Coronado Global Resources Inc
ASX:CRN
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Coronado Global Resources Inc
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Thank you for standing by, and welcome to the Coronado Global Resources First Quarter Investor Call. [Operator Instructions] There will be a discussion of results from the CEO and CFO, followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Andrew Mooney, Head of Investor Relations, Treasury and Business Development. Please go ahead.
Thank you, operator, and thank you, everyone, for joining Coronado's first quarter investor call. Today, we released our quarterly report to the ASX and the SEC in which we outlined our production and sales volumes as well as other key information related to our safety and financial performance.
A more detailed outline of our financial position and results will be released to the market on the 10th of May with our Form 10-Q earnings release. Today, I'm joined by our Managing Director and CEO, Gerry Spindler; and Group CFO, Gerhard Ziems.
Within our report, you will see our notice regarding forward-looking statements and reconciliations of certain non-U.S. GAAP financial measures. We encourage you to review these statements in conjunction with our other filings with the ASX and SEC. I also remind everyone that Coronado quotes all numbers in U.S. dollars and metric tonnes unless otherwise stated.
With that, I'll now hand over to Gerry.
Thank you, Andrew. The first quarter of 2022 was a quarter marked by a series of records for Coronado. We achieved record safety results in our U.S. operations, record group revenues, record realized pricing and record liquidity. In addition, Coronado completed the first quarter with higher run-of-mine production, higher saleable production and higher sales volumes than the prior quarter. We also completed the distribution to shareholders of our 2021 declared dividend in April, with the company remaining in a net cash position post payment.
Coronado was one of the first pure-play coal operators in the world to return to a net cash position following the impacts of COVID-19 and a lower price cycle. We reported a positive net cash position at our 31 December 2021 results, and we continue to build that balance month-on-month.
Our balance sheet is strong, and we are delivering on our capital management plans as promised. Given our strong financial position, today, I am pleased to announce plans to initiate a fixed dividend to shareholders as part of Coronado's distribution policy. Coronado expects to declare and distribute USD 0.005 per CDI biannually to shareholders or $0.01 per CDI annually. While modest, the implementation of a fixed dividend component to the company's dividend policy reflects Coronado's confidence in its enhanced balance sheet, improved liquidity and the strengths of the coal markets as well as its recent ratings upgrade. In setting our dividend policy, we aim to deliver stockholder returns while maintaining flexibility to pursue our strategic initiatives within prudent capital structure.
Free cash flow at the discretion of our Board of Directors will be available for additional stockholder returns through special dividends and share buybacks as part of our broader capital management strategy. We believe this announcement provides greater certainty to shareholders on future distributions and fits within our existing policy to distribute 60% to 100% of free cash flow each year.
Before we elaborate on our production and financial numbers, I will provide an overview of our first quarter safety results. I am pleased to advise that recordable rates in both Australia and the U.S. reflect improvements compared to the same period in the prior year and continue to remain below the relevant industry averages.
In Australia, the 12-month rolling average total recordable injury frequency rate at 31 March was 3.26 compared to a rate of 8.92 at the end of March 2021, reflecting a 62% year-on-year improvement. In the U.S., the 12-month rolling average total recordable incident rate was 1.97 compared to a rate of 2.81, reflecting a 30% year-on-year improvement. Quarterly safety statistics for the U.S. operations were the lowest in Coronado history. And in addition, the U.S. operations recorded no lost time injuries in the first quarter, a substantial and laudable achievement.
New and revised health and safety initiatives across all Coronado operations continue to be implemented quarterly. In Australia, the implementation of fatal hazard and critical control verification programs have commenced; felt leadership programs are in place; contractor management alignment to Coronado's safety, health management system has occurred; effectiveness audits have taken place; and the development of a health and hygiene standard are among several initiatives implemented in recent times in Australia.
In the U.S., the impacts on our workforce from COVID-19 are dissipating and greater workforce availability is occurring. This has allowed for greater in-person training in the quarter resulting in 8,000 hours of discretionary training that has helped set solid expectations for new hires and articulate Coronado's safety culture and focus.
