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. All the participants are in a listen-only mode. There will be a discussion of results from the CEO and CFO, followed by a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to Andrew Mooney, Vice President, Investor Relations and Communications. 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 SEC in which we outlined our production and sales volumes as well as other key information related to our fact results, coal markets and financial performance. A more detailed outline of our financial position and results will be released to the market on the 9th of May with our Form 10-Q earnings release. Today, I'm joined by our Managing Director and CEO, Garold Spindler; our Group CFO, Gerhard Ziems; and Australian COO, Douglas Thompson. 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 will also remind everyone that Coronado acquires all numbers in U.S. dollars and metric tonnes unless otherwise stated. With that, I'll hand the call over to Garold.
Thank you, Andrew. The Coronado team performed well during the March quarter, delivering quarter-on-quarter higher revenues, improved liquidity and balance sheet strength and improved safety results. In addition, the team completed substantial rehabilitation works at our Logan mine, we completed key maintenance activities at Curragh and continued to progress our organic growth plans successfully. March quarter production and sales volumes were lower than prior quarter, but remained firmly on plan. January and February production and sales were lower quarter-on-quarter due to the maintenance activities at the Karmin in addition to unforeseen impacts of elevated wet weather and rail logistics chain issues. However, March's monthly production volumes were strong as the wet weather subsided in Queensland, allowing for better operating conditions. In the month of March, Curragh achieved run-of-mine coal production of 1.2 million tons and saleable production of just short of 1 million tons. During the month, the overland conveyor set a new record, transporting 1 million tons of material to the preparation plans from the current North operation. With more dry weather forecast and key maintenance activities behind us, we anticipate solid production rates from Curragh in the coming quarters. During the quarter, progress was made on our organic growth projects with Capital Works continuing at the Buchanan Mine to expand the Rockwall storage area and install a second set of skips. At Curragh, Work continued on progressing the Curanorth underground met coal project and our emissions reduction gas pilot project. These projects underpin our organic growth plans to reach 20.5 million metric tons per annum of salable production by 2025, and they remain on target. Coronado's Annual General Meeting will occur on the 25th of May 2023, Australian Eastern Standard Time. At the AGM, Douglas Thompson, will officially be appointed as my successor as Managing Director and Chief Executive Officer of the company. I, again, congratulate Douglas on his appointment, and I look forward to working with him and the Board in my new role as Executive Chair. Before I go into detail on our operations, I would like first to provide an overview of our safety results. The safety and well-being of our people continues to be Coronado's #1 priority. In Australia, the 12-month rolling average total reportable injury frequency rate as of 31 March was 3.18 compared to 3.92% as of 31 December 2022. Year-to-date rates reflect a 19% improvement on the year-end 2022 rates and are their lowest since April 2022. In the U.S., the 12-month rolling average total reportable incident rate as of 31 March was 2.43% compared to 2.42% at the end of December 2022. The group total reportable incident rate improved to 1.31 compared to 1.41 at the end of 2022. I am pleased to announce that the Buchanan Mine preparation plant achieved 1 million hours and 10 years injury-free during the quarter. This is a tremendous effort by the team, and I congratulate them on their continued strong commitment to safety. In addition, we have been notified that many of our U.S. operations achieved industry awards with strong safety performance in 2022. New and revised health and safety initiatives continue to be implemented across Coronado operations quarterly. In Australia, Curragh has implemented upgrades to its digital platform to support the safety health management system, and it continues to implement measures to enhance its safety culture, increased training initiatives continue occur in the U.S. mines with an enhanced focus on hazard identification and mitigation plans. During the prior year and into 2023, the Curragh team has been working on a dragline proximity awareness project to devise and implement technology, technology solutions to improve proximity awareness in the operating area of the dragline fleet. The technology utilizes RADAR and LIDAR imagery to alert a dragline operator when personnel or equipment enter the operational areas of the machines. The outcome of the project has been to effectively reduce the risk of personnel and equipment interactions with the draglines to promote an enhanced safe work environment, a rollout of the technology on all of Curragh's dragline fleet is expected by the end of the year. Turning to our operational performance. Coronado completed the first quarter with group run-of-mine coal production of 6.2 million tons, salable production of 3.7 million tons and sales volume of 3.7 million tons. The U.S. operations had an excellent production quarter with both run-of-mine coal production and saleable production, 