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 Second Quarter Investor Call. [Operator Instructions] There will be a discussion of results from the CEO and CFO followed by question-and-answer session. [Operator Instructions] I would 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 second 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 safety results, coal markets and financial performance. A more detailed outline of our financial position and results will be released to the market on the 8th of August with our Form 10-Q and half year earnings release.
Today, I'm joined by our Managing Director and CEO, Douglas Thompson; and our 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'd also remind everyone that Coronado quotes all numbers in U.S. dollars and metric ton unless otherwise stated.
With that, I hand over to Douglas.
Thanks, Andrew, and thank you to all of you who made the time to join our call today. The Coronado team performed well in the June quarter. We continue to deliver according to our business plan, and the quarter saw several milestones achieved. These will set the company up well not only for the remainder of 2023 but also into the future. The business delivered quarter-on-quarter higher production, waste movements and sales volumes, while we maintained our strong balance sheet and healthy liquidity and continue to progress our growth initiatives. In addition, the team further improved upon our recordable safety rate year-on-year. We also released our fifth sustainability report that reflects a reduction in emissions year-on-year. We successfully negotiated a new 4-year enterprise agreements at Curragh, and we continue to invest capital into our organic growth pipeline and emissions reduction in projects.
And today, I'm pleased to report that the Board of Directors officially supported by their approval of the Curragh North underground met coal project for development. This project underpins our organic growth strategy. It delivers saleable production of 13.5 million tonnes from Curragh by 2025. The project also aligns our diversity strategy. We'll be seeking to get coal supply from our open cut and underground from this complex and thereby reducing risk.
Coronado has extensive experience in running underground mines. We've operated Longwall and Bord and Pillar operations in the U.S. for many years, very successfully. I'm also pleased to report that the McCann expansion project is on program and budget. And a powerful ramp-up with Curragh and Buchanan expansion projects are targeting team to have the business producing saleable production of 20.5 million tonnes by 2025.
In the June quarter, the Board also approved a change to our operating model. The change, which will ensure we leverage the full potential of this business, notably, organizational change to have a global Chief Operating Officer. [ Gerry ] will elaborate further on our financial position shortly, but I'd like to draw to your attention that the business generated nearly $1.5 billion of revenue in the first half of 2023. This is the second highest first half revenue performance since the group's inception.
Before we focus further on financial and production results, I'd like to turn our attention to safety,. Our business is our people. Their safety and well-being is Coronado's #1 priority. And I'm pleased to advise the relentless efforts of our people management leadership as shown in our improved results and the fact that our businesses recordable rates continue to be well below relevant industry averages. In Australia, the 12-month total recordable injury frequency rate as of June was 2.52% compared to 3.18% at the end of March, reflecting a 21% improvement. This is 38% better than this time last year. And in the U.S, the 12-month total reportable incident rate was 2.05% compared to 2.43% at the end of March, reflecting a 16% improvement quarter-on-quarter. If we go to the group level, our total reportable incident rate as of the end of June was 1.09% compared to 1.29% at the same time last year, once again reflecting a 16% improvement.
During the quarter, our Logan complex achieved 1 million man hours lost time free. This is the first time this complex has achieved this milestone since inception. Mining started at the Logan complex in 2005 and is truly a tremendous effort by our team. In the quarter, our Curragh team continued to work on the driveline proximity awareness program. Intent of this is to reduce the risk of personnel and equipment interactions with our [ drag lines ] and promote enhanced work safe environment. The role of the technology will continue across all the drag lines and expect this to be completed by the end of the year. We are making our learnings in this regard freely available to the whole industry as we and the industry strive to make our workplaces safer for all.
