks, Paul. We do have questions. So our first question is from Rahul Anand from Morgan Stanley.

Look, I -- perhaps for my first question, just wanted to touch upon Maules Creek into next year. Just noting that the production there was somewhat weaker versus our forecast and also as far as I can see in terms of consensus. So Paul, perhaps if you can provide a bit of color, is this being driven by those automation trials again into next year? And when do you think we start getting close to that run rate -- nameplate run rate for the mine? How long is this going to take? That's my first one, and I promise I'll only ask a second.

Yes, you're bang on with that. It's unfortunate because we're transitioning into the pit -- that's not unfortunately, that's a good thing in pit dumping, the need to keep the AHS fleet separate inside the pit is more challenging than it is when you have out off pit dumping opportunities. So there is a productivity constraint and a cost, if you like, a penalty that comes from continuing this project. We feel that there's about -- we've only got about 12 months more that we can manage to keep these things separate. And so the pressure is on obviously us and Hitachi, obviously, to push this thing into commercialization. We are seeing positive signs of integrating manned and unmanned equipment. And so we've got 2 fleets running now. We have got integration of some manned equipment in that space. So that is giving us the encouragement that this penalty in this year is worth taking, but it is necessary if we want to continue this -- what we hope is the last leg of this project to commercialization. About 40% of our trucks -- our big ultra-class trucks are actually operating in autonomous mode. We'd obviously like to push that forward, but there is a penalty that we are consciously taking to give them another 12 months' time to commercialize the product.

So it sounds like '25 could be the year where you've got not just nameplate based on manned hours, but you've got a large portion of your trucks already in automation, sounds like?

Yes. Look, '25 would be a year we're either on or fully on it or we're not because there's only so much runway here, as I was saying before. And so it's just this congestion down roads where you're forcing more of the manned equipment on certain roads because you're having to keep them away from the autonomous zone and then the related implications on -- in dumping areas as well. That's the challenge. So we're saying 12 months' time from now is the limit of time we have if we can't get it up and running by then, we're obviously going to be looking at a different type of conversation.

And my final question just around the Narrabri CapEx. Just 1 clarification. I understand the inflation side of things. Just wanted to check in and see if there's any changed to Scope is there, any further development that you're doing upfront as part of that CapEx spend to make sure that you are operating and sustaining costs remain lower perhaps to help you through the cycle as it changes?

Look, no change in Scope. No change in Scope there at all, Rahul. It's the same as we've outlined before walk-on, walk-off. There is no doubt. There are some opportunities for optimization that we're studying interesting terms of how -- which panels we get into and how that plays out and what direction even that you might mined, some of those. But that's further consideration. But this is a pretty solid and steady plan for this project now. The inflation is obviously manifesting itself in the CapEx costs here. None of us like that at all, of course. But as everybody knows, there's lots of heavy lifting that goes into setting up an area for underground mining and whether it be built some shafts and things, ventilation and things that are required. It is significant. And we thought it better just to put this on the table people can see it spread across not just the 200 mine that we're in now and opening up, but also where it will go with Stage 3.

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

Two questions, I promise. So firstly, on your valuation metrics regarding inorganic opportunities. I'm just wondering beyond IRR and multiples, what else gets factored into your decision making? If you could also remind us your target gearing or [ liberated ] if any.

Look, Chen, that's an interesting one. I mean the thing I'll say to you is that we're very conscious of the valuation of the business and have been very conscious of that, obviously, for some time. We feel we're undervalued so -- and hence the buyback has been a very good thing for us to be doing and broadly supported by shareholders. So the inorganic avenue that you're going down, all I will say is that if -- from a metrics perspective, if you're not guided by how you're currently valued in consideration of anything organic, you are not doing your job properly. So we are definitely focused on that and that's probably about the limit of where we can go with that discussion. So that will be our guiding principle. So everyone should be assured that we're very much front of mind for us and not planning on doing anything that's a deviation from those important parameters.