Today, I would also like to congratulate the workforce at our Logan complex. Specifically, the Lower War Eagle, Eagle #1, Muddy Bridge, construction crew and Saunders Preparation Plant divisions for being awarded the West Virginia Holmes Safety Association Awards for excellence -- for excellent safety performance in 2021.
In addition, our Logan General Manager has been nominated to receive from the West Virginia Office of Miners' Health and Safety the Directors' Special Recognition Award.
Turning to production. The group finished the first quarter with run-of-mine coal production, saleable production and sales volumes all higher than the prior quarter. ROM coal production for the group was 6.7 million tonnes, 5% higher than the December quarter. Run-of-mine production from Curragh of 3.5 million tonnes and from the U.S. operations of 3.2 million tonnes were 3.9% and 6.3% higher, respectively, compared to the prior quarter.
Saleable production for the group of 4.2 million tonnes was 3.5% higher than the December quarter. March quarter saleable production from Curragh of 2.7 million tonnes was 2.9% higher than the December quarter. Curragh also moved 42.6 million in cubic meters of waste, a 10% increase on the prior quarter. The commencement of the 7th fleet at the Curragh Main mining area has occurred with the priority focus on waste removal.
The U.S. operations saleable production of 1.6 million tonnes was 4.9% higher than the December quarter due to greater labor availability as the impacts from COVID-19 dissipate. The production increases in the U.S. operations occurred despite 3 days of planned downtime for maintenance work at the Buchanan mine to improve hoisting capacity.
March quarter sales volumes for the group were 4.4 million tonnes, 1.4% higher than the December quarter. Sales from Curragh of 2.8 million tonnes were consistent with prior quarter. And sales from the U.S. were 1.6 million tonnes, up nearly 5% on the prior quarter.
Curragh's focus for the June quarter and the remainder of 2022 is to continue implementing the One Curragh Plan to drive operational performance to the mine plan, thereby ensuring greater coal availability. Production rates for the mine are weighted to the second half of the year with an elevated focus on waste removal and box cut works in the first half to improve dragline strike length and decongest the mine. Planned maintenance activities to one of Curragh's draglines and the CHPP are planned for the June quarter. Highwall mining activities are scheduled for the second half of the year.
The focus for U.S. operations is to continue to optimize production levels to meet the strong demand and continue to take advantage of the heightened price environment. Compared to other met coal producers, Coronado maintains a competitive advantage given its geographical diversification and the ability to access the Chinese market, combined with the heightened interest from European steel mills due to the Russian-Ukraine conflict.
I'll now hand over to Gerhard to talk to our financial position and market outlook.
Thank you, Gerry, and good day, everybody, on the line.
Coronado delivered record revenues in the March quarter. Group revenues of $947 million were up 22% compared to the previous record December quarter. 95.2% of all group revenues in the quarter were generated from met coal sales. Coronado also achieved a group record realized met coal pricing in the quarter. The average realized met coal price was $266 per tonne, up 24% compared to the December quarter.
The average realized price reflects a mixture of all FOB, FOR and domestic sales in the quarter across all grades of met coal sold. I can also note that given the majority of our U.S. coal that's sold on an FOR basis, if you convert it to an FOB basis for better comparisons to peers, seaborne met coal realization would be approximately USD 40 to USD 50 per tonne higher, U.S. dollars per tonne higher, after taking the rail to port component into consideration.
And as Gerry mentioned earlier, Coronado was one of the first pure-play coal companies to return to a net cash position following the recent low price cycle, and we continue to remain so for another net cash position in the end -- at the end of March was USD 257 million.
At 31st March, Coronado maintained a record closing cash balance of $571 million and available liquidity of $671 million.
In April, Coronado completed the payment of its full year 2021 dividend to shareholders. The total dividend paid of USD 151 million was fully funded from available cash. And Coronado remains in a net cash position post distribution. After payment of the dividend, Coronado has returned USD 870 million to shareholders since the IPO in 2018.
