Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Yancoal First Quarter 2025 Production Report. [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 First Quarter Production Report for 2025. We have several members of Yancoal's executive leadership team to recap the quarter and participate in the question-and-answer session. On the call today, we have Mr. Yue, our Co-Vice Chairman and Acting CEO; Kevin Su, Chief Financial Officer; David Bennett, EGM Operations; Mark Salem, EGM Marketing; Laura Zhang, Company Secretary; Mike Wells, EGM Finance; Mark Jacobs, EGM, Environment and External Affairs; and Sharif Burra, EGM, Health, Safety and Sustainability.  The commentary provided today is based on the quarterly production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong on the 17th of April. Normally, we host this call the day after the release of the production report. But this quarter, we elected to wait until after the public holiday weekends here in Australia. There is no presentation pack for this conference call. The Yancoal website holds past presentations for any participants who require additional information on the company. I'll hand over to our CFO, Kevin Su, to provide the first quarter highlights.

Thanks, Brandon. I also welcome everyone joining us on this conference call, especially anyone here for the first time following our inclusion in ASX 200 Index 6 months ago. We had a strong first quarter with ROM coal and attributable saleable coal volumes above target. This is a contrast to the past 2 years, which started slower and increased throughout the year. After the first 3 months, we are well-positioned to deliver a strong operational performance in 2025. During the quarter, we mined 15.2 million tonnes of ROM coal, which is 11% more than the first quarter last year. And we delivered 9.5 million tonnes of attributable saleable coal, which is 8% more than the first quarter last year.  The full year production and cash cost guidance we issued in February is unchanged. We are targeting 35 million to 39 million tonnes of attributable saleable production at a cash operating cost of $89 to $97 per tonne this year. As with past quarters, we don't include cash operating costs in the quarterly report, but I can say we remain comfortable with the full year guidance. Although coal prices have trended lower, we were able to add $136 million to our cash balance after all operating capital expenditure, tax and corporate overheads. We finished the quarter with a cash balance of $2.6 billion. However, I should note that we will use $687 million to pay the $0.52 per share fully franked final dividend for 2024 on 30th April 2025. Yancoal operates some of the lowest-cost mines in Australia. These mines have delivered positive cash flows even during cyclical downturns in coal prices in recent years. We are in a strong financial, which leaves us well placed to take advantage of opportunities that may present during the cyclical downturn. I'll now hand over to David Bennett, our Executive General Manager, Operations, to expand on the operational performance.

Thanks, Kevin. Our total recordable injury frequency rate was 6.46% at the end of March, an improvement over the prior quarter. And although the rate is below the industry-weighted average of 7.5%, we remain committed to improving our performance and lowering the rate further through targeted safety intervention activities. When we set the production guidance for 2025, we forecast the first quarter to have lower production due to factors related to mine sequencing and maintenance schedules, including 2 longwall moves, 1 each at Malardalen and Ashton. We were able to complete both longwall moves ahead of schedule and we're back in production by early February.  The open-cut mines experienced minor weather disruptions during the quarter, which is typical for this time of year. However, we finished the quarter on a positive trajectory, which sets us up well for the remainder of the year. During the quarter, our mines produced 15.2 million tonnes of ROM coal, 12.5 million tonnes of saleable coal on a 100% basis and 9.5 million tonnes of attributable saleable coal. As Kevin mentioned, these volumes were 8% to 11% higher than the first quarter last year. At Moolarben, the early completion of the longwall move, combined with better-than-expected dig rates from the mining fleet, higher yields and strong equipment utilization in the open pit, countered the minor weather delays. Saleable coal production was down 4% from the first quarter 2024. The 2 Hunter Valley open-cut mines both performed well, with saleable coal production up by at least 25% compared to the first quarter 2024. At MTW, dragline volumes exceeded budget and reduced load and haul cycle times resulted in ROM coal volumes running ahead of plan. At HVO, better-than-expected truck utilization and operating hours contributed increased ROM coal volumes. In Queensland, Yarrabee closed out the period with strong ROM coal and saleable coal production figures. Unfortunately, Middlemount was impacted by wet weather, reduced wash plant throughput rates and lower yields. The team at Middlemount has developed a recovery plan to improve performance throughout the remainder of the year. Also, it is important to note that Middlemount is equity accounted, so with volumes sit outside the production guidance we provided. I'll now hand over to Mark Salem, our Executive General Manager of Marketing, to provide highlights on the coal sales and coal markets.

