Yancoal Australia Ltd (YAL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Yancoal Third Quarter Production Report. [Operator Instructions] I would now like to hand the conference over to Brendan Fitzpatrick. Please go ahead.

Thank you, Travis, and thank you to everyone on the call for joining this briefing on Yancoal's Third 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, we have Sharif Burra, our Chief Executive Officer; Kevin Su, Chief Financial Officer; Laura Zhang, Company Secretary, Chief Legal, Compliance, Corporate Affairs Officer; David Bennett, EGM Operations; Mark Salem, EGM, Marketing and Logistics; and Mike Wells, EGM Finance. The commentary provided today is based on the quarterly production report published on the Australian Securities Exchange and the Stock Exchange of Hong Kong announcement platforms yesterday, the 20th of October. 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 CEO, Sharif Burra, to provide third quarter highlights.

Thanks, Brendan. I also welcome everyone joining us on today's conference call. This is my first time engaging with you since my appointment as CEO last month. I'd like to acknowledge and thank Mr. Yue, our Chair of the Executive Committee, who took on the additional responsibilities of acting CEO earlier this year and did an excellent job conducting both roles. I look forward to working closely with the Board, Mr. Yue and the Yancoal executive team to maximize our operational performance and drive value generation for our shareholders. Speaking of operational performance, the September quarter extended the momentum of the first and second quarters. After 9 months, we're 6% to 7% ahead of last year's production levels on a 100% basis and tracking above the midpoint of our production guidance. For the full year, we're tracking to be in the upper half of the guidance range and potentially into the upper quartile of the 35 million to 39 million tonne guidance range. As with past quarterly reports, we don't include cash operating cost per tonne in the quarterly report. At the half year, our cash operating costs were AUD 93 per tonne, the middle of our $89 to $97 per tonne guidance range. During the September quarter and into the fourth quarter, the sector has encountered external and temporary cost pressures through the Port of Newcastle that will impact our second half cash operating costs. However, we are continuing to maintain our controllable cost discipline and expect to deliver unit costs around the middle of the guidance range for the full year. Many of you are likely aware that international coal prices remained under pressure during the September quarter. Our realized prices were effectively the same as the prior quarter. However, our attributable sales were 31% higher than in the June quarter as we were able to recover the sales volumes that were delayed in the June quarter due to disruptions at the Port of Newcastle. These increased sales volume and realized prices enabled us to finish the quarter with a cash balance of $1.8 billion. I'll hand over to other members of the executive team to share further details, starting with David Bennett, our Executive General Manager of Operations.

Thanks, Sharif. Our total recordable injury frequency rate reduced through the quarter and was 5.71 at the end of September. We have achieved a downward trend in this statistic over the last 12 months. And although the rate is below the industry weighted average of 7.93, we aim to further improve our performance through targeted safety intervention activities. During the quarter, we produced 15.8 million tonnes of ROM coal, which was aligned with our forecast. The ROM coal produced translated to 12.3 million tonnes of salable coal. Our attributable share was 9.3 million tonnes. These figures were also in line with our forecasts. We delivered these operational outcomes despite most of our mines encountering an above-average number of days impacted by wet weather. The benefit of past investment in pumping and water storage capacity, along with the site team's ability to respond to heavy wet weather events has been clearly demonstrated in our production performance this year. Fortunately, wet weather impacts to rail and port activity in the Hunter region were limited. And as Sharif mentioned, our mine site and logistics teams were able to deliver most of the delayed second quarter 2025 sales volumes. At Moolarben, the longwall resumed operation early in the quarter after a scheduled move. Commissioning was completed on schedule and the longwall operated to plan for the quarter. Although wet weather delays impacted open cut mining throughout the quarter, the team achieved a site record for monthly salable coal production in August, assisted by a favorable mix of quality feed material and high yields in the wash plant. Overall, salable coal production was close to plan for the quarter. The 2 Hunter Valley open cut mines both performed well with saleable coal production the same or better than the prior quarter. At MTW, ROM coal volumes ran ahead of plan due to overburden blasting performing well and being ahead of the schedule at the start of the quarter. This allowed the mine to deliver to plan when impacted by wet weather and other minor operational delays, which affected the mine later in that period. At HVO, ROM coal volumes were ahead of plan due to strong truck productivity and a redesigned ramp system amongst other productivity improvements. Despite the wet weather disruptions in August and lower yields in September, the site delivered a 14% increase in attributable saleable coal over the June quarter. In Queensland, Yarrabee delivered operational performance consistent with the June quarter. At Middlemount, the mine was adjusted ahead of rainfall events to prioritize ROM coal over overburden removal, and adoption of the recovery plan developed earlier in the year. As mentioned in the past, Middlemount is equity accounted, so its volumes sit outside the production guidance that we provide. Our attributable coal production volume of 9.3 million tonnes was similar to the June quarter. This figure does not include any tonnes related to the acquisition of an additional 3.75% interest in the Moolarben joint venture, which we announced on the 3rd of October. I will now hand over to Mark Salem, our Executive General Manager of Marketing and Logistics, to provide commentary on the coal markets.