On the 31st of March and April, respectively, both S&P and Moody's raised their corporate credit ratings for Coronado and, additionally, U.S. ratings on our senior secured notes. Coronado's corporate credit rating from S&P is now B+ and from Moody's, it's B1.
First quarter capital expenditures for the group was USD 40 million, up 79% compared to the first quarter of 2021. Full year 2022 capital expenditure is expected to be higher than 2021, as per our previous guidance. The group is undertaking capital works to increase production rates in the second half of 2022 and in future years from both Australia and the U.S.
And in relation to our costs. First, we have a mining cost per tonne sold for the group was $76.3 per tonne. The higher mining costs per tonne primarily attribute to the inflationary pressures; the commencement of the 7th fleet at Curragh Main; the focus on pre-strip activities, so we have some additional pre-strip here, about 10% more than last year; and the undertaking of identified maintenance activities at Buchanan.
And despite all the increases, the company expects full year costs to be within the market guidance range of $69 to $70 per tonne as production levels are weighted to the second half of 2022, as Gerry just highlighted.
On coal markets, the Russia-Ukraine conflict push the seaborne met coal prices to the highest level in history with premium low vol benchmark price, Australian benchmark price, reaching USD 670 per tonne mid-March. And on the back of the continued strong demand and the conflict in Europe, the average benchmark price index for the March quarter increased 32% over the prior quarter. As I mentioned earlier, met coal prices and revenues from shipments from our U.S. and Australia operations reached record levels during the quarter and remain elevated due to strong global demand and disruptive Russian coal supply.
Let me highlight here that Russia owns about 30% of global PCI and about 15% of global met coal supply here. Due to our seaborne coal contracts in general being on a 3-month lag basis, we expect our June quarter to improve further.
Despite the ongoing market uncertainty and tight supply, met coal prices have fallen from the mid-March record highs but have maintained at levels more than double historical averages. COVID-19 lockdowns in China has also led to disruptions to logistics, along the steel value chain, including supply to -- of steel to end users as well as supply of raw materials to steel mills, lowering domestic steel and met coal demand in the short term.
Coronado met coal remains in high demand. Our high-quality products and unique geographical diversification allows us to ship products into China from our U.S. operations, while the embargo on Australian-sourced coal into China continues. Additionally, we are experiencing heightened requests for met coal from existing and new European customers. We'll just highlight it as slides go on in regard of the conflict in Europe and Russia's contribution to the seaborne market.
Coronado expects met coal demand to continue to be positive in 2022, matched by improved supply from both Australia and Mongolia, where prices are expected to moderate from the current highs, but remain supported by continued strong met coal demand, trade constraints with respect to China and Russia, and high energy costs benefiting thermal coal prices, providing support and a floor to met coal prices.
Look, I will now provide some commentary on our capital management plans and distribution policy. Coronado, as in the past, is committed to a balanced capital management plan that involves 4 key aspects: number one, maintaining a strong balance sheet; number two, pursuing organic growth opportunities; number three, pursuing inorganic growth opportunities; and number four, distribution to shareholders.
Given our current robust financial position, Coronado today is announcing its plans to initiate a biannual fixed dividend of USD 0.005 per CDI, equating to $0.01 per CDI per annum. The company expects to distribute fixed dividend payments following the release of Coronado's half year and full year results in accordance with the acceptable time lines as required by the ASX.
The payment of the fixed dividend will be in addition to the biannual variable dividend, which will continue to be based on our distribution policy to pay between 60% and 100% of free cash flow per annum. The fixed dividend, as announced today, is a component of this existing distribution policy. Coronado's variable dividend may take the form of cash dividends, share buybacks and other distributions.
All distributions, either fixed or variable, are subject to, amongst other matters, the Board's discretion, of course. I'm just going to highlight this. And the dividends, including fixed dividends, will initially remain unfranked until sufficient franking credits are accumulated by the company.
And I'll now hand back to the operator to take any questions.
[Operator Instructions] Your first question comes from Paul Young from Goldman Sachs.
First question is on Curragh. Can you just step through, just at a high level, what the One Curragh Plan is? And then also just to confirm that the guidance for Curragh this year in sales and coal production is still 12 million tonnes. And if that is the case, what does that imply for the second half run rate?
