Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Yancoal Third Quarter 2023 Production Report Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Mr. David Moult, CEO. Thank you. Please go ahead.

Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yancoal's Third Quarter Production Report for 2023. I'm joined on this conference call by several members of the Yancoal management team. I will provide a summary of the activities from the third quarter based on the Production Report published on the Australian Securities Exchange and Stock Exchange of Hong Kong yesterday, the 19th of October. We will then open the call to a question-and-answer session, with the call scheduled to conclude at mid-day, Sydney time. I'll speak to the content of the production report. There is no presentation pack for this conference call. The Yancoal website holds past presentations for any participants that require additional information on the company. Yancoal's operation and financial performance is made possible by our people. The total recordable injury frequency rate, which was 5.1 at the end of September, lies well below the industry weighted average of 8.3, an outcome made possible by the continued wholesale support for the safety initiatives across all the Yancoal mine sites. I once again commend everyone involved in delivering this performance. Yancoal reported another robust financial performance during the quarter. We added $324 million to our cash position through the 3 months. This is after all the operating and corporate costs, including the capital expenditure and progressive tax payments we are now making on a monthly basis. After distributing a further $489 million in dividends during the period, we held a $920 million in cash at the end of September. The company is debt-free, and we continue to accumulate cash each month. The good weather continued in the September quarter and minimal weather disruptions contributed to increased production. Total ROM coal volume for the quarter was over 16 million tonnes, and Yancoal's attributable saleable product increased 7% to 9.3 million tonnes. We have previously discussed our need to prioritize pre-strip and overburden removal activities at most of our mines to facilitate better productivity and output in the subsequent quarters. This effort is proving effective. Attributable output during the quarter was similar to levels we achieved in prior years. We are pursuing opportunities to lift overall production again in the final quarter, particularly at Moolarben where we've been working on conveyor availability, and the long-haul phase will return to its normal length after a planned shortage, the result of a proactive measure to protect an indigenous heritage site on the surface. At Ashton, long-haul operations remained suspended due to a water inundation event. The recovery and repair work will likely take the remainder of the year to complete. We currently expect to return to normal operations towards the end of the fourth quarter. The production loss prevention is modest in the context of Yancoal's total production, but we look forward to having its high-value metallurgical coal back in our product profile in early 2024. Labor shortages are abating, and we expect Yancoal's output production trend to extend into the fourth quarter. We have retained the 2023 guidance of 31 million to 36 million tonnes and cash operating costs of $92 to $102 per tonne. Yancoal continues to meet its obligations under the New South Wales domestic coal reservation's directions. We delivered 251,000 tonnes of coal to domestic power generators during the quarter. The New South Wales government will increase coal royalty rates for coal exports at the conclusion of the domestic coal reservation directions, which is mid-2024. The current royalty rate will increase by 2.6%, and this will affect several Yancoal operations, including our 3 primary assets, Moolarben, MTW and HVO. The cash generation I described earlier is directly linked to increased production, combined with our realized coal price. Our realized thermal coal price was $178 per tonne for the quarter, and our metallurgical coal price was $360 per tonne. The overall realized coal price of $197 per tonne was down marginally from the June quarter but coal pricing still remains strong. By the end of the quarter, the relevant thermal and metallurgical coal indices were trading up. The start of coal stockpile accumulation ahead of winter across Asia and Europe, disruptions in the Chinese domestic market and lower hydro generation in India all contributed to the thermal coal price trend. In the metallurgical coal markets, supply side constraints in Queensland and stronger demand from India provided pricing support. The timing of our shipments resulted in a sales lagging production by a few hundred thousand tonnes in the quarter. We expect to catch up on these sales as well as a further increase in our attributable saleable coal production in the final quarter. I will now hand back to Desmond so that we can commence the question-and-answer session.

[Operator Instructions] There are no questions from the phone line. Please continue.

Thank you, Desmond. Brendan Fitzpatrick from the Investor Relations team. I'll take the opportunity to read out some of the questions coming through via the webcast platform and invite any participants to submit further questions via the platform. The first question from Albert [indiscernible]. Albert would like to know where we see coal sales in the markets going in 2024-2025 given the trend in alternative energy and other aspects of the global energy markets. And then a second question from Albert, what's the outlook for the company's debt profile, capital management and growth prospects in the longer term?

