Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

Good day. Thank you for standing by. Welcome to Yancoal Australia Fourth Quarter Reports Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brendan Fitzpatrick, Investor Relations Manager. Please go ahead.

Thank you, Maggie, and thank you to everyone on the call for joining this briefing on Yancoal's fourth quarter production report for 2023. Typically, our CEO, David Moult, provides a summary of the production report, however, Dave is not available to join us today, instead, Kevin Su, our Chief Financial Officer; Mike Wells, our Executive General Manager of Finance; and Mark Salem, our Executive General Manager, Marketing, will summarize the fourth quarter activities. We will then open the call to a question-and-answer session. [Operator Instructions]. Please note the commentary provided today is based on the production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong yesterday, 18th January. There is no presentation deck for this conference call. The Yancoal website holds past presentations for any participants that require additional information on the company. Kevin, could I invite you to provide initial comments on the quarterly?

Thanks, Brendan. Good morning, everyone. I will give some initial comments first. 2023 was a year in which Yancoal reestablished its operational profile and delivered on its production guidance. Yancoal's operational and financial performance is made possible by our people. The total recordable injury frequency rate, which was 5.3 at the end of December, that's well below the industry weighted average of 8.3. The continued support from all the people on Yancoal mine site for safety initiatives is a key factor in the overall success of the company. I want to recognize everyone involved in delivering this excellent safety performance. Turning to the financial performance. We closed out the year with another robust quarter. We added $477 million to our cash position through the December quarter. This increase to the cash balance is after all operating costs, corporate overhead, capital expenditure and a monthly progressive tax payments. It is the clearest indication of Yancoal's performance. We finished the year debt free and with $1.4 billion in the bank. And please bear in mind, this cash position is after we returned over AUD 1.4 billion to shareholders as a fully franked dividend during the year. Yancoal started 2024 in a very strong financial position and with great operational momentum. So now I will ask Mike to provide further comments on operational performance. Please, Mike.

Thank you, Kevin, and good morning, everyone. The good weather continued for most of the December quarter, and we were able to deliver increased production for a fourth successive quarter. Total ROM coal production for the quarter of 18.1 million tonnes was up 12% and saleable coal production increased to 12.9 million tonnes. These production volumes were the best quarterly performance we've recorded in the past 3 years. As Kevin mentioned, we hit our production guidance for the year, 33.4 million tonnes of attributable saleable coal, was in the middle of our 31 million to 36 million tonne range for 2023. Throughout the year, we've 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 has proven effective with the production rate during the fourth quarter similar to levels we've achieved in prior years. We are focused on maintaining production around this fourth quarter rate through 2024, noting there will always be some variance in production throughout the year due to the timing of longwall moves, mine sequencing, maintenance schedules and other variables. We haven't reported our full year operating cash costs. And as is usual the case, we'll report these in our 2023 financial results to be released in February. We expect that when we report, they will fall around the middle of our 2023 guidance range of AUD 92 to AUD 102 per tonne. We will also report our attributable capital expenditure in the 2023 results. The timing of some expenditures slipped late in the year, so the total will likely be at the low end of our AUD 600 million to AUD 750 million guidance range with some capital expenditure activities carried over into 2024. I will now hand over to Mark to provide comments on the coal markets.

Thanks, Mike, and good morning, everybody. Now the positive cash generation that Kevin described earlier is definitely linked to the increase in production that Mike has just explained, and of course, a realized coal price that was consistent with the prior quarter. Our realized prices for the December quarter were $180 per tonne for thermal coal and $292 per tonne to metallurgical coal. The overall realized coal price of $196 per tonne was just 1% below the September quarterly price. Our sales volumes exceeded the production volume during the quarter. We realized this towards the end of Q3, and our sales team took initiative to increase and advance sales to ensure a drawdown in stocks, and provide the company the opportunity to optimize sales for the period. Thermal coal markets appear to be well balanced for much of the December quarter. Looking at the demand factors, we could see the North Asia and European [Technical Difficulty] mild start to the winter and generally carried good stock levels. It was a similar situation in China, but it's worth noting that the overall Chinese thermal coal imports increased by approximately 45% in 2023 compared to 2022. In contrast to these regions, there was incremental demand from India after a weaker monsoon season resulted in lower hydro generation. And in Vietnam, as a result of the increased economic activity, demand remains strong. Turning to the supply factors. Australia exports were increased through the [Technical Difficulty] with the country's total exports up 22% from 2022. However, there was a derailment in New South Wales during December that affected exports, but the disruption was only short term. In Indonesia, a weaker monsoon season resulted in less disruption to mining activities in the December quarter, and its total exports for the year increased 12% compared to 2022. However, the situation was different in Russia, where exports fell 15% year-on-year after the imposition of an increased export duties. Elsewhere, South Africa exports remain somewhat restricted due to infrastructure constraints. In the metallurgical coal markets, soft economic conditions in North Asia and Europe depressed steel demand. Some steel producers elected to bring forward maintenance activity [Technical Difficulty] metallurgical coal demand declined. Demand from India and Vietnam during this period was less impacted. But overall conditions for the metallurgical coal market were weak during the period, with cyclone disruptions to exports from Queensland only creating a temporary supply shortfall. Across the thermal coal and metallurgical coal markets, supply and demand appear relatively well balanced and subject to the influence of short-term factors. That concludes the market update, and I'll pass back to you, Brendan, for the next stage of the call.

Kevin, Mike, Mark, thank you for those insights. We will now move on to the question-and-answer session, starting with questions from the phone and then moving on to questions submitted via the webcast. Maggie, could I please invite you to initiate the process for questions coming through via the phone lines?

[Operator Instructions] Brendan, we have no questions queued up at the moment. Do you want to do the web questions first?

Thank you, Maggie. Yes, I'll move to the webcast questions, and we'll return to you for people that submit questions via the phone lines. [Operator Instructions] One of the first questions we have on the webcast comes from [ Song Wei ]. The question relates to our production guidance and outlook for the 2024 year. I'll hand over to Kevin to make some comments.

Thanks, Mr. Song. As you know, Yancoal hasn't publicly announced any 2024 production guidance, cost guidance, CapEx guidance yet. So we will appreciate your patience for the company to finish everything in due course. But as you have probably noticed, during the presentation, Mike has made a point way as a company, Yancoal has focused on maintaining the production level around the fourth quarter rate. So hopefully, this will give some initial -- just rough idea, but still we would appreciate your patience to wait for the 2023 annual accounts, and we will see the guidance coming from the company, please. Thank you.

That's right. Kevin has indicated our standard practice is to provide guidance for the current calendar year in the financial results that we released in February, and we'll be following that usual practice. We have a question coming through from Sara Chan at Morgan Stanley. Sara is asking if we can have some insight into Yancoal's average sales price in 1Q and possibly 2Q. Mark, perhaps I could ask you to provide what limited comments we are able to make on the pricing realization for the current quarter and the future quarter given that we typically don't provide a lot of specific detail in this area.

I suppose it's a bit preliminary to predict what prices we'll actually experience in Q1, Q2. Naturally, that -- a lot of our coal sales are based on indices and the movement in those indices, as we've seen over -- the periods have been very volatile in relation to impacts on issues such as the Russian-Ukraine crisis, weather conditions, et cetera. So -- but generally, as we've explained at the end of Q4, we saw a relatively balanced market. We're not seeing anything substantially different coming into Q1 [Technical Difficulty] still balanced market. And that's just going to be really a function of unexpected circumstances that could impact the pricing.

Maggie, could we turn back to you to check if there are any questions coming through from the phone line, please?