And I think on your -- you'd have to go back a couple of years to look at the leverage metrics, Chen, but I thought the leverage metrics were half a turn of EBITDA on -- through the cycle basis and stretching that will we just step out and do something a little bit more -- probably no more than 1.5 turns for short periods. But I think that's a recollection from like a 2020 document.

Maybe another question or last question on the potential increase in New South Wales royalty. I understand what happened is part of the coal groups the government is in consultation for the royalty increased. Are you being able to provide any color in a discussion given the budget, is in September next month?

Yes. Look, we, like everybody else, obviously, very keenly interested in what the government is wanting to achieve here. There is nothing we can tell right now. All I can say is I can certainly say that the experience of engaging with the government ahead of any potential change is positive. That's not -- they actually want to engage with as oppose to the experience in Queensland. But there's a little bit of runway here before there is an outcome and from what I -- my sense of this is it's not -- we're not anything on the scale of what we've obviously seen to the north. So I would put that out there as being less dramatic in that sense from what I understand of it. So there's a little bit of work to do as you say, in September. I think the budget is outside, they'll want to put something in there that gives them the speed for the outer years. There's obviously no change to royalties in this year and no change to royalties whilst the coal reservation policy remains on foot. And so if that gets rolled over next year, there'll be no changes to royalties either. But that's part of the discussion at the moment.

Our next question is from Paul Young at Goldman Sachs.

Kevin, maybe a question for you on Slide 35, just your point #4 on the capital allocation framework and the use of surplus capital and how you make those decisions. I mean I guess the one thing at the moment it's pretty hard to, I think, for you guys to make decisions at the moment, lots of moving parts around the LIBOR pace, CapEx inflation with Narrabri doubling and I can't see that's a good read through for Vickery at the moment and then obviously the New South Wales coal royalty backdrop and opportunities also up north. So maybe a bit further along that lines of -- how do you assess these opportunities, I mean you've given a bit of color on, you think, the company is undervalued, so that answers the buyback question to a certain extent. But when you're looking at opportunities in -- with the backdrop of potentially changing fiscal regimes, et cetera, how do you assess what is the best path forward or opportunity to invest in? Is it payback, is it IRR? I mean I'm just interested in you're at the stage gate at the point now -- you got a lot of decisions at the stage gate point, how do you make these decisions?

I mean very carefully I think is the answer I'd give you. And all of those things that you say are things that we take into account. I mean, if you remember when the discussion started with Vickery and started with Narrabri Stage 3 and started with Winchester South, we're working our way through those things. We want to get a lot of comfort around cost, which is why we've put this paper out now on Narrabri Stage 3. We've got a view on where the CapEx is likely to be for Vickery and are likely to want to firm that up. And on the others, I think your question, whenever we -- I'd say to you on the inorganic side of the business, we've been in most processes over the last 8 or 9 years. But it's really been about a value consideration against the business and against where the business wants to go. So to my mind, internally, we're trying to work out what's the best use of value and you should think about value as being -- looking at the drivers in the way which we think our way through these things. I know that's probably a generic answer, but I'm expecting people to expect that we're going to be sensible in whatever we do.

Yes, Kevin. I mean you're basically saying it's NPV-driven and, of course, that is, therefore, driven by lower coal price assumptions and costs. That's fine. The next question then is sort of Part B and that's on Slide 51. Just looking at Vickery versus Winchester South. And it looks like Winchester South actually somewhat caught up to Vickery on the decision-making process. If you look at the timeline or Gantt chart, what you've put out there? And I think Winchester South, there's obvious synergies with 1 asset up for sale next door. So I'm just curious around that decision. It looks like, is that the case that Winchester South sort of has caught up to Vickery potentially because permitting is sort of within the sort of coordinated general house at the moment? And then second part of that is actually on port capacity, Paul. Do you actually have available port capacity on Winchester South?