Thanks, Albert. I picked on a couple of points actually in part of my response today. But what I might do is pass across to Mark Salem, our Head of Marketing, to give a bit of a more detailed overview of how we see the market at the month.

Sure. Thanks, David. Thanks, Albert, for your question. I think it's very safe to say that the demand for coal in the seaborne market is still going to be very strong going into '24 and '25 . We recently participated in the Australian Japanese coal conference. And Japan being one of our major markets asked us to ensure that we could continue to source or supply that market well beyond 2030-2050 in their attempts to make sure that, that market is well powered. So we're not expecting any changes to the world and in '24, '25 as a result of any renewable progression in electricity generation.

Thank you, Mark. And then the second part of the question regarding our outlook for debt growth and associated components. Perhaps, Kevin, our Chief Financial Officer.

Thanks. From company, from the management perspective, we have been deleveraging the company pretty well, but that doesn't mean as a company, we will always keep 100% clean from that. When there is a great opportunity show up, and then Yancoal will be confident to take up some sort of leverage. But for now, in such a high interest rate environment, we will be cautious in managing our debt profile, which we have saved a significant amount of financial resources to pay dividend to the shareholders.

Thank you, Kevin. The next question coming from Mark Kelleher. Mark's asking if we can provide a comment on how much cash tax was paid during the quarter. I note that in the quarterly, we did make reference to progressive tax payments being made by the company at this point.

From just financial figures, this particular number wasn't disclosed in the quarterly. So whatever we are going to say is not audited among anyway. We will be very cautious to disclose such numbers, but I would probably give a range.

Yes. And I'll just interject for a moment. We're always mindful that we're typically paying tax at or around the corporate tax rates. So that would usually be the start point for any assumption being made by investor or market participants. But Kevin, perhaps in that context, if we acknowledge that we can see the cash generation that was made during the quarter and a corporate tax rate applied on that cash generation as disclosed in the quarter would be a basis for people forming a view on the cash tax that was potentially made on a periodic basis.

Yes, it will be the right proxy. Yes.

Okay. We'll leave that 1 there. We'll move on to the next question coming from John Ogden. It's a specific question related to diversification. In this case, John is asking if there is any interest in the Mt Arthur mine in New South Wales.

Thanks, John. I mean the Mt Arthur mine has been around for a long time. But I think our strategy has been well documented previously that we're really looking at coal in the metallurgical sector when we look for assets, so I would suggest at this time, if it was to become available again in the future, we don't have a lot of interest in Mt Arthur.

Thanks, David. We have a question from Glyn Lawcock at Barrenjoey directed to David. Are there any additional thoughts on the met coal outlook, it seems there are a number of disruptions to supply from Yancoal and other participants in the markets, such as BHP and South32 in the September quarter. Has this been the driver of recent strength in price? Or are there other drivers at play?

Thanks, Glyn. Look, I'll let Mark comment on that again. He is a bit closer to the market on some of those issues than I am. But I mean, I can't think of anything that's sitting behind it other than some of the comments you make yourself. But I might ask Mark to take that question.

Yes, there has been no small supply disruptions. But in addition to that, what's driving some appreciation in the prime hard coking, low-vol, hard coking coal price has been demand from India of recent times. And it's that demand in India -- from India that's really driving some of the more recent strengthening in pricing.

Thank you, David. Thank you, Mark. A question coming through from Sarah Chan at Morgan Stanley related to fuel cost. Given the recent spike in oil price, is there any comment on earnings sensitivity to deal diesel price? And then looking at the sales mix, how much coal was sold domestically in regards to the Australian energy preservation, and your comment on the coal preservation for the fourth quarter?

Okay. On diesel, I mean, our guidance, as it stands, we've factored in our view on diesel price, taking account of current issues globally, but -- so the guidance we've reconfirmed again today, I think, we're comfortable on that. I did say during the quarter, we sold 251,000 into the domestic generators. So that was our part of the domestic reservation policy, and the domestic reservation policy now runs through until the end of June 2024. And of course, for quarter 4, we will be talking to generators as we go into this quarter and of course, providing coal up to potentially 300,000 up to our cap, but I mean I'm not suggesting that's what we're going to sell this quarter, but that is our cap on what were required to reserve.