The -- first of all, the One Curragh Plan, which has been instituted by Doug Thompson, is, of course, complicated in its detail. So I'll try to do justice and brush over the high points. As you know, Curragh is managed through a number of contractors. And the One Curragh Plan is a way of coordinated -- coordinating and organizing the efforts of the contractors in a way that has never really been done before but has promised distinct and significant benefits in efficiency and contractor coordination.
The contractors are, in fact, communicating with each other and communicating with us and we with them. And adherence to a mine plan, which is reviewed and cleared with every contractor, is key to the success of this arrangement.
We're very pleased with the results so far. I am. I know Doug should be. And I think that this is, frankly, a breakthrough step in establishing Curragh as the efficient mine it should be.
The production rates for the rest of the year do bring us to a little over 12 million tonnes of production for the year. And this, of course, implies that the third and fourth quarter are the significant quarters that bring in the coal. There is significant coal released in those quarters. I won't give guidance to the exact amount, but the first 2 quarters are -- remain about -- the second quarter will remain about the same as the first quarter, and the third quarter would be significantly higher, with the fourth quarter a little higher yet.
Okay. And maybe turning to the met coal market and just fascinating, of course, and tragic at the same time what's happening with the Russian coal situation. They explored about 20 million tonnes of PCI per annum, most of that goes to Europe. With your discussions with the European steel mills, what are they telling you as far as what product from Russia is actually flowing into Europe at the moment?
Yes, let me respond. Specifically, Europe imports about 10% of met coal from Russia and 30% of PCI. 30% of their kind of overall PCI consumption comes out of Russia. So it's performed. That's coming out of Europe. And as you may know, the embargo, the European Union's embargo on Russian coal comes into effect only in August. So we don't really see that embargo yet. So that will put more pressure on -- well, we'll give the met coal deposits more support.
One other thing that is really important to highlight, I mentioned that in my speech, a little bit about thermal coal prices are up, but PCI relativities to the lower volatile benchmark has increased. That's why, normally, PCI sits at about 70%, 73% to the benchmark. It now sits at 92%, reflecting exactly what I said. Russia owns 30% of global met coal supply and performed, part of that was into Europe.
Last question, again, interested in the rank of the capital allocation with inorganic opportunities sort of sitting -- value-accretive inorganic opportunities sitting above returns to shareholders. There's a lot of noise, of course, in the market at the moment with respect to additional -- potential additional large open-cut divestments in the Bowen Basin potentially being announced or process has run. From a balance sheet standpoint, Gerhard, where do you think you need to get your net cash position to before you're in a position to really have a hard look at these -- at some of these high quality sort of open cuts that might come to market.
No, look, I think our balance sheet is already quite strong. So I mean, when we look at it, our net cash position and 2-week performance did not have a -- the dividend, we are in a very, very strong net cash position. I think that's one aspect. But we also have a means where we can do -- where we can look at inorganic or organic growth. So I think we are already very strong. It always depends on the things you look, Paul.
Yes. Understood. About the -- Gerry, please.
I mean that there have to be -- the opportunities for organic growth will be internally funded. And right now, obviously, in this kind of market, good buys are hard to find. As we've said, there's no such thing as a good buy on a bad property. And we're not going to hold the war chest or the whole chest just in case something comes along. So it will be available for distribution.
Your next question comes from Sam McGovern from Credit Suisse.
Just with regards to the bonds, you guys obviously have the tender during the first quarter as part of your dividend as you planned. I think coming up in May, the year resets where you can then claw 10% at an enterprise, meaning below where the bonds trade currently. Do you guys try to exercise that in the second quarter? Or do you expect that more like a third quarter thing? Or is that not what you're contemplating at this time?
Yes. Look, Sam, we just redeemed 10% of the bonds in November, and we need to pass 12 months until we can do the second tranche of another 10%. And yes, that's definitely an option for us to buy another USD 35 million back over the bonds.
Your next question comes from Chen Jiang from Bank of America.