Thanks, Dave. Our attributable sales volume was 8.4 million tonnes with a typical mix of our thermal and metallurgical coal products. As Kevin and David has mentioned, we've had a good production quarter, but our sales volume was 1.1 million tonnes less than the saleable production. But you might recall that last quarter, we sold down our stockpiles to meet customer demand and to optimize the value of a backward-dated market. This quarter, saleable coal stockpiles were rebuilt to optimize blends and cargo assemblies. Cyclone Alfred also caused delays to vessel movements along the East Coast, which resulted in the timing of some shipments slipping from March into April. During the quarter, we observed strong supply and reduced short-term demand conditions in the international thermal and metallurgical coal markets.  In prior quarters, we noted thermal coal markets appeared relatively balanced and coal prices were trading in relatively narrow ranges. However, more recently, international coal indices have steadily declined and finished the quarter near 4-year lows. The average prices during the March quarter for the main indices we sell against were down between 11% and 24% compared to December quarter. The API5 Index averaged $76 per tonne and the GC NEWC Index averaged USD 105 per tonne. The low volatile PCI index averaged USD 140 per tonne, and the semi-soft index averaged USD 117 per tonne. Although there was some relief from the softer Australian dollars, our realized prices tracked against these relevant indices. Our average realized thermal coal price was AUD 145 per tonne and our average realized metallurgical coal price AUD 218 per tonne. The overall average realized sale price was AUD 157 per tonne compared to $176 in the prior quarter. In the seaborne thermal coal market, we see underlying demand. However, downstream stockpiles remain elevated after a mild Northern Hemisphere winter. Supply side output remained steady and increasing Chinese domestic production has caused the high stock levels. Though there has been some supply side response to subdued price indices with reduced exports from Colombia and Indonesia due to the export reference price policy. These events alone have not been sufficient to bring back the supply-demand tension. We would anticipate further supply side response if coal industries remain at these levels.  The metallurgical coal markets face weak demand stemming from an oversupply of steel in both long and flat product markets, which are typically used in construction and manufacturing, respectively. While there are indications that export volumes from the U.S.A. and Canada are starting to react to the low metallurgical coal prices, similar to thermal coal markets, the supply responses to date are yet sufficient to materially alter supply-demand balance. The current supply-demand balance and associated price response is reflective of previous coal price cycles. I'll hand back to Brendan to coordinate the questions and session sessions, and thank you very much.

Thanks, Mark, and thanks also to David and Kevin for highlighting the drivers of the first quarter performance. Although coal prices have declined over the quarter, Yancoal continued to add cash to our balance, thanks to our high-quality assets and the portfolio that we have, along with the dedicated effort of the people running the mines. We will now move on to the question-and-answer session, starting with questions from the phone, then moving on to questions submitted via the webcast. Maggie, could I please ask you to initiate the process for questions via the phone.

[Operator Instructions]. Brendan, so far, we have no questions at the moment from the phone line. Would you like to do the webcast questions first?

Thanks, Maggie. I'll start with some webcast questions, give people an opportunity to submit via the phone lines. We'll start with the production question coming through. It's from Mark Paterson at Bell Potter. Mark asks, with the longwall move at Moolarben, where production bounced back from 4.1 million tonnes in the fourth quarter, but was still lower than the typical run rate because of the January move. Given the clean run rate with clean coal seam access, could we expect production rates to move above 6 million tonnes per quarter and what might that mean for cash operating costs as much as we can comment on that. David?