Thanks, David. Our attributable sales volume of 10.7 million tonnes was a typical mix of thermal and metallurgical coal products and as mentioned, 31% higher than the June quarter. When we last spoke, we informed you of the weather delays causing rail network outages and closures at the Port of Newcastle as being the cause of sales below production. It was our goal that this position would be recovered in the September quarter, and I'm pleased to advise this goal was achieved. During the quarter, conditions in the international coal markets, both for thermal and metallurgical coal remain challenging. The average prices for the indices against which we primarily sell improved marginally, but the ongoing availability of supply options is still keeping prices at relatively low levels. While the warm summer conditions in Northeast Asia resulted in Japan, South Korea and Taiwan largely drawing down inventories during the quarter, imports by most of the countries we sell to are down year-on-year year-to-date compared to last year. We have seen Japan and Vietnam being exceptions with increased imports so far this year. Although there appears to be some supply curtailment from Indonesia and Colombia, exports from Australia, Russia, the U.S. and South Africa are all comparable to last year. In the metallurgical coal markets, we have observed weak demand and a slow supply side response. Total global seaborne trade is down 11% so far this year. There has been some supply response from Australia with exports down 9% this year due to some mines not producing due to poor geological conditions and mines struggling to remain profitable. Exports from Canada are also down 5%. However, this is due to reduced coal handling capacity following the shipload of fire at an export terminal. Overall, international coal market conditions remain challenged and uncertainty over international tariffs persist. In order for prices to recover, either a significant uplift in demand or a meaningful supply side response is required. The former seems unlikely, and the latter is occurring slowly as some mines that have entered into administration continue to produce. Although market conditions were challenged, the main indices we sell against showed some improvement over the quarter, with average prices during the September quarter up between 1% and 12%. The API5 Index averaged USD 69 per tonne and the Global Coal Newcastle Index averaged USD 109 per tonne. The Platts Low Vol PCI Index averaged USD 144 per tonne and the Platts Semisoft Index averaged USD 117 per tonne. Our average realized prices which capture foreign exchange and lag contract structures were AUD 130 per tonne for thermal coal and AUD 195 per tonne for metallurgical coal. The overall average realized sales price was AUD 140 per tonne compared to AUD 142 per tonne for the prior quarter. Having made all these comments, there is some optimism amongst the industry participants where prices seem to have plateaued, implying they may have reached their cyclical lows. I will now hand over to Kevin Su, our CFO, to touch on the financial position given the sales volume and realized prices.

Thanks, Mark. The key observation is the same -- is the same one we made last quarter that we remain in a strong financial position. We ended the quarter with $1.8 billion in the bank following the payment of an interim dividend of approximately $82 million and remain free of interest-bearing debt. At the half year, we reported cash operating cost of AUD 93 per tonne. This was the middle of our guidance range and reflected a much more consistent production profile we have had this year. Since the first half, the sector has encountered external and temporary cost pressure through the Port of Newcastle. We aim to deliver incrementally more suitable and saleable coal in the fourth quarter, which should help mitigate against these cost pressures. We are also continuing to look at where we can reduce our controllable costs to balance the uncontrollable and temporary cost factors so that we -- our full year costs fall close to the midpoint of our AUD 89 to AUD 97 per tonne guidance range. I'll now hand back to Brendan to coordinate the question-and-answer session.

Thanks, Kevin, Mark, David and Sharif for highlighting the drivers of our third quarter performance. We will now move on to the question-and-answer session, starting with questions from the phone line, then moving to questions submitted via the webcast. Travis, could I please ask you to initiate the process for questions via the phone?

The first phone question today comes from [ Gevin Yu from Morgan Stanley.]

I got a question for Kevin. So I understand the cash cost range still remains at AUD 89 to AUD 97. But how is the breakdown looking like right now? So specifically, how are we projecting the transportation cost given the wet weather, the port closure and all these disrupting factors?

That's a very good question. As we just reported for the first half, [ $93 ], which is very much consistent with the previous years. So from the volume perspective, which is the most significant factor driving all this cost movement and we look at everything, it's pretty consistent. We definitely see some savings from diesel, for example, that's a favorable item. But in our view, it's not material. But at the same time, I think the healthy production profile definitely supporting maintaining the cost at a very comparable level.

Sure, sure. If I may, how about the transportation costs? What's that looking like right now? Because it's been declining for the past 2 years at a per ton basis, can we expect the same in 2025?

When you refer to the transportation cost, I think we're talking about the transportation is largely related to the rail and the port usage. And as you know, most of the costs are largely take-or-pay. So from the dollar value perspective, is largely fixed and will be helped by the increased production profile. But we did mention in our presentation that we do have a temporary increased cost from the -- through the Port of Newcastle, which is largely driven by the wet weather, as you just mentioned, and the rain issues. Mark, do you want to add a bit more about that?