Just a few questions from me, please. Just a follow-up question for the Russia and Ukraine situation. Just wondering if any opportunities from your U.S. operations or from Curragh offsetting to Europe. That's the first question.
Yes. In general, what you see across the markets, including us, is there is increased demand all over Europe for met coal. And that's quite profound even days before this conflict started. I think on previous calls, I mentioned that we received a number of phone calls from customers, existing customers and customers we haven't heard from before. So there is an increased demand out of Europe as China has, at the moment, retreated from the market.
China is very quiet at the moment. And you can see that's also affected in a relatively low CFR in China for us. Europe is really supporting the current cost. And yes, you will see a lot of diversion away from China right now into the European market from all met coal producers, including us.
Second question in regards to the change of dividend policy. USD 0.01 per CDI, inclusive of your current dividend policy. It seems it's immaterial by comparing the free cash flow per share. Just wondering what's the rationale of doing that because by looking at the absolute amount compared with the free cash flow per share, it seems not going to move the needle.
It is an expression of the confidence we have in the strength of the balance sheet and the, frankly, the durability of our current operating circumstance. We don't make a commitment for a permanent dividend lightly. And in doing so, we have to accommodate foreseeable vagaries in the market, and we want to communicate to the market our confidence that even with a fluctuating market, even with considerable backwardation in coal prices, as you look out 5 years, we believe we have an operating structure and a balance sheet that supports the kind of permanence that you see in this dividend.
Okay. Last question, just on your cost. Well, we've seen most of miners for their March quarter, they either increased cost guidance or their cost is above the guidance. I'm just wondering what kind of cost pressure for your Australia operations, Curragh and U.S. operations, what kind of cost pressure you experienced the most? Is that from diesel or from labor? Have you experienced any labor shortage from U.S. and from Curragh, et cetera? Or just generally speaking, just raw material pressure?
Yes. Let me highlight here also that our costs are only marginally higher than budget where we expect that inflation budget in quarter 1 2022. The important one here is that really production is related to the second half of the year. So we should expect costs to come back within the guidance range of USD 69 to USD 71 per tonne.
We've had some quarter 1 issues, inflation. We pointed it out, absolutely, the higher inflation than anticipated, particularly in fuel but also other consumer goods and other supplies. We also had the commencement of the 7th fleet at Curragh, that was focused on waste removal and prefunded more than last year.
We had 3 days downtime at the tenant to improve our hosting capabilities. And in general, Curragh has raised movement in quarter 1 versus quarter 4, as an example. It was 10% higher. So these are all impact on costs. So it's not -- given all of this, I would say, we're still within the guidance range for the full year.
Your next question comes from Tony Mitchell from Ord Minnett.
My question's been answered. But I'd just like to know, what's your opinion on thermal prices going forward?
Thermal prices...
Look, I mean -- yes, thermal, yes.
Go ahead.
Yes. Look, I mean, you can see the high prices right now. I mean it's contrary to what the market would like to see. I mean, prices are -- it's 5, 6x higher than this time last year. And a lot of that is driven also by what we see in Europe. But you can see that -- without getting political here, that is not the point. But the previous concept of outsourcing fossil fuel production to Russia has failed. It's a fair concept. And the European Union and the U.K. and the U.S., they all have embarked on that concept to improve their renewable statistics, if you like, and outsource a lot of fossil fuel production to Russia.
That's a fair concept. And therefore, you see now that we're reversing. And we see a lot of European countries, including Germany, increasing their own coal production where they can and it's not importing more out of Australia. And therefore, I guess, we're going to see some support for thermal coal for the time being or for the next foreseeable future.
It's also driven by the extremely high gas prices we see in the market. And it's also -- and that was before the Russia conflict. Russia owns about 18% of global gas. That has a further impact on global gas prices. And the higher gas prices are, the higher thermal coal prices are going to be. So we will continue to see a lot of support for thermal coal as well. But look, we are met coal producers and we are not looking too much on thermal coal. That's, of course, something we keep an eye on as well.
Your next question is a follow-up from Paul Young from Goldman Sachs.