14% and 10% higher quarter-on-quarter, respectively. The Buchanan and Logan lines were not impacted by adverse weather conditions during the quarter. However, they were impacted by some rail logistics chain delays at the end of March, which saw some sales slippage into April. The Eagle #1 mine and Winneford mines that Logan set new production records in March. The Australian operations delivered run-of-mine coal production and saleable production of 2.7 million tons and 2.1 million tons, respectively, both down in December quarter, but remaining on plan. During the March quarter, the Curragh Main undertook major maintenance activities on the overland conveyor, Shevel and the mine's largest and most productive dragline. These maintenance activities combined with the impacts of extensive wet weather in the Bowen Basin on already saturated ground in January contributed to the lower production quarter-on-quarter. Sales volumes for the group in the March quarter were 3.7 million tons, 8% lower than the December quarter. Sales volumes from the Australian and U.S. operations were 2.2 million tonnes and 1.5 million tons, respectively. The U.S. operations realized an inventory build late in the quarter with slippage of some sales tonnages into the June quarter. The sales profile for Curragh in the March quarter was lower due to the impacts from lower production and a train derailment on the black water line in late January, which impacted the coal supply chain to the port of Gladstone. The Curragh Main utilizes the Blackwater line and subsequently could not rail any coal to port for 2 weeks, while the rail line repairs were undertaken. Following a slow ramp-up, the rail line is now back to operating at normal capacity. Despite lower sales and production rates in January and February from completed maintenance wet weather and train derailments, the month of March proved to be a much more positive result for the company as the weather conditions improved occur and as the mine commenced benefiting from the maintenance works program completed earlier in the quarter. Group saleable production for the month of March was strong. And on an annualized basis exceeded the top end of the full year production guidance. Coronado anticipates continuing to deliver improved production performance and maintain existing guidance if dryer conditions continue into the June and September quarters. I'll now hand over to Gerhard to talk to our financial position and market outlook.
Thank you, Gary, and good day, everybody. As Gary stated in his opening comments, the first quarter saw us generate higher quarter-on-quarter revenues and generate cash flows to further strengthen our balance sheet and liquidity position. Mark quarter group revenue was $766 million, reflecting a 7% increase over the previous December quarter. The increased revenue comes from higher pricing despite lower sales volume. We realized network price for the quarter was $240 per tonne. This is an increase quarter-on-quarter of 8% and reflects the blended realized price for all qualities of Metco sold on an FOB FOR and domestic pricing term basis. And as of 31st March, the company's net cash position increased to $256 million, up from $92 million at the end of 2022, and we maintain available liquidity of just under USD 600 million. Our net cash position from this of a closing cash balance of USD 298 million and outstanding bonds totaling $242 million. The first quarter average mining cost per ton sold for the group were $101.6 per ton. Higher costs per tonne on an outcome of the denominator here. Production at Coway' see higher levels in following quarters following the maintenance were above [indiscernible] particularly in subsequent 2 and on the back of the line, plus continued impacts of higher inflation. So first quarter capital expenditure of $4 million to $42 million was down 5% compared to the prior December quarter. Capital expenditure in the quarter was mostly related to sustaining and growth expenditure at our U.S. operations. Capital expenditure at Kaawas lower than planned in the quarter given the retweather impacts with somewhere slipping into later quarters. So today, Coronado reaffirms previously announced full year 2023 guidance for saleable production of between $16.8 million to 17.2 million tons for the year. Average mining cost has come or between $84.87 per tonne and capital expenditure of between $260 million and $290 million, subject to any unforeseen events, of course. Coming to coal markets. During the March quarter, metal pricing across the board was higher. The benchmark Australian premium over are coping for average index price for the March quarter was $344 per tonne, up from an average of $208 per tonne in the December quarter, and that's about a 25% increase. The U.S. East Coast average index price for the March quarter was $71 per tonne, up some an average $272 per tonne in the December quarter. And given higher index prices in the March quarter, we believe that macro psilization in the June quarter will be higher than the last quarter due to the average 3 months lag in price realizations that I always mentioned. So since March, Medco has fallen with the Australian head to see in this part currently today at $232 per tonne coming down from $250 yesterday, but remaining well above the long-term average price of $191 per ton. -- and the reason for an parts is linked to the increase in supply from Australia as a bone Basin exits the wet leather season passes mains may remain volatile in the short term, has to say, however, the STX over curve projects average prices to remain at around $240 per tonne or even