Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

So welcome to the 2020 Annual General Meeting of Yancoal Australia. My name is Greg Fletcher. I'm the Co-Vice Chairman and an independent Nonexecutive Director of Yancoal and Chairman of the Audit and Risk Management Committee. I have the pleasure of chairing today's meeting and would like to welcome those shareholders, interested parties and staff in attendance. I have been informed by the share registry that a quorum is present, and I declare the Annual General Meeting open. Please let me introduce you to my fellow directors in attendance in person or by telephone conference today. Chairman Zhang from China; the Vice Chair, Ning Zhang, in the room today; Helen Gillies from Queensland, where she's dialing in. And Helen is the Chair of the Nom and Remuneration Committee. We also have Dr. Geoff Raby, Chairman of the Health, Safety and Environment Committee, dialing in as well. And I express the apologies of the following directors who were not able to attend: Mr. Lai, Mr. Wu, Mr. Zhao and Mr. Feng. Also in attendance is Yancoal's Chief Executive Officer, David Moult, who will present the 2019 review. I will now commence today's proceedings. Commentary provided today includes forward-looking statements. The notices and disclaimers on Slides 3 and 4 pertain to these topics. As we all know, the Australian government has taken several measures to reduce transmission of the COVID-19 virus. We fully support these measures to protect public health. This year, we have encouraged shareholders to participate in the AGM via webcast. We have done our best to ensure that all shareholders and proxy holders will have the opportunity to participate in the meeting, including for those entitled, the ability to ask questions at the end of formal proceedings. Every effort was made to ensure that proceedings run smoothly. The relevant documents are available on both the Australian Stock Exchange and the stock exchange of Hong Kong. Today's meeting can be observed online via the Lumi platform. This allows shareholders, proxy holders and guests to observe the meeting virtually. All participants can view a live webcast of the meeting and shareholders and proxy holders can ask questions in real time. If you have joined us through the Lumi platform and you start submitting your written questions now, and we will address them later in the meeting. Please also note that your questions may be moderated or amalgamated if we receive multiple questions on one topic. I would now like to invite Chief Executive Officer, David Moult, to provide a brief presentation of the 2019 review.

Thank you, Greg. Shareholders, members of the Board, ladies and gentlemen, good morning, and thank you for attending today's Annual General Meeting. As always, safety is our #1 priority, and Yancoal is committed to ensuring all our sites operate safely, utilizing safe work practices in all aspects of our operations. In 2019, our stable safety statistics demonstrated that we continue to be effective in our efforts. This year, the health and well-being of all Yancoal employees remains a key focus. In response to the ongoing COVID-19 pandemic, we rapidly implemented additional health and safety measures across the company. Pleasingly, the work practices and measures we implemented have so far proven successful with no known COVID-19 cases across our workforce and minimal disruption to our operations to date. Our primary safety statistic, the Total Recordable Injury Frequency Rate, reduced from 8.01 at the end of 2018 to 7.27 at the end of 2019, and has further reduced this current year. During 2019, we had several significant achievements. These included reduced operating costs, increased production and an improved financial position. The reduction of our unit cost to $61 per tonne was notable during a period in which industry cost inflation was evident. Yancoal remains firmly focused on generating shareholder value by optimizing outputs from our low-cost operations. After another year of healthy cash flow, the Board set the total distribution for 2019 at $417 million. Over the past 2 years, Yancoal has returned over $900 million to the shareholders. In 2020, Yancoal is targeting an incremental increase to production output and continues to focus on lowering operating costs. We are closely monitoring the state of international and local -- sorry, international coal markets and critical supply chains to assess how the pandemic is likely to impact on our business over the remainder of 2020 and beyond. The supply-and-demand dynamics resulting from COVID-19 will continue to influence both thermal and metallurgical coal prices. Yancoal's 3 large-scale, low-cost mines in the Hunter Valley underpin our ability to navigate the current weak coal market conditions and deliver robust returns when normal market conditions return. Thank you for your attendance. And I hand back to Greg Fletcher.

Thanks, David. We will now move to the formal consideration of the business before the Annual General Meeting. Anyone attending in person today will have been issued with an attendance card. Yellow indicates a nonvoting shareholder; white indicates a visitor, also nonvoting; blue indicates a voting shareholder or proxy holder for the Yancoal Australia Annual General Meeting. Persons holding either a blue or yellow card are entitled to speak at this meeting. Only those persons holding a blue card are entitled to vote at this meeting. If there is any shareholder here who is eligible to vote and who does not have a blue colored card, would you please raise your hand now. As usual, resolutions will be decided by poll, which will be conducted at the end of the meeting. The results of the poll will be available on the ASX and Hong Kong Exchange websites later today. The following outlines the items of business for today's meeting and in accordance with the notice of Annual General Meeting for Yancoal Australia, which was published on our website and dispatched to shareholders earlier this month. The notice of meeting contains the text of each resolution to be put to this meeting. With your approval, I now move that the notice of Annual General Meeting be taken as read and that the text for each resolution be taken as read. All those in favor, please raise your blue attendance card. [Voting]

All those against, please raise your blue attendance card. [Voting]

