Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Hello, everyone. I'm Paul Flynn, Managing Director and CEO of Whitehaven Coal. I'm pleased to share the results delivered by our team in the first half of 2024 financial year. To begin, our safety performance has continued to trend in the right direction, with a 16% improvement on FY '23 in our total recordable injury frequency rate. For the 6 months to 31st of December 2023, our TRIF sat at 3.96, well below the New South Wales industry average. The health, safety and well-being of our people is always our first priority, and this result demonstrates the positive impact our strategic health and safety initiatives are having. Our focus on environmental management has also continued to deliver the outcome we want to see with zero environmental enforceable actions. A highlight of the first half was the announcement in October of the highly attractive and transformational acquisition of BMA's Daunia and Blackwater metallurgical coal mines in Queensland's Bowen Basin. In addition to being earnings accretive with significant value upside, the deal transforms Whitehaven into a metallurgical coal producer, delivers diversification and scale benefits and strengthens our position in growth segments of the market. I'm pleased to share that the transaction is progressing well with integration activities to support a smooth transition well underway as we work towards a targeted completion of the acquisition on the 2nd of April 2024. Looking now to our production for the half, our managed ROM coal production to the 31st of December 2023 totaled 10.3 million tonnes, and managed coal sales, including purchased coal, were 8.8 million tonnes. Throughout the half, our Maules Creek and Gunnedah open cut mines delivered solid operational performance. ROM coal production at Narrabri was impacted by geological challenges in longwall panel 203, along with equipment reliability issues. Despite this, our overall ROM production and sales guidance for FY '24 remain unchanged. While coal prices have moderated from 2 years of record highs, they stayed resilient during the half. Our average realized price for the period was AUD 220 per tonne. This pricing outcome and our production volumes underpinned a solid financial performance for the half year. Revenues totaled AUD 1.6 billion. Underlying earnings before interest, tax, depreciation and amortization or EBITDA was $623 million. This result was before $92 million of transaction and transition expenses related to the acquisition. It is also before a $71 million unrealized FX translation loss as a result of U.S. dollars held for settlement at completion of the acquisition. Whitehaven's underlying net profit after tax was $372 million and statutory NPAT was $258 million for the half year. Before I talk about our outlook and strategic priorities, I'll hand over to our CFO, Kevin Ball, to talk a little more about our financial results and capital allocation framework.

Thanks, Paul. We maintained a strong balance sheet through the half and our disciplined approach to capital allocation is building resilience, supporting growth and delivering shareholder value. Cash generated by operations for the period was $523 million, and we ended the half with $1.5 billion of net cash on the balance sheet. This was after paying $927 million of income tax, including $886 million in relation to fiscal year '23. The cash balance together with a new USD 1.1 billion financing facility expected to fund the completion payment for the acquisition of the Daunia and Blackwater mines. Whitehaven finished the half year having returned $336 million to shareholders through fiscal year '23 final dividend of $0.42 per share, which we paid in September 2023. For the 6 months, we delivered a total shareholder return of 18.5%, ranking Whitehaven as 18th in the ASX 100 for capital returns and share price growth. We're also pleased to pay an interim fully franked dividend of $0.07, which is to be paid on 8th of March 2024. Our disciplined approach to capital management will see us directing cash flows from the acquired business to retiring the vendor finance during the deferred payment period for the acquisition. Our share buyback program remains paused through the acquisition payment period, and the Board will make a decision regarding its resumption at the appropriate time. We expect to maintain a fully franked dividend within the targeted payout ratio of 20% to 50% of NPAT generated from our existing operations. And after making the deferred payments and when surplus capital emerges the acquisition is expected to support a significant step-up in capital returns for shareholders.

Thank you, Kevin. Once we complete the acquisition of Daunia and Blackwater metallurgical coal mines, Whitehaven will transform to be a predominantly metallurgical coal producer. Our revenues are expected to be in the order of 30% thermal and 70% metallurgical coal sales based on recent historical sales. Our customers will be predominantly in traditional and emerging markets in Asia. Importantly, Whitehaven remains committed to providing energy security to our customer countries, and we will continue to supply our high-quality thermal coal products, which are sought after in our key Asian markets and beyond. The long-term outlook for Whitehaven is positive with strong underlying market dynamics in both metallurgical coal markets and the high-CV thermal coal market. Demand forecasts look positive with supply shortfalls forecast for both thermal and metallurgical coal as a result of mines coming to the end of their lives and a lack of new supply. Our thermal coal customers remain focused on long-term security of supply, particularly for Whitehaven's high-CV products needed to help deliver decarbonization goals while demand for metallurgical coal largely reflect growth drivers from India and emerging economies in Asia. We have seen considerable strength in metallurgical coal prices, particularly hard coking coal and Whitehaven will benefit from this once the acquisition completes. While completing the acquisition of Daunia and Blackwater metallurgical coal assets is obviously a priority, we also recognize the importance of continuing to improve and develop our existing operations. Improving operational performance and reliability as well as cost management will continue as areas of focus for us in the period ahead. We are focused on delivering our guidance for FY '24. For now, I'd like to close by thanking our people for their hard work and commitment and our shareholders for their ongoing support. We're looking forward to completing the acquisition and delivering on our FY '24 guidance while maintaining safe and responsible operations. Thank you.