north of that for the remainder of the year. The global economic environment and steel demand outlook continues to be impacted by the ongoing conflict in Ukraine and persistently high inflation rates. Coronado expects net coal prices to continue to remain above long-term historical averages, supported by elevated thermal coal prices, that increase also PCR prices, the removal of Russian Metco from key markets and the anticipated improvement in steel demand in the second half of this year. Australian met coal exports to China have recommenced with 48,000 tonnes of products being exported to China from Australia in the first quarter. Dana return to importing Australian met coal is expected to display a lower quality and higher cost on is domestic or other U.S. net coal production, particularly to the Chinese steelmakers in the southern regions where significant key fare advantage for Australian met coal exists. Demand for Nada's U.S. Petanen brand is expected to remain strong in China as well, given the low lows characteristics of the call and long history of liver and consistent supply into the Chinese market. And we expect the resumption of Australian network importing to turmoil improved market dynamics around the track as well as increased competition cost caring coal. And that will likely see our C1 part to remain elevated in the short term. Coronado's network remains in high demand with customers offtaking the remaining firm and enter contracts with long-term customers renewed for both Australian and our U.S. products. I'll now hand back to Gary to discuss the progress of our growth projects. Garry?
Thanks, Gerard. Since inception, Coronado has grown via a series of acquisitions of high-quality met coal mines and continues to investigate opportunities to acquire met coal assets. The company has a proven track record of successfully integrating and operating new assets and has delivered more than $1.5 billion in distributions to shareholders since listing on the ASX in 2018. Coronado targets assets in Australia and North America that are cash accretive from day 1, move the group down the cost curve and hold the potential to deliver above-average returns to shareholders. With the company to maintain maximum balance sheet flexibility, cash is conserved and no dividends have been declared this quarter, subject to the company's dividend policy, which includes assessments and outcomes of potential inorganic growth options in the future and ongoing operational performance and market conditions, the Board may declare dividends in future quarters. Looking at our organic growth pipeline. Capital works at our Bakanamine continue during the March quarter. We are currently investing in the construction of a new surface Rockall storage area to increase the mine's capacity and reduce the risk of the mine becoming stock bound by any potential logistics chain delays. The mine is also progressing with the construction of a second set of skips to ultimately increase the mine's hoisting capacity to the surface. Growth plans at our U.S. operations to produce 7 million tons by 2025 remain on target. On the Curragh underground, turning to Curate Curragh North underground met project, completed prefeasibility study works in late 2022. Results from the study were positive and determined that the project was worth pursuing and subsequently ranked higher than other organic open-cut expansion options at the mine. The underground project now forms part of the mine's plans to reach the 13.5 million tonne per annum by 2025. It is envisioned that the project will achieve first coal in late 2024 and produce the quality of met coal similar to the existing Curranorth open cut operating area. The project will utilize the final open cut highwall to gain direct access to the coal seams, thereby significantly reducing capital expenditure requirements and the start-up risk. Phase 1 of the project will utilize 2 continuous miners via a board and pillar operation. An exploration program has commenced to increase information in relation to gas, geotechnical qualities and coal reserves. An operational readiness team has been established, consisting of project management, engineering, environmental, geotechnical design and procurement specialists. During the quarter, Coronado performed 1,200 meters of exploration drilling across 6 drill holes for gas, geotechnical and washability information. A fourth exploration drill rig was mobilized to site in March to make up for delays due to wet weather and site access. Coronado has also made progress on the gas pilot project occurred during the quarter. The project is targeting the capture and use of waste, mine, coal gas as a diesel substitute for our operating fleets. Drill contractors have completed 2 vertical drill wells that are cased and suspended. Drilling of a third vertical and lateral wells is currently underway. It is envisioned that a fleet of 5 to 6 trucks utilizing the extracted gas will occur in the first half of 2024, when the wells come online and are producing sufficient gas to run the fleet. It is anticipated that this will realize a reduction in emissions, but also a reduction in costs, given the substitution of diesel for gas to power the fleet. The gas pilot project forms part of Coronado's greater strategy to reduce emissions from open cut mining operations and reduced energy costs by investigating potential investment strategies into wind, solar and/or gas projects. More details regarding the gas pilot project will be available in our 2022 sustainability report expected to be released in May. I'll now hand back over to the operator to take any questions.