Turning to our operational performance. Coronado completed the second quarter with group run-of-mine coal production at 7.2 million tonnes. This is more than a 15% improvement on the March quarter, and salable production at 4.5 million tonnes. This is a 22% improvement on the March quarter. The Curragh complex had an excellent quarter, building on a solid month of March production. The mine delivered long coal production of 3.8 million tonnes and saleable production of 3 million tonnes. This is a 41% and a 44% improvement, respectively. Curragh's averaged a saleable production run rate of approximately 1 million tonnes per month for the last 4 months and a 3.8 million tonnes on [indiscernible] production delivered in the June quarter by Curragh is the best performance since September 2020.
In addition, Curragh significantly advanced the waste movement works during the quarter. June quarter waste movement was 25% higher than the March quarter, setting the mine up well for continued coal exposures for the second half of the year. What's significant to note is in the June quarter, prime waste movement was the highest in nearly a 40-year history of the Curragh complex. These impressive results are a combination of the team's focus on executing the improvement actions identified in the One Curragh plan and the improved weather conditions compared to prior quarters.
On the 6th of July, the company successfully negotiated a new 4-year enterprise agreement with the workforce at Curragh. The new EA enables workforce stability, but also demonstrates Coronado's commitment to our employees in recognizing their valuable contribution and overall well-being.
U.S. operations continued with their performance and had another very strong quarter. Long coal production was 3.4 million tonnes and saleable production was 1.6 million. In the quarter, Buchanan did a successful Longwall move and only required 4 days outage to achieve the move. This is substantially shorter than any of our peers in the underground environment, and this is the result of the good capitalization that we have at Buchanan with the 2 longwalls.
Also pleasing is the performance at the Logan Complex. Eagle #1, once again, in this quarter, set a new production record in May, and their performance continues to be strong. Rail performance also improved during the quarter following some delays that we saw in late March. Sales volumes across our group for the June quarter were 4 million tonnes. This is an 8.3% improvement on the prior quarter. And across Australia and the U.S., 2.5 million tonnes and 1.5 million tonnes, respectively, for sales.
The strong June production rates and some slippage into July saw Curragh finish June with high inventory build. This inventory stock will be sold during July, and we expect to see returns to average stockpile levels in the September quarter. Coronado anticipates continuing to deliver improved production performance, and we maintain our existing production guidance. This obviously reflects on things beyond our control like the weather conditions in September and December.
And with this, I'll hand over to Gerhard, who will take you through our financial position and some market outlook.
Thank you, Douglas, and good day, everybody. As Douglas mentioned earlier, Coronado ended the half year with a strong balance sheet and healthy liquidity levels. June quarter revenue were USD 728 million, and half year revenues were just short of USD 1.5 billion. Half year revenues are lower than this time versus last year due to a 37% decrease in the premium low-vol benchmark FOB index, but we still achieved the second highest first half revenue result for the group since we founded the company.
The group realized met coal price year-to-date was USD 229 per tonne. It's a mixture of FOB and FOR and domestic pricing contracts, and it creates to a 78% realization on the average Australia hard coking coal index price for the 6 months to June, which averaged $294 per tonne. And as of 30 June, the company's net cash position was $192 million, and we maintained available liquidity of USD 534 million.
Our net cash position consisted of a closing cash balance of USD 434 million in outstanding bonds in the order of USD 242 million. And during the quarter, we successfully executed an agreement to refinance our ABL facility. As part of the refinancing, we have increased the facility limit from USD 100 million to USD 150 million and extended the maturity date until July 2026. We expect the agreement to complete in July.
Year-to-date, average mining cost per tonne sold for the group were USD 97 per tonne. Higher mining costs per tonne are driven by inflation, and the impact from lower production in the March quarter deferred to following quarters following the above-average wet weather in January and train derailment on the Blackwater line at the time.
The company expects second half average mining cost per tonne to be lower as production plans are weighted to the second half of the year. And year-to-date CapEx of USD 89 million was down 3% compared to the same period in prior year with some works deferred to the second half given wet weather and maintenance programs in the first quarter.