The notice is taken to be read. Thank you. Item 1 is the receipt and consideration of the financial report of the company for the year ended 31st of December 2019. I will take these reports as read. A representative of ShineWing Australia, Yancoal's auditors, Blayney Morgan, is present and available to answer any specific questions about the preparation and content of the auditor's report. Item 2(a) to 2(d) are the election or reelection of directors. The biographical details for each director are contained in the notice of meeting. All directors are being submitted for reelection, and one director is being submitted for election. Item 3 is the remuneration report. The remuneration report is contained within the 2019 Annual Report. I will take the report as read. This vote is advisory only and not binding on the company or its directors. Voting exclusions apply to this resolution as outlined in the notice of Annual General Meeting. Items 4(a) and (b) are the approval of termination benefit payments. The termination in 2018 STIP payments are allocated to executives that have resigned from the company. Voting exclusions apply to these resolutions as outlined in the notice of Annual General Meeting. Items 5(a) and (b) are the issue of rights. The rights are LTIP rights proposed for the Co-Vice Chairman and CEO, recently appointed to the company. Voting exclusions apply to these resolutions as outlined in the notice of Annual General Meeting. Item 6 is the authorization to fix the directors' remuneration. Shareholders have the power to fix the directors' remuneration and may instruct the Board to do so by a resolution of the company. The directors consider that the authorization will provide the company flexibility in fixing directors' remuneration. Item 7 is the reappointment of auditor and authorization to fix auditor's remuneration. The company must at each Annual General Meeting appoint an auditor to hold office from the conclusion of that meeting until the next Annual General Meeting. The shareholders have the power to fix the auditor's remuneration and may instruct the Board to do so by a resolution of the company. Items 8 to 10 are general mandates related to issuing and repurchasing shares. Unless the company obtains these general mandates, its ability to exercise its rights to issue shares without obtaining shareholder approval is limited. And the proposed repurchase mandate gives the company the flexibility to repurchase the shares if and when appropriate. The passing of resolution 10 is subject to the passing of the resolutions 8 and 9. The reason for this resolution is to ensure flexibility to allot and issue more shares if the proposed repurchase mandate is exercised. Recommendation of all items are set out in the notice of meeting. I'm now going to cast the votes for the proxies I hold on all resolutions in accordance with the directions provided by the shareholders or otherwise as set out in the notice of meeting. As mentioned earlier, a poll will be conducted for these resolutions at the end of the meeting. We will now take questions from shareholders on any matters relevant to the business of the meeting. Both the questions and the responses will be repeated in Mandarin for the benefit of Hong Kong Stock Exchange shareholders. Would any speakers from the floor, please raise their hand and state their name before speaking. If a proxy holder or representative of a corporate proxy holder, please also state the name of the shareholder you are representing. Questions received via the webcast platform may be consolidated or summarized to facilitate the session.

Thank you, Mr. Fletcher. We have one -- we have questions received prior to the meeting from a shareholder. The first question, when will the Yancoal share price recover? I'll just ask [ Victor ], our interpreter, to provide a translation for our shareholders on the Hong Kong Stock Exchange. And then we'll proceed to the answer. [ Victor ], could you please repeat the question, when will the share price recover, in Mandarin?

Sure. [Foreign Language]

Thanks for that, [ Victor ]. Share prices for all coal companies on the ASX this year have been affected by the weaker coal prices, which unfortunately is an external and cyclical factor over which companies have no control. Despite weaker coal prices, Yancoal continues to focus on these factors that it can control, such as production volumes and operating costs, both on track to meet 2020 targets.

[ Victor ], can you please repeat in Mandarin?

Yes, I would. [Foreign Language]

Thank you, [ Victor ]. And the second question, will Yancoal issue more shares to improve liquidity? And if so, will the shares be offered preferentially to existing shareholders? Thank you. [ Victor ]?

[Foreign Language]

Thanks, [ Victor ]. Yancoal routinely considers its financial position, its strategic goals and equity profile. And should the Board pursue an equity placement, shareholders would be informed. However, at this time, the company does not require additional funding.

Okay. I'll just translate. [Foreign Language]

Thank you, [ Victor ]. And Mr. Fletcher, questions are coming in via the webcast platform. Item 1 from Australian Shareholders' Association. Yancoal corporate governance statement, principle 7 on risks does not identify any geopolitical risks. As reported in the media, there are growing tensions between China and the U.S.A. China has also imposed tariffs on Australian products. Can you please describe the geopolitical risks that Yancoal may face? And how it manages these? Thank you. [ Victor ]?

Okay. [Foreign Language] Yes, I'm done.

Thanks, [ Victor ]. China remains an important market for Yancoal. That said, both in 2019 and in 2018, the percentage of coal that Yancoal sold to China was less than 16%, 15.5%, 15.6%. Whereas, in 2019, we sold to Japan about 26%; South Korea, 13%; and Taiwan, 12%. So we will continue to -- I think one of the advantages is our diversified customer base to address the challenges that the current market provide and the political pressures between China and Australia and the U.S.

Okay. So I will translate. [Foreign Language]

Thank you. Another question coming in through the webcast directed for Helen Gillies as Chair of the Nomination and Remuneration Committee. The Australian Shareholders' Association has a policy of encouraging diversity on the Board's ASX-listed companies. What is Yancoal's policy on gender and cultural diversity on the Board, noting that Ms. Gillies is the only female on an 11-member Board? And I'll add a personal clarification. The Board numbers are now 9 after recent changes.

[Foreign Language]