Thank you [Operator Instructions] your first question comes from Chen Jiang from Bank of America.
Hi, Gary and Gerhard. Just by looking at your cash cost, it has been over -- sorry, quarter-over-quarter in the last, I would say, of your quarters, it just keep increasing. I'm wondering how are we going to expect your cost to normalize, we'll understand the derailment and the weather impact and proportionately how much is due to supply disruptions in the first quarter? And how much is due to inflation, labor, et cetera, et cetera, if you can give us more clarity on that, that would be great.
Yes, let me take this. So great to hear you. Great to see you online thing is this one is just a story of the denominator at the moment, at least quarter-on-quarter. So the USD 11.6 per tonne. If we just said for the volume we produced in the prior quarter and then look in the quarter, we have to assume that most costs are fixed, then the cost would be adjusted sitting at around $85 per ton. If you compare that to the same quarter last year, when you see an 11% increase of the unit cost. So there is definitely an inflation impact in there and the 11% is right into the inflation story that we see across the board in Australia and in the U.S., particularly in the U.S. But the quarter-on-quarter cost performance is related to the denominator of the tonnes. And so therefore, when you look at the cost performance, therefore, we are still comfortable with the guidance we have provided to the market for the full year outlook.
I understand what you are seeing by looking at the next 3 quarters to achieve your guidance, it seems like very, very strategy because you're a 17% increase in cost quarter-over-quarter.
Yes. So at the moment, it's clearly just a story of denominated. So it's really relies on that ever performs as we expect. Everyone is saying they're coming out of the wet season, we're coming out of lamina. And we all get forecasted, but it was pretty promising, particularly when we look at the month. So if you deliver in the same way we delivered in March and all indicators are showing that we will, then we don't see any issues with the cost guidance at all.
Right. Maybe just a follow-up on that. How should we think of your long term -- your long-term cost from here because costs have been increasing, I would say, in the last few years? And then your past performance it's no longer a good indicator from modern perspective...
Yes. No, look, I understand the concern. So first of all, we are in line with our competitors here. So you can see that's not the Coronado effect that is really in line with what we see across the board. And what we see across the board is inflationary impacts. So -- and the unproductive impacts are coming from things like wet weather and maintenance issues. But to the point, when we look out a few years, then we have to see like what is inflation going to be. And at the moment, we do see inflation is probably coming down a bit. But this year, we continue to see relatively high elevated inflation. So it all depends on this at this point. And then you also need to see one of the biggest good factors in mining for us and for everybody else, it's labor, it's energy, it's exposes. And they're all linked to they're all linked to inflation, and we just have to watch that space carefully. At the same time, before we are getting too concerned about margins here, of course, cost is a big role. The thing is that we see across the board in the bone basin, but also in the U.S. So the 2 biggest net core producers, they have seen inflationary impacts, not only mining costs, but also we see other cost impacts and the royalties went up in Queensland, right? Now whereas I would be concerned for the margins, that would be in other regions for the ore biggest met coal exporter that is Australia, 55% to 60%. This will already become part of a price days, right? So all of the inflationary impacts will be reflected in the pricing we are seeing the long-term price going up from $178 per tonne to now $191 per tonne. I think going forward, the 200 million or 210 is probably the all $178 per tonne on term price of floor absent, of course, of some economic factors you have economic downturns and will not be -- you might see a little bit of more volatility there and Gil, If I could jump in and add, what's structurally different to us than a few of our competitors is by 2026 or Stanmore royalty structure changes, and that will set our cost curves to be different relative to others.
Yes. Maybe a question for Jerry. Please, if you can comment on acquisitions. So by looking at your recent acquisition news in the last 12 months, it seems like your talks were focused from U.S., they were all like U.S. coal mines or companies versus Australia. There are sort of opportunities from side. I'm wondering what's the thinking from here? And what's your thinking of expanding your portfolio in Australia?
We'll focus our investments where we think we can get the best returns -- we remain highly focused on Australia. Although I have to say that the Queensland royalties and the other cost increases have heightened the U.S.' attractiveness for all producers, not just us.
Your next question comes from Paul Young from Goldman Sachs.