Yes, 2 elements there. I wouldn't say Winchester South has caught up to Vickery. No, I wouldn't have said that. You're right that we're in the closing stages of the coordinated general process. And so having deemed our EIS to be adequate, the onus is now on them to pull together their evaluation report and we are expecting that conclusion in the next couple of months. So that will be great. But as you know, up in Queensland, the same thing happens there as has been happening in New South Wales for a long time now that you find yourself bound up in legal shenanigans and so we're allocating a year for that. And so that has always been the case. That's not new. In fact, Winchester South got delayed by the fact that we had to go through a second round of exhibition and therefore, further answering of submissions and so on. It was just 2 people, 2 opportunities [indiscernible] so it was pretty annoying. But then you go through the land environment court type wrangling that goes on as a result of that. And of course, the EPBC overlay needs to get sold as well. Now Winchester South is part of that EPBC logjam at the federal level, which Narrabri Stage 3 is also in but Narrabri Stage 3 is the early hearing in September next month. So we're expecting to be able to make our way through that in due course. But look, it hasn't caught up to Vickery on the frame. So that's a bit annoying. But the opportunity, obviously, to take the top of Vickery and start in a very small way was a really good way to get that project started and the Board will look at the full version of Vickery by the end of this calendar year. So yes, moving parts, as you say, but that's very exciting. But if you look at all those things, I'd still say Winchester South is still probably 2 years away.

And port capacity?

Port capacity, we haven't put our foot on any port capacity, but we are in the expansion process. We have put our foot on a sizable piece of the expansion study for DBCT. And so that is -- we paid our money. So we definitely got our foot on a component of the next expansion capacity to come out of that port. So it's not a full take-or-pay type thing, but we are essentially funding the feasibility study for that expansion. And with that commitment, those dollars that we put in there to fund that study comes an entitlement to a good piece of the available extra capacity.

Our next question is from Jon Scholtz from Macquarie.

Maybe just a question on the cost. Could you just dig in deeper to which part are likely to increase in there year-on-year? Is that mostly labor? And is there a particular asset where you see the costs, I'm assuming Maules Creek?

Jon, I think I'll give you 3 or 4 places. Diesel really peaked through the middle of the year and set up 36%, explosives up 21%. They did come off from their highs and they're tracking back more like a $1 instead of a $1.30, a leader that is. On OEM spare parts, the OEMs didn't miss this, is the way I would say it. And on contract labor, labor across this country, skilled mining labor is hard to find. And if you don't hear that from every miner in this country, [indiscernible]. But -- so we have been -- we've introduced retention payments, we've kept as retention payments in, we've had contractors who are seeking increased wage particularly around skills and we're bringing people in from out of state out of Queensland and New South Wales and fly in and fly out. To a lesser extent, we're not different to anyone else in this country. Our electricity contract expired on 30th of June '23, and we re-contracted and the rates we're paying are substantially higher than the rates we were paying.

A lot more than the national.

A lot more than the national. So it's -- I think it's sticky, and I think it will take a while for the industry to work its way through. It's got to solve the labor issues first and -- but that will take time. That's why I think when people look at the guidance, you should expect in that guidance that we've got an element of sticky costs coming in. We're staying in this business and coming out over the next few years rather than trying to give you the hope that it's all going to come out in the next year.

And maybe just broader thinking of the market. Japan is one of your key customers. Could you maybe just give us a thought on how coal demand looks there given the increase in nuclear outlook in the country?

Yes, I'd probably leave that to Paul.

Well, Japan is looking very good for us. In fact, as you've probably seen, Jon, year-on-year, our penetration into Japan has grown substantially. I mean that's no surprise given obviously the reliance on Russian coal has obviously fallen away. So the demand on Australia and Whitehaven, in particular, has seen us put more coal into than ever before. And not to say we don't love that market, we do. But obviously, with all your rigs increasingly in that basket, diversification is a pretty important thing. That's why the developments such as the Taiwan and particularly Malaysia are very welcome in that regard. The nuclear start, I think, is a good thing for them. So that -- and we shouldn't feel that generally because coal is cheaper, it's cheaper than gas and the more nukes that come on, it's the gas that suffers as a result of that. And then there is the notion of the carbon budget they manage there as well. So more nukes that come on gives them more headroom in their carbon budget and they can burn a cheaper fuel being coal as a result. So I think that's -- it's good for them to see more of those nukes come on because I know how difficult it is for them to do that. Many of these nuclear operators are actually our customers. And so we hear from them all the time about the difficulty of doing that and it's nice to see 1 or 2 more units coming on.