As previously guided, FY '23 CapEx is expected to be higher in 2023 as the group invests capital into organic growth projects, including Buchanan's expansion works in the Curragh underground and gas pilot projects. And today, we reaffirm previously announced market guidance subject to any wet weather and extraordinary events that may occur in the second half of the year. The focus for the remainder of the year is to deliver second half weighted production plans to meet guidance. We also continue to remain watchful of the continued inflationary pressure in the industry.
On core markets, the benchmark Australian premium low-vol hard coking coal FOB average index price for the June quarter was USD 243 per tonne, down 30% compared to average March quarter benchmark price of $344 per tonne. In the June quarter, we also saw a 25% reduction quarter-on-quarter for the U.S. East Coast low-vol average price with the average index price for the June quarter being USD 223 per tonne.
The fall in June quarter prices is primarily due to improved supply from Australia due to higher conditions and an absence of strong restocking demand from steelmakers in Japan, Korea, Europe and India. The global economic environment and weak steel demand outlook continues to put pressure on steel margins with steelmakers continuing to lower steel prices and delay raw material procurement.
Chinese steel production remains high. However, weak domestic demand conditions continue to put pressure on steel margins in China. They are forcing steamers to divert volume to the export market. Expectations of further stimulus measures and incentives to improve China real estate and infrastructure markets are expected to improve demand and price sentiment in late quarter 3, could be quarter 4. As we're [ in the ] restocking demand forecast return following the country's monsoon season and continued growth for planned infrastructure projects. And we anticipate the short-term bearish steel segment will continue to dampen demand and pricing for metallurgical coals in July and August before then restocking demand improves market dynamics from there on.
And having said that, it appears that the current price level is -- it looks like it's a new floor for the met coal benchmark price, and that is still a very, very good. It's an exceptionally good price where we are today. So despite the mentioned short-term headwinds, we expect pricing to remain above the long-term average price of USD 192 per tonne with the SGX forward curve projecting prices greater than $225 per tonne for the remainder of 2023, even going up to above $250 later in the year.
So I will hand back over to Douglas to discuss our growth projects. Douglas?
Thanks, mate. I'll draw attention first to our undergoing project. As I mentioned in my opening remarks, we have gained Board support in late June for the project. The development of this project underpins our strategy to deliver salable production of 13.5 from the complex by 2025. And our program has us delivering first coal late 2024. And the project will be delivering similar quality of coal that are highly sought after from our Curragh north open cut presently. So similar products will come from the underground project.
The project will utilize the final high wall and by virtue will give us direct access to the coal seams. This not only significantly reduces the capital expenditure, but also reduces the start-up cost. Phase 1 of the project would utilize 3 continuous miners via Bord and Pillar mining method, and we're looking to produce between 1.5 million to 2 million tonnes of salable production once in full production.
Resource estimate is approximately 48 million ROM tonnes. Future phases will also exploit coal reserves that are under the present open-cut options. During the June quarter, we continued our drilling program and results of this is favorable. We've done 34 holes and almost 8 kilometers of drilling, and this will continue into the third quarter as we mature the project.
Now turning to our gas project. The gas-fired project intends to capture waste coal mine gas and use it as a diesel substitute in our operating fleets. We intend to have a fleet of 5 to 6 trucks utilizing this gas. And our planning at this stage and program progression has been delivered in the first half of 2024 as the wells come online and produce sufficient gas to run these trucks. During the quarter, we successfully commissioned our first June fuel truck. So the truck will run on diesel and gas. And this trial will run for about 8 to 12 weeks. To date, this project has been successful or this part of the trial has been successful.
In the quarter, we also finished drilling the primary wells. So [indiscernible] is complete, and we've also drilled the [ in seeing ] wells that intersected [indiscernible]. And in quarter 3, we'll be commissioning the gas gathering equipment. Once fully commissioned, the project will release and reduce our emissions from Curragh, but also reduce our costs by changing the diesel usage to gas usage for these fleets.