Yes. Thanks, Brendan. Thank you for the question. Look, you're right in saying that production from the Moolarben longwall in quarter 1 this year has increased on what we delivered in quarter 4 last year. Operating conditions at the mine at present are described as good in the longwall and like-for-like in the development areas as well. So we would expect to see production out of Moolarben continue to increase on an annualized basis. However, our annualized coal production is in line with our market guidance at the same time. In terms of the unit costs, like all of our mines, we have a focus on cost and a focus on volume. And if we're able to reduce the cost and increase in volume, that will drive our unit cost in a positive lower direction.

Thanks, David. I see several questions on the topics of coal markets and coal prices. So let's start with the broad question. What can we say about the outlook for coal prices for this calendar year, please, Mark?

Sure. Thanks, Brendan. Look, I think from a coal price outlook, as referenced in the script, we are in a downturn of the cycle. And the coal industry, having been in it for over 37 years, I've lived through many cycles of high and low pricing, and we're currently in this downturn low cycle. As we go into Q2, we are entering what normally is a shoulder season in terms of the Northern Hemisphere spring, the wet season before we see some buying coming back for the summer. And so until we see that movement, it's not unusual for Q2 prices to be lower. And until we see some movement going into the June, July period, it's very hard to predict what price forecast will be.  We've got some exonous factors impacting coal prices at the moment with the uncertainty of the U.S. market due to the tariffs. We've got the HBA impact on Indonesia, that pricing ceiling threshold from the Indonesian production or government that really hasn't had an impact on coal prices. We've seen some other coal producers come through with announcement of production cuts. Again, we haven't seen the market react. And the market hasn't reacted because in essence, there's been the softer demand due to the milder winter. High stockpiles exist in most of our importing countries, namely China and Japan. And the supply is still very strong as we've had a good production operations, so as many of our other competitors, especially in the Hunter Valley and the open cut. So we are in a downturn. I'm not going to be able to give any true forecast because it's a very unpredictable and very dynamic market at the moment.

Thank you, Mark. Maggie, could we go back to the phone lines to check if any questions have come through?

Yes no Problem. [Operator Instructions]. Hi Brandon, so far, there is no questions at the moment.

Thank you, Maggie. We'll continue on with the webcast questions focusing on the coal markets for the time being. What can we say in terms of China's coal production in 2025? Do we have a view on whether it will increase? And what might that mean for imports of coal into China and the seaborne markets?

Yes. Look, I can state in relation to Q1 published statistics at the moment that China's domestic production has increased by about 100 million tonnes quarter-on-quarter, Q1 2024 to 2025. If that trend continues, China will be looking to produce in excess of 5 billion tonnes this year. But coupled with that, their demand is also still increasing due to their AI as well as EV requirements for electricity. We have seen a reduction in Indonesian imports into China due to the HVA. And Australian exports have been able to gain on the back of that. But what we're seeing is that the overall China domestic production is still maintaining exports or imports at a level similar to last year, if not just a little bit below quarter-on-quarter.  So China remains a market that we still have to watch very carefully. We're watching it very carefully. I think from a Yancoal point of view, we're in a very good position because we have a lot of our long-term contracts already established in China. We're not in the spot market as active as we were in previous years. And those contracts are still being well performed. We haven't had any performance issues on any of those contracts. So from a Yancoal point of view, I think we're very well placed, but China remains a market that we must continue to watch.

Thank you, Mark. On that topic of Chinese domestic production, do we have a view on whether the increase in production was sufficient to satisfy the domestic demand? Do we have any insight into the price differential between Chinese domestic coal pricing and the imported coal, either past periods or more current periods? And what might that mean for seaborne markets in the remainder of 2025?

Sure. Yes. Thanks, Brendan. Look, I think we're still seeing high stocks in China at most of the ports. And we have seen over the period of the quarter, Chinese domestic prices fall. But they've tended to plateau at the moment. So even though China production has been up year-on-year or quarter-on-quarter, even though we have seen China production up, prices have now basically plateaued, and we're seeing some stability in Chinese domestic prices. Our API5 index is very much, there's a high degree of relativity between the China domestic prices and the API5 index. And we have seen our API5 index in a similar fashion plateau out at current levels.  And so what we're seeing from an import side of things, as I referenced before, Australian imports are still quite strong. Indonesian imports have come off in terms of China domestic requirements or China demand requirements. And so the ability for us to sell spot cargoes into China is still strong at the moment. They are coming into their summer purchasing patterns coming into May. We are seeing a little bit more demand, but we haven't seen prices reflect that due to the high stock position.