Okay. Thanks, Paul. Do we have time for one more question?

One more if we can. Thanks, Lisa.

Next question George Eadie from UBS.

I just wanted to clarify on the Narrabri CapEx, the 200 series. So that $250 million to $300 million is $34 million, $74 million already spent? Does that mean there's $150 million to $200 million to be spent or $250 million to $300 million to come?

No, that's right. Those -- the spend numbers are just down there below, George, as you quoted there. So in the case of FY '22 $34 million and $77 million last year come out of those numbers, the $250 million to $300 million. So it's just a balance. Yes, this -- I'm sorry, I'm just being reminded that these are managed numbers and now there's just 77.5% of that.

And 1 more, just sustaining CapEx, you give us a Narrabri life of mine 7 to 8, but any guidance for the company as a whole, including the open cuts?

No, we haven't included any on there, but that's a good point, we'll take that away and come back to you -- everyone.

Is it fair to say that we may be slightly higher than Narrabri?

No, no, generally, no, no, no. The underground sustaining CapEx is quite a lot higher than the open cuts as a general statement. So it's lower than that, but it will be inflationary factor, so we'll come back to you all with that.

If I can squeeze one last one. And just on the EPBC update in September. If that is approved by the Federal Environment Minister, is everything fully approved for that now?

Yes, that's the last piece of that puzzle, yes. Yes. We're very strong on the prospects of that. So I mean, that's not the case with any serious threat. It's just an attempt to frustrate people. So yes, we would like to get that. That's why we asked for it to be expedited and being the first round of cases considered so we can move on. Lisa, I understand there's a couple more questions for people who can stay on. So we're willing to stay on for another few minutes if there's still a couple more?

Our next question, there are 2 more, is from Glyn Lawcock from Barrenjoey.

Can I just take it by your comments about you're looking at opportunities that is this the BHP opportunity that you're looking at? Or is there others as well out there?

We're not commenting on anything specific there, Glyn. I'm sure you can draw your own conclusions.

I'll give it a go. And then -- sure, I can. And look, just the second one, I mean, I know it's your third smallest mine or your Tarrawonga, but you're talking about current production at 2.5. When you put the new fleet in, it feels like 2 or 3 years ago now, I thought the idea was to push that up towards 2.8 million tonnes. I mean is that also struggling as well? Or is my -- just my recollection, Paul?

No. Look, I think, I mean, we can talk to that. We definitely would like to take on more tonnes there. The challenge -- there's a number of different factors there which are working -- Glyn, it's a good question actually. With that fleet, we do have more productive capacity. And we've looked at the numbers of -- and it's a 5-day operation generally, right? So if you wanted to do more tonnes, we would -- you go 7 days and the analysis of that with the type of labor constraints that are in the market actually look a little unproductive and from an NPV perspective. So we're cautious on that. The other thing which is constraining for us is you've got a big strip ratio. You've got that big hill. I know you've been out there before. So you've got the hill there, so the strip ratio does increase. So that constrains the run volume but you can see the dirt movement is actually increasing. So that's another one. Now the other thing which has changed, which is downstream of that, which is a constraint for us, is that the notion of going higher from a volumetric perspective was predicated on a large portion of bypass for the suite of seams down at the prep plant. Now because we're running the full wash strategy, we are taking the plant out there a little bit because there's -- we're not washing -- sorry, we're not bypassing coal because the differential between obviously, API5 and gC NEWC is so large. So it's incentivizing us to wash everything basically. And that we are jamming up the plant. So we are looking at ways to optimize that -- to free that up a little bit. So there's a bunch of factors there on an otherwise complex little operation there.

