Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

[Technical Difficulty] Committee of Yancoal.

Just open it up, Dennis.

I'm pleased to chair today's meeting and welcome those shareholders, interested parties and staff in attendance. I've been informed by the share registry that a quorum is present, and I declare the Annual General Meeting open. Let me introduce you to my fellow directors in attendance today by person or by telephone conference. We have Chairman Zhang in Shandong Province; Co-Vice Chair, Ning Zhang in the first row here. We have Helen Gillies, Chair of the Nom, Rem Committee in Brisbane today. And we have Dr. Geoff Raby, Chair of the Health and Safety and Environment Committee (sic) [ Health, Safety, Environment and Community Committee ] in -- somewhere in China. And I express the apologies of Mr. Cunliang Lai, Mr. Wu, Mr. Zhao and Mr. Feng. Also in attendance is Yancoal's Chief Executive, David Moult, who will present the 2020 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. This year, we have again encouraged shareholders to participate in the AGM via webcast to minimize health risks created by COVID-19. In addition, 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 the formal proceedings. Every effort was made to ensure that proceedings run smoothly. The relevant documents have been disseminated on both the ASX and the Hong Kong Stock Exchanges. Today's meetings can be observed online via the Lumi platform. This allows shareholders, proxy holders and guests to observe the meeting virtually. In addition, shareholders and proxy holders can submit questions real time. If you have joined us through the Lumi platform, you can start submitting your written questions now, and we will address them later in the meeting. Please also note that your questions will be moderated or amalgamated if we receive multiple questions on one topic. I would now like to ask and invite our Chief Executive, David Moult, to provide the 2020 Review.

Thank you, Greg. Our shareholders, members of the Board, ladies and gentlemen, good morning, and thank you for attending today's Annual General Meeting. 2020 presented many challenges. Events outside our control impacted our markets and some aspects of our operations. But despite drought, bushfires and, of course, COVID-19 we achieved our production and cost guidance with attributable coal production of 38.3 million tonnes and a further improvement in our operating costs to $59 per tonne. The resilience of our Tier 1 assets and a disciplined approach to capital management enabled the company to meet these challenges. As the coal's price cycle turns, attention can again return to an appropriate allocation of returns, growth and debt reduction. Through the efficient operation of our assets, Yancoal has continued to contribute significantly to our communities and the broader Australian economy. Yancoal's mines produce high-quality coal for global customers. Our operations directly employ more than 4,000 people and engage thousands of businesses across 3 states. Indirectly, the flow-on impacts are considerable. In addition, we sponsor and support groups and organizations at the community level and make a [ substantial contribution, more than ] $500 million, to all levels of government in the form of rates, taxes and royalties. Throughout 2020, the Yancoal team focused on operating the assets safely and efficiently. We rapidly implemented a successful pandemic response plan and at the same time, kept our focus on safety management across the group. During 2020 by continuing to focus on the controllable aspects of our business, optimizing production [ and reducing costs wherever possible, we achieved our operational guidance. A decision early in the year to secure an additional 10% stake in Moolarben, our largest and lowest-cost mine, contributed to these ] outcomes. Although lower coal price -- sorry. Although lower coal prices impacted our financial metrics, we delivered a robust operating EBITDA of $748 million. However, reconsolidation of Watagan triggered a one-off, noncash loss of $1.38 billion, which was a significant component of the net loss reported for the year. The health and well-being of our employees is of vital importance to Yancoal. The work practices and measures we implemented to mitigate COVID-19-related risks, I'm pleased to say, have proven successful with minimal disruption to the organization. We remain vigilant to the continued risks posed by the pandemic as well as broader health and safety issues across our sites. Yancoal's 12-month Total Recordable Injury Frequency Rate remained below the comparable industry average throughout 2020. Lower power demand globally in 2020 resulted in weakness across benchmark coal prices indices. As the international coal market evolved and imports by China changed, Yancoal successfully diversified customer profile by adding new customers in alternate countries. In addition, Yancoal's marketing team continually optimizes product quality to meet customer needs and maximize the average selling price, which has assisted us in finding these new markets for our mix of coal qualities. Coal price indices rallied later in the year, and prices have strengthened into 2021. However, Yancoal's contract mix and structures result in an average realized price that lags the indices, as shown in the corresponding graphs. Due to the cyclic nature of the coal market, the most effective strategy to navigate these lows is to have a sustainable, low-cost production base. We look forward to receiving the benefits of improved prices in subsequent periods on the back of the improvement we have seen in the indices and, hopefully, a normalization of the market.