U.S. coal sales percentages, what was domestic versus export, like trade by the 2 million to 2.5 million tonnes or thereabouts of domestic sales for the year? Are they evenly weighted by quarter? Or did you actually sell more to domestic terminals in the quarter than usual?
We thought about what we expected to. Most of the issues associated with export in the U.S. have been rail issues. And we haven't really, from the -- from our exposure on the NMW or export, we haven't seen too much in the way of disruptions or reductions. And the rail movements domestically from Logan, which is on the CSX, have been, as expected, fairly regular. So the story for most is that the rail service disrupted particularly the CSX producers. But for export movement, since we're shipping domestically on the CSX, we haven't felt it.
Okay. All right. That's useful. Maybe back on the cost at Curragh and specifically on diesel costs. The oil price is up. We can all see $50 a barrel or thereabouts. Just curious as to how much diesel you do use at Curragh. I know you've got the draglines there, but what is -- I may be looking for maybe a sensitivity or what oil price is factored into your cost guidance?
That's a lot of detail, but I believe I would have to go back to the books, but it's more than 200 million tonnes they consume that Curragh needed. That's probably unofficial number. I'll leave it there. But look, essentially, if the next question would be hedged, I think it's too late for a hedge. I would have seen a big bet on the market anyway. But higher diesel prices is all correlated to higher gas prices, correlated to higher thermal coal prices, higher -- and correlated to higher met coal prices.
So you have got a natural -- we are in a position where we have got a natural hedge for our fuel costs. So it is, of course, reflected then in costs overall. It would have been nice to keep them low, inflation lower, but the whole market is part of this at the moment, and we benefit from the former higher met coal prices, as it correlates somehow.
Okay. And last one, just more housekeeping, actually, just on the CapEx spend of $40 million, below the run rate for the full year to achieve full year guidance of $170 million to $190 million, you're doing some box cuts and some capital work in Curragh during the period. How do I square that away, I guess? Does that just mean that you still have some CapEx in the second half on box cuts, et cetera?
Yes. We are still within the guidance range. And there's still a ramp-up here, similar to the production as well. But there's clearly a ramp-up with what Douglas is doing with Curragh. So we are comfortable that we're going to hit the guidance.
This is a standard phenomenon since we budget on the basis of commitments and they show up in our cost on the basis of expenditures. So you would have this kind of lag.
Cool. That's cash. Got it. Okay. That's it for me.
[Operator Instructions] Your next question comes from David Baker from Baker Steel.
I'm just looking, your revenue seems to be up about $172 million quarter-on-quarter. And the cash is up $7 million quarter-on-quarter if I take into account the dividend. And your costs, when I look at it, seems to be about $67 million. So I just can't reconcile why your cash isn't higher, notwithstanding that it's a good number, but I just -- I'm a bit lost here.
I think what you refer to is our cash -- cash earnings in the first quarter is impacted by a profound working capital movement, and that's just simply a combination of extremely high prices and payment terms. So you got to take that in.
That makes sense. And again, I'd retrace, I think the dividend, although it's nice having this $0.01, I'm not convinced it's -- I think it probably does more harm giving $0.005 twice a year. I just think it's still -- I accept that basically you're trying to send the message, but I think it's a weak message.
I can appreciate that. We have some constraints in our bond structure, our current bond structure. But we've made the statement. We believe it's a firm statement and we'll leave it at that.
Okay. And one other question. When you're talking, I think, Paul said something about production being something like 12 million tonnes per annum from Curragh. And is that -- are you talking -- would that be a saleable target? Or production target?
Gerhard?
That's both. So it's a production part in tonnes, which converts into both saleable and production.
Thank you. There are no questions at this time. I would now like to hand back to Gerry for any closing remarks.
Thank you. And thank you, everyone, for participating in the call today. If you have any follow-up questions, please reach out to our Investor Relations team.
In closing, Coronado has delivered strong first quarter results, and we'll continue to build on these results in coming quarters. On behalf of the Board and executive team, I thank all Coronado employees for their efforts in ensuring our business remains a leading independent producer of steelmaking coal globally. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.