Sure. Of course, yes, no problem. [ Gavin ], very simply, the queue at the Port of Newcastle has continued through most of Q3 at very high levels. So there is a cost when you have a queue. And our priority has naturally been sales, and sales is our #1 priority to achieve the sales and any distribution costs are a function of achieving sales. And the sales is -- remains a high priority for us.

[Operator Instructions] At this time, we're showing no further questions from the phones.

Thanks, Travis. I'll move on to some webcast questions. I'll check in with you later should any further questions come through. There's a few questions on the webcast. Let's start with some questions to do with coal markets and our sales and marketing. One of the questions coming through, how much inventory remains unsold as at the end of the September quarter? And are we now moving at a more normal range? Mark Salem, could you perhaps provide some context for what we're able to do in terms of recovering that delayed sales volume we reported at the end of the second quarter and our outlook heading into the fourth quarter?

Yes. Look, in essence, following from Q2, the tonnes were actually sold, and it was just the delays at the Newcastle port that inhibited those sales from being achieved in the first half of the year. So the sale position in Q3 due to that carryover as well as maintaining a very close watch on when those vessels arrive and making sure that they're delivered within the quarter, there was a high logistic focus to achieve what we achieved in Q3. That focus is continuing in Q4. And in that sense, and I can't be explicit in terms of what we have unsold at the moment, we always like to keep a little bit up our sleeve to take advantage of spot opportunities, but we're in a very comfortable low-risk scenario from a sales point of view, and I can say that quite confidently.

Thank you, Mark. Let's extend on that concept of looking at opportunities in the international markets. What can we see in terms of supply side effects coming through from the recent anti-involution efforts announced in China. There's an observation coming through from the person asking the question that they believe a reasonable amount of Chinese domestic production might be uneconomic at current prices. What can we see about -- what can we say about the opportunities we're seeing for our products?

Yes. Look, it's interesting talking to our Chinese customers, our Chinese colleagues. The anti-involution policy really hasn't been fully implemented throughout most of China as yet. And it's only touched on a few regions. And we had -- we did see some supply curtailment as a result, but nothing really substantial in the whole scheme of the situation. What's really been significant coming out of Q3 going into Q4 is the warm summer, and we've seen a significant drawdown in inventories at the power utilities. And we have seen a little bit more of a market recovery in the last week or 2. And that's quite encouraging coming into the winter buying season.

Thank you, Mark. Let's move on to the topic of the capital expenditure and will lead into some questions about the cash balance. Starting with the topic of capital expenditure. The question is what capital expenditure was incurred in the third quarter in context of the guidance range being AUD 750 million to AUD 900 million for our equity share for the full year and what remains over the fourth quarter. Now I'm mindful that as I pose this question, there's only so much we can say in a forward-looking sense. But if I could turn to Kevin for an initial comment on the capital expenditure profile.

Sure. Refer back to the capital expenditure, if you refer back to Yancoal's presentation for the financial year-end 2024, when we refer to the guidance, there's a statement about what kind of CapEx will cover largely due to our fleet upgrade on the high equipment. And all those equipment still basically being spent and invested based on our normal practice. And as what we just disclosed, it's largely consistent with what we have been planning. So basically still driven by those big equipment just spent. Yes.

Thanks, Kevin. And that's obviously in the context of the just over $400 million we reported for the first half and the comment that we're on track for guidance this year to sit within the range. Looking at a follow-up question on a related topic. One of our participants wants to understand the total cash outflow. There was -- the interim dividend was paid $82 million. We maintained the cash balance of $1.8 billion, approximately the same as at the end of the second quarter. What context can we provide for the cash outflow at this point in time?

Okay. This is Kevin. I will answer this question. It's a very good one. Yes, I think that's a very good point about the Q3 cash balance, Q2 cash balance are largely similar. One thing we want to highlight the good weather actually come into the late Q3, which means we've been catching up very quickly for our logistics and shipment, which is something Mark already mentioned. From a collection perspective, it obviously takes time for all the shipments to be realized in cash, and that's the reason why the cash hasn't been fully realized yet.

Thanks, Kevin. And could I confirm from Kevin and/or Mark, the sales that we're catching up from the second quarter delays, some of those were still priced from earlier in the year. So we often talk about a lag effect on our realized prices that somewhat extended in the current circumstance. We're getting prices from earlier in the year and in the context of prices improving second quarter to third quarter, we may not have yet seen all that benefit coming through.

Yes, correct. In terms of second quarter to third quarter, we did have a substantial amount of carryover due to the vessels in the queue. A lot of those vessels were -- if they were index-linked orientated, they would have already matured based on their price being of the previous period. And therefore, that carryover will continue whilst we still have a vessel queue.

Thank you, Mark. Travis, could I come back to you to see if any questions are coming through on the phone line.

[Operator Instructions] Confirming at this time, we're showing no further questions.