[ And of growth, of course, today. ] Now can you check the Internet signal for us? I'm getting a report that external audio signal's patchy.

Yes. So this would take one moment, sir.

Thank you.

Okay, sir. Okay.

Okay, Brendan?

Yes.

Okay. Thank you. And apologies for that. And technology sometimes takes over, and I think everybody's experienced over the last 12 to 18 months how important technology is to the way that we've operated, communicated and worked. So we'll recommence, and we're on Slide 11. Yancoal achieved its guidance for both operating cash costs and production in 2020. The $5 per tonne decline in unit operating costs to $59 per tonne was an outstanding outcome, especially in the context of our lower overall average realized coal price of $82 [ per tonne ] for the year. Lower diesel price and CapEx deferrals partially aided the cash cost outcome, but the achievement by the mine site teams during an unusual year cannot be understated. Having noted the strong operational performance, there is a close correlation between average sales price achieved, revenue, EBITDA and EBITDA margin. However, the EBITDA and EBITDA margin achieved in 2020 should be observed in the context of 2016 results, a year when the average selling price was comparable to 2020. Yancoal's expansion and strengthening of its asset base, along with a rigorous pursuit of cost control has enabled Yancoal to navigate the cyclical coal price lows. The net loss reported for 2020 includes 2 one-off items. The gain resulting from the remeasurement of the 95% interest in Moolarben following the acquisition of the additional 10% and a noncash loss associated with Watagan reconsolidation in late 2020. The reconsolidation of Watagan also resulted in off-balance-sheet debt moving back on to the balance sheet. Consequently, the net debt and gearing ratio have increased, but these metrics are still more robust than during the prior low in the coal price cycle 5 years ago. In 2020 (sic) [ 2021 ], even though rain and flooding impacted our New South Wales production during the first quarter, Yancoal aims to marginally increase production output and maintain low-cost -- lower operating cash costs. We continue to closely monitor the state of the international coal market and seek new customers to diversify our sales profile. Yancoal's 3 large-scale, low-cost mines in the Hunter Valley underpin our competitive position in the export coal market and will continue to deliver robust returns during cyclical upswings in the coal market. That concludes the review of 2020. I would now like to hand back to Mr. 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 non-voting; blue indicates a voting shareholder or a proxy holder of the Yancoal Australia Annual General Meeting. Persons holding either a blue or yellow card are entitled to speak at this meeting. However, only those persons holding a blue card are entitled to vote at this meeting. If any shareholder here is eligible to vote and does not have a blue-colored card, would you please raise your hand now? 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 Stock Exchange website later today. The following summary outlines the items of business for today's meeting. 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 of 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 Company's Financial Report for the year ended 31st of December 2020. I will take those reports as read. A representative of ShineWing Australia, Blayney Morgan, Yancoal's Auditor, is present and available to answer any specific questions about the preparation and content of the Auditor's Report. Items 2a to 2c are the reelection of the Independent Nonexecutive Directors. Biographical details of each director are contained in the Notice of Meeting. 3 Independent Nonexecutive Directors, including myself, are being submitted for reelection. Item 3 is the Remuneration Report. The Remuneration Report is contained within the 2020 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. Item 4 is the issue of rights, Co-Vice Chairman, Mr. Ning Zhang, under Equity Incentive -- under the Equity Incentive Plan. Approval is being sought for the issue of up to 90,180 deferred share rights, as defined in the Explanation Notes to the Notice of Meeting, to Ning Zhang, the Co-Vice Chair of the Company, under the Company's Equity Incentive Plan on the terms set out in the Explanatory Notes to this Notice of Meeting. Voting exclusions apply to this resolution as outlined in the Notice of Annual General Meeting. Item 5 is the reappointment of the Auditor. At each Annual General Meeting, the company must appoint an Auditor to hold office from the conclusion of that meeting until the next Annual General Meeting. Items 6 to 8 are general mandates related to issuing and repurchasing shares. Unless the company attains these general mandates, its ability to exercise its rights to issue shares without obtaining shareholder approval is limited. And the proposed repurchase mandates gives the company the flexibility to repurchase the shares if and when appropriate. The passing of resolution 8 is subject to the passing of resolutions 6 and 7. The reason for this resolution is to ensure flexibility to allot and issue more shares if the proposed repurchase mandate is exercised. Item 9 is the reinsertion of the proportional takeover provision. The proportional takeover provisions exist in the form of Rule 6 of the constitution of the company are sought to be reinserted for a further period of 3 years commencing from the date of this AGM. Recommendations for 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 the resolutions in accordance with the directions provided by 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 -- the Hong Kong Stock Exchange shareholders. Would any speakers from the floor please raise their hand and state their name before speaking. If you are a proxy holder or representative of a corporate proxy, please also state the name of the shareholder you are representing. Questions received by the webcast platform may be consolidated or summarized to facilitate the session.