And I think the only other 2 things I'd add to Paul, is obviously, the strip ratio there is high. So cost is sort of paramount to try and address that. And the -- over the last couple of years when we have considered it changing from the roster to a 7-day roster would have required a lot more people. And obviously, in the labor market, that was not going to be something that was easily achievable. So we still left it as it is and are working on just trying to optimize that place and get its cost profile as low as possible, whilst achieving better quality product that Paul's talked about.

Okay. And the last thing I'd probably say to that, Glyn, is that the strip tariff is probably about 11. The strip at Vickery is about 8, right? So there's going to be a turn to play between those 2 assets over time with resourcing.

Correct.

So if I just summarize then probably best to stay at 2.5 for now and just expect that for 9 more years, it runs 2.5 with probably a slightly elevated cost base coming through as that 11:1 that Kevin just mentioned does sound like that's going to lift as well.

Yes, that's sensible.

Our last question is from Chris Drew from Jefferies.

Kevin, one for you. You touched on this briefly a little bit earlier, but I just wanted to drill into perhaps the medium-term cost outlook a little bit more. Is there much prospects of reversing some of this cost inflation we've seen? Or are we really sort of reset costs at these sorts of levels and it's down to volume gains and efficiency gains to lower them from here? How do you see that picture playing out over the next few years?

Chris, I think that's a great question. I mean when I look at it, we've seen the input commodity costs come off, so you see that the tires and diesel and [indiscernible]. But you've had probably 3 years of stimulus in this country and then COVID stimulus around the plant. And labor is -- skilled labor is difficult. We're finding people from offshore and bring them in. We're running FIFO operations to bring people in. It is a little sticky on the cost side. And as I said, the OEMs have taken the opportunity after a difficult '20 and 2021 to actually get their returns back in order. And as I said, they didn't miss us. So I think this is sticky for a period of time. I think there's -- the world will find its rhythm over the next 12 months, 2 years. And then I think we're probably -- you're sort of looking for things to come back into control over that sort of period, not over 12 months. I think you're talking probably 2 to 3 years out on costs.

Yes. I think it's really hard on the labor side to see an improvement there. I mean you've got the governments at all stripes in every state building lots of infrastructure, competing for the same people we need in order to run our business. And I know you can see that, obviously, they're ramping up their answer to this question, which they believe there's immigration, which is certainly an important piece of the puzzle, but that's not coming cheaply. It's not bringing cheap people and that's bringing expensive people in. And so it's definitely going to be a challenge here. I think if you look at the cost curve over time, it doesn't go back down too often. And obviously, what happens is it becomes the new normal sadly and coal prices adjust as a result upwards. As we mentioned earlier, our BI program is really in the short to medium term our pathway to better costs through productivity because this -- the cost out opportunities are quite limited at the moment.

And Chris, I'd say the procurement team last year -- for the last 7 years, procurement is pretty much paid for itself multiples of times in dealing with suppliers and we're g to wait through that. But last year, it was really holding the line and the electricity side of the world was probably the one that change them from being a net contributor to a net [ delivery ]. So it's -- in my view, this is not going away in the next 12, right?

And if I could, a second question, just with the $800 million to $850 million spend on Narrabri. Is that -- should we assume that's slightly front-end loaded with the longwall purchase in FY '25? Is there any guidance as to the spend profile for that amount?

We haven't carved it up year-on-year, Chris. No, we haven't. But yes, there's a deposit in this next 12 months is relatively minor in the scheme of things. I think some $20 million or so of that. There's a deposit that will go down for that. But I would have said there's still 4 years before you're going to see that on the ground. So that's spread out over a good period from now. So we can draw out the phasing of that for everybody perhaps in our next notification for people to see a little bit more how that's staged, just to give you the range of years that have come out over.

Yes. But most sort of plus that in FY '25, the more shops, et cetera.

Thanks, Paul, we have come to the end of our time.

Yes. That's perfect, Lisa. Thank you for your help today. Thanks, everyone, for your attendance and we look forward to catching up with you individually, collectively over the next little while as we engage through these results and look forward to catching up. Thank you.

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