Gary and Gehard. I've got a few minor questions on the quarterly itself. But I just wanted to actually start with a question on inorganic growth. And I guess it's not a Coronado call without a question on this. But I guess the first point is, thanks I guess, outlining Gary, that articulating, I guess, the approach to M&A a little bit with respect to looking at cash being cash accretive from day 1. That's helpful. Can I just ask the first question just on the news this morning around ACR's underground mine in Alabama and it's a 4 million tonne pro mine, looks export and domestic. But Alabama a long way from West Virginia. AC&R does do about 50 million tonnes a year from quite a few operations -- so I'm curious about what's the attraction for Coronado looking at this mine in Alabama...
Paul, Gerhard, do you want to come on that. I'll follow on.
Firstly, Paul, look, Alabama geographically separated from where operations are. But as you know, we've got a team in the United States are very capable in running underground mines but with a proven track record. And we've progressively been building additional capacity as we built up that team over time. So the ability to stretch and taking a man is well within our gross. We've been building on this intentionally as we've been planning to grow the business. The attractiveness to the operation. There's a number of things that make it attractive. We've had a look at it and as indicated in our release, we've decided that we're not going to go forward with the opportunity at this stage. But the coal makes sense to in addition to our business. There's good blending the synergies in the way in which we run operations and where we've seen operations in the past and been able to take advantage by improved mine planning, the way in which we look at ventilation around mines and our mining methods and approach to other way in -- with win lot this can be taken up the production curve. And we'll look at all other operations to similar lens. But as noted today, we've had a look and we see discussions with them at this stage. And that will continue. We are out looking at operations. So engagement will.
Yes. Okay and then maybe turning to organic projects. Just a few, I guess, questions just to clarify a few things. Just firstly, on Buchanan. With the second set of skips, when is actually completion during that project and from a run inline perspective, can you just remind us at what run of mine production will increase at the Cantos completion.
So when we finish the projects that we're doing will take the operations up to 7.5%, so from normally 6 up to 7 sellable. And the intent is to have these projects completed by 2025. And it really looks at 3 years. One is, first, the aboveground storage, and that's to debottleneck the mine from rail logistics, ensuring that we do not have to stop operations because there's anything on any impact on the downstream from the mine. Additional hoisting capacities to match the underground capacity. We've clearly proven that, that mine can mine at a rate that has created the hoisting capacity as a bottleneck. And this project is to debottleneck that. So it's a great step for year after on the operations or you actually enabling the operations and the last portion of the project is in the preplan to get additional throughput that will match the capacity that comes out of the mine.
Yes, I'm just modeling for what is to be kind of loading separately, so that's why I'm interested in the run-of-mine number. from Big cannon. But I can talk to Andrew after on that. Now just maybe moving to the Cara underground project. And great you've given us the first production target late 2024 and Gerry, you spoke through some of the scope in that project. But I'm still scratching their head around the fact that you've approved this project effectively, but we've got no CapEx estimate, unit cost estimate impacted cure and no volume estimate. Can you help us with those 3, if possible, please?
Yes. At this stage, I want to go to market and talk about the project as we're going through the final approvals of the Board, and I'll elaborate that on a bit more. And then at next quarter, we'll be in a strong position to give you the information you're looking for. But we spoke of building the Winneford mine in the United States about 12 months ago and as reported, that mine now has been up and running and in the last quarter broker record, so it proves the business' capability of bringing projects like this out of the ground and delivering within CapEx and production profile. So we've got the confidence that the business is the where for all and the skills of projects of this nature. As we've spoken about previously late last year, the prefeas we went through proved that the project went out on our other opportunities. We still do have Z as a study in growth opportunity and likewise expert and those will be matured over time. But the other grand Coronis out for the policy rate from a capital perspective, launching the project of the Havana we've done this before as to the Reno proven capability and understanding of what our cost to do a project like that. And our initial start of the project will be with 2 continuous miners, Borela, the portable mine that we're targeting in the first phase will be about 3.5 million tonnes in scope and the reason why we're talking that is we know what the gas looks like in the area, flow gas content and it's got low cover. So we're taking a low-risk approach and we'll take a modular approach project us through Phase I, Phase II, Phase III. As Gerry mentioned, we're still doing some gathering up information. As you know, our geological model supports an open cut mine, this is infill drilling to ensure the information that we've built our pre-fees on and by plan where client is further informed -- and then the last step to that is obviously ensuring that we've got all of our approvals in place and we're diligently working through that as well. And that sets primary time line for late 2024 for first call in a reasonable expectation for approvals.