So I understand that there has been one question that came in prior to the meeting. And the question was, "Is the price of coal going to rise soon?" And I might ask my learned colleague, Mr. Moult here, to provide his views.

I think the easy answer at the moment is that the international coal indices have improved from the lows reached during 2020. So we have seen an improvement in the market. But some of those indices have improved more than others, so it's not across all the different qualities of coal. As the global economy recovers from the effects of COVID-19, the demand for power and generation and coal supply, we're expecting further improvements in those prices. But yes, we have seen a good start to 2021. However, the main indices, the Newcastle indices is not a straight reflection through all the coal qualities but it is a better start.

I might ask that to be interpreted.

[Foreign Language]

Is there any questions that have come through the webcast?

No questions showing on the webcast. Thank you, Mr. Chairman.

Thank you. Thank you. Is there any questions from the floor? Thank you. So we now go to the proxy results. The proxies votes received before the meeting have been counted. The totals are shown on the slide. In accordance with Rule 7.7(d)(1) of the Company's Constitution, as Chairman of the meeting, I request that each of the resolutions is decided by poll and declare voting on all the resolutions is now open. The results of the polls will be calculated with the assistance of Computershare acting as a Scrutineer. If you are entitled to vote, reverse of your blue admission card is your voting paper and instructions. Please record your vote for each poll. We're placing them in the appropriate for or against box on each card you are holding. The sum of the votes cast for and against each resolution must not exceed your voting entitlement. If you are a proxy holder, you should have a card and a summary of votes for each shareholder that you are representing as their proxy. If a proxy holder has been directed to vote in a particular manner, then the proxy holder will be deemed to have voted per those directions by completing the voting card. In respect of any open votes a proxy holder may be entitled to cast, you need to mark a box beside the motion to indicate how you wish to cast your open votes. If you have a query concerning any of the polls, please raise your hand and a member from Computershare will assist you. [Voting]

Thank you. Thank you.

[ There are no more voting cards? ]

Thank you. So I'll now declare the poll closed. The results of the poll will not be known until after the meeting has closed. The results of the poll will be announced to the ASX and Hong Kong Stock Exchange later today. Having completed all items on the agenda, I now announce the formal proceedings of today's AGM closed. I would like to thank those in attendance today and call an end to today's Annual General Meeting for Yancoal Australia. Thank you.