Thanks, Mark. Looking at some of the other questions we have on the webcast, focusing on the operational elements for the time being. The question coming through is, can we provide some breakdown on operating cash flows, CapEx, et cetera, for the first quarter? What we typically say in regard to this is the tax payments are made on an ongoing monthly basis. So they're consistent through the year. The capital expenditure for the full year is give or take, roughly equal quarter-by-quarter. There are some lumpy elements during the capital expenditure profile, but on balance, it's spread through the year.  The operating cash flow is reflective of the volumes. We have no financing costs. We're effectively debt-free. So it's a very steady state cash flow profile the company has through the quarter and through the year. Looking to an extra question coming through on the operational aspects. In the quarterly report, we said we expected the extension for the HVO mining license to come through shortly. If I could turn to Mark Jacobs to provide a comment on the status of that since the release of the quarterly report.

Thank you, Brendan. So the HBO modification #8 was approved on Thursday morning, and that extends HBO North's entitlement to operate up until 31st of December 2026. As we've mentioned previously, we are working on a longer-term extension application, which is being progressed and is expected to be lodged towards the end of this year.

Thank you, Mark. I see a few questions coming through on the topics of dividends. Mindful that Kevin in his comments, identified that the full year final dividend for 2024 is about to be paid. Kevin, could I ask you to comment on the outward look for dividend and the management approach to allocation of dividends and other capital priorities?

Thanks, Brandon. As for dividends, the policy of dividends was well documented in the constitution, which is 50% of net profit or 50% of free cash flow, whichever is higher. We've been following this dividend policy. And then I just want to make a note here is the ultimate decision will be made at the Board level, which is something at the Board level to decide balancing the other corporate priorities. That's the position from corporate management. Thanks.

Thank you, Kevin. On that topic of corporate initiatives, there are questions coming through on the topic of M&A. Is there any comment we can make? The comment is the one we've been making for some time now. We're in a very strong financial position. Kevin has highlighted the cash balance we're carrying going forward, even after the payment of the upcoming dividend. We've identified that we are available and able to look at acquisitions. We constantly have our teams examining opportunities in the sector. We're mindful that the coal price is going through a downturn. We need to be judicious in how we utilize the cash until we know the profile of the coal price cycle over the coming months and quarters. But we are in a very strong position to consider opportunities should they arise, as we mentioned in our comments earlier.  There are questions coming through with regards to specific transactions in the sector. Whilst there have been 1 or 2 transactions identified in the media, there's nothing specific to say until such a time as we're in a circumstance where it would be appropriate to comment. At this point, we have capacity, we have the capability, and we're looking at the opportunities on an ongoing basis. Maggie, could I turn back to you for one last check to see if there are any questions coming through on the phone line?

[Operator Instructions] Unfortunately, we don't have any questions on the phone line.

Thank you very much, Maggie. I've cleared all the topics raised through the webcast. I'll now hand over to Kevin to provide some closing comments.

Thanks, Brandon, and thanks to everyone for making time to join us today on Yancoal's first quarter call. I want to reiterate a few key messages. First, we have started the year with a great first quarter and are well-positioned to deliver a strong operational performance. Second, we have some of the lowest-cost mines in the industry. Our ability to operate the mines with comparably low cash operating costs is a distinct competitive advantage during downturns in the coal price. Third, the scale and the quality of our assets drive the financial performance. With that freight, we have added another $136 million to the balance sheet in the past 3 months, and we will hold about $1.9 billion after the upcoming $0.52 per share fully franked dividend payments. This places Yancoal in a strong financial position and enables us to take advantage of opportunities that may present during the cyclical downturn. We look forward to speaking with you all again after we release our second quarter production report in mid-July. Have a great day.

Thank you, Kevin. Maggie, could you please conclude the call for us?

Thank you, Brandon. This concludes today's conference call. Thank you for participating. You may now all disconnect.