Yes. That's really helpful. I'll wait until next quarter for further information and last one for me, maybe just want to go just around the free on rail achieve price in the U.S. relative to what we can on average on an FOB basis of the Canon benchmark coal that is, which was, I think, above $300 a tonne for the quarter. It's obviously the interplay there with domestic sales versus export. But I'm just curious, any color you can give us on what rail and port charges are doing in the U.S. from a percentage of headline price or $1 per tonne or anything.
Yes, without giving away the secret source, I think in general, you can almost say that the rail parts in create about 18% of the FOB parts. So but that also depends on how you negotiate with the railroads. We can fix it at lower levels as well. Yes, that's Roland, what was that just rail?
all right. Thanks very much, Gehard. That's everybody.
Your next question comes from George AD from UBS.
Just wanting to follow up with a question on capital at Canada again. So you said completed by 2025. Just wondering if there's any color we can get on the CapEx profile. So is it spans over 23%, 24%, 25% evenly? And maybe just checking on CapEx even further out at Logan, if there's anything further out we should be thinking about. Gear. I'll let you lidar and Solan, if you want...
Yes. We don't listen, we don't provide CapEx guidance per site, but you can expect that most of the CapEx will be consumed between now and 2024. We need to look at whether maybe we provide more guidance on the CapEx profile for Buchanan and color.
Okay. And maybe just Gehard. Is there any CapEx we're looking at thereof note coming forward besides sustaining obviously?
Most of it is sustaining.
Your next question comes from Glyn Lawcock, Barrenjoey.
Maybe I just misunderstood a little bit the answer to Paul's question, and obviously, we'll wait for the details around the underground. But you say it's now going to form part of the 13.5 million tonnes. So what are we not doing now? Like what have you given up to now change focus and go with the underground at Carra?
Glyn, maybe I'll step in and Gerry can add to it. The order to go to 13.5% and beyond that, that we had in scope was 250, we haven't abandoned that yet to be cars was it, but there's an opportunity for another box cut development, et et we've compared the 2 projects against each other at this stage on a capital basis and speed of product to market as the underground wins out because as you'd imagine, as we launched the underground from the high wall strain coal producing product. we did the box cut. So that's the...
And so is there a chance to keep them and keep both? Or do you have issues with infrastructure?
The first one is the CHPP. If we get to 13.5%, we mapped out in the CHPP and as we reported in the past to go beyond that, we'd have to spend capital on our coal processing plants to get that to our next bottleneck, which is the rail at 15%. So that's still within scope will be pushed that out beyond the 2025 horizon and we want to take Corathrougha, what we called the OneCareplan where we've been on this improvement initiative to address some of the geometry of the mine in the past where we had stripping ratios that are needed to be addressed. We spoke about the investment we did in the mine last year to get to a more sustainable production profile supported by stripping ratio profile. That work has been done. A number of people visit at site, and I'm writing able to come up and visit and see what we spend the money on and now we've got a production profile that's more sustainable out of the existing open cuts that we have. This underground project gives us that structural step change in the volume profile going forward and then beyond that, obviously, we have the Z experts. They both sit within the life of mine plan, so that part and will be developed in the life of mine up for the next 20 years that we can pull them forward and then augment and that will be considered but post 2025.
So you're not sterilizing anything now going down the underground route?
Absolutely not. We took advantage last year with the whole mining to mine underneath the overland conveyor and actually take advantage of coal that was caught up underneath that infrastructure. What the underground ultimately can offer us as well as Current will be mine coal through underground that is under out of pit dumps that we wouldn't have seen as economic because the stripping ratio to move those dots. That's what it does for investors is this underground project as it pulls all that coal back into scope.
And you said you needed permitting obviously. I mean is there anything peculiar about getting the permitting to switch to this underground option?
Nothing secular, but you need to work through, obviously, the regulators and through Des to get the previous change in mining method, mining method is for open cuts in that part of the mine. We're seeking to change our mining method. That's the major approvals that we require and we're well advanced on the required work for the regulator, and we've set enough time in our program to ensure we provide them what they need to meet up production profile.
Okay. And maybe switching gears, and maybe this one is for Jerry and Gerhard. I mean no dividend in the quarter, cash is building. You're obviously clearly looking at everything you can to maybe add some value through acquisition. Maybe is it part of now building cash. You've obviously got the BHP assets on the block. Maybe you could just help me understand, is that what you're thinking, building a bit more cash, harder to borrow money for coal assets? And where are we at in the BHP process? Is that still something that's of interest to you? Or have you had a look and walked away.
Yes. Let me get back to you on -- refer back to the capital management strategy that essentially doesn't -- it hasn't changed. So first and foremost, we want to maintain a strong balance sheet. I think that's a given at the moment, you can see the cash on the bank definitely a strong balance sheet. The second point is distribution that's still on the cards. So we haven't given up on this. The dividend policy has remained 60% to 100% of free cash flow where we distributed. And then we have gross portlets and so at the moment, yes, I mean, look, we're not building a words, but at the moment, we need to balance all of these factors. without commenting on the BHP process. I think the comment we made is probably covers everything. We keep looking at things and including the obvious ones, the obvious assets that are out there.
Okay. So he just finally, though, do you think it's harder to get cash then, so for coal?
No. I think, look, I'm streaming the market. And I think for net coal, it's still -- look, it's a big difference between net and thermal. In thermal, I can see that's becoming more and more difficult, although not impossible, but extremely difficult. For Metco, we see actually demand out there on particularly on the debt side, on the equity side is something else we don't really look at that too much. But on the debt side, I want investors who are telling me, listeners, we ever want to go to the market to the debt market in and look for funding come to us first. Just one investor offered me $500 million. Now that all comes at a price. So you have to wait up and you need to look at the wider market. But something even at these times is not for Metco is not -- I would say, it's not impossible. It's actually not too difficult. It's probably easier. It comes down to price, particularly in the market the way it is right now when interest rates are going up, driven by inflation. But we see for ourselves, we see big interest. And the interest taken comes to a large extent out the U.S.
All right. That's great.
Your next question comes from Alex Ren from Credit Suisse.
Gerry or Gehard, question on cornea. So just one from me on drill bond capital allocation. Just wondering what's the plan on the bond buyback, given, I think it's the callbacks about to expire and what's the plan on buyback and refinance. Also, I suppose, is there any clause that if you choose to buy back that part, the remaining amounts, do you have to make a marching dividend payment again as we've seen in the past.
Yes. I think we -- to be got honest, we continue on the path we have taken. So far, we have reduced our bond by more than $100 million and we remain on that path. So when there's an opportunity in November to buy back bonds that's -- it's part of maintaining a strong balance sheet, maintaining a very strong net cash position. So that we don't expect that to de from that path. But at the moment, the bond is still long term and it doesn't need to be refinanced. So we are quite comfortable with what we've got at this stage.
Understood. Just hypothetically, if you choose to buy back a portion of it still to make a matching due pay up?
Yes. Yes, depending on under what conditions. But yes, like in the past in certain circumstances, you have to make netting offer.
Understood. Sorry, one more just on M&A. I think judging from the previous merger news, and the news from this morning seems fact you've been focusing more on the U.S. market. Just what's your thinking around algae just determining like all the price tax too high to attract value or look to think around that?
No, let me quickly respond to that. So I guess the people Gerry said, first of all, there's just the leak and probably as with all the others not prematurely we made some assumptions but fundamentally, of course, we remain interested in the Australian market. But as Gerry said, so all Australian assets have become just a little bit less attractive at the moment when U.S. assets have become more attractive. That's because of the volatility we see in the Australian market. I mean I had now U.S. investors telling me a lot what is happening in Australia in the last 12 months. You have a safeguard mechanism introduced. We have massively increased the royalty increase rent and then although we're not in saying a call, but people see that as an economy, we have introduced a tack on thermal coal prices in New South Wales and even a 10% concentration of Seacoast were. So quite a lot of volatility for anyone to invest money in Australia. So it has we carefully assessed. The attractiveness has reduced in Australia and the effectiveness in U.S. assets has increased. But that doesn't mean we won't look at Australian assets. So in the end, we could take a very unmatable look at certain assets and it all comes down to the NPV, all the information we've got, including costs and royalties and everything else.
Yes. Understood. Very clear. That's it from me
Thank you, there are no further questions at this time. I'll now hand back to Gerry for closing remarks.
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Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.