Turning to our projects in the United States. The capital works at Buchanan continues to progress well. And the construction of our new surface rule storage stockpile is on program as I communicated earlier. This not only increases our operating capacity but also reduces the risk of being stock bound if we have any potential logistics chain delays down the line. Construction on the second set of skips is also progressing to plan, and this will increase our hoisting capacity from underground. This together will grow the U.S. operations to produce 7 million tonnes by 2025.
And before we move to Q&A, I'd like to draw your attention to our announcements last week, where we appointed Jeff Bitzer as our Group Chief Operating Officer. Over the past 2 years, Jeff has demonstrated exceptional leadership and experience in the role as Chief Operating Officer of our U.S. operations. His career is a target to the great results that he deliver for us in this new group role, and I'm delighted by him accepting, and I know the rest of the team are delighted by [indiscernible].
I'll now turn over to the operator who will take any of our questions.
[Operator Instructions] Your first question comes from Paul Young from Goldman Sachs.
Well, first, just to focus on Curragh, really good to see that performance coming through on production and also that I think you called out, Doug, the record waste movements. Just on that, I'm just curious about the outlook for the second half of Curragh, just on waste movements. Have you caught up on all your waste movements? Or are you looking at higher waste movements again in the second half?
Paul, thanks very much for recognizing the performance. We've got a mine plan that, as we've been communicating over the -- probably the last 18 months of investing in to get a sustained core flow to fit our long-term stripping ratios. We're not quite there yet, but we're close to being there at this stage that we will have the mine plan stabilized to be at long-term stripping ratio. So we continue to -- we should continue to see higher waste movements, but particularly focusing on that prime waste movement because that's what drives the coal exposures.
Okay. That's great. And then just on the coal inventory, just looking at your production versus sales over the last 3 or 4 quarters. You might have built up an inventory of 0.5 million tonnes or so if I just do rough calculations. Is that about right, what you're sitting on as far as finished product inventory at Curragh?
That's about right.
Okay. Great. And then just continuing on a few short chart questions. Just on the CapEx. I mean, it's been difficult to spend money in the Bowen with all the wet -- the rain, et cetera, in the first half. You're looking at a USD 200 million sort of spend or thereabouts at the top end of the guidance for the second half. Is that mostly going in sustaining? Or is that mostly going into Buchanan and early works on the underground at Curragh?
Yes. Paul, Look, probably 50-50 on CapEx, but we expect spot on the first half was a little bit difficult. The $90 million we have spent second half where we will see a lot more CapEx also because of drier conditions in the Bowen Basin. And I wouldn't say another $200 million, I would probably point to the lower end of guidance. There's a lot of maintenance work that we pushed into the second half or was even actually scheduled for the second half.
Okay. Okay. Got it. And just lastly on operations, good to see the underground approved at Curragh. And I think that you've given us a bit more detail around the production there, and you've outlined a resource. And you said that it will lower your cost there, but I think that was more around the gas diesel, I guess, nuance there on the fleet.
But one question I had is just around what is the capital budget for this project. And from an operating cost perspective, if your cost at Curragh have been running at AUD 130, AUD 140 a tonne FOB, what can the underground actually do to your weighted average cost at Curragh? And what is the capital budget for this project?
I don't think we disclosed the capital budget specifically for this one. What I can say is, Paul, if I look at the -- let's move this way, it's probably quite cheap. Let's put it this way. I'll leave it there.
Right. So in that case, the continuous miners 3 or 4 of those, it's really just development -- is development going to be -- go ahead capitalized? Do we expect this as we go [indiscernible]?
When you look at the average cost, I don't want to call it necessarily, but you can say in the range in Australia, the average development cost per capacity tonne sits about between $300 and $400 per tonne. We can do that for a lot less. And I'm talking a lot less. It's simply because we -- it's also the way we enter the underground through the highwall makes it a lot cheaper. Others have to build expensive box cuts and all of this. So I don't want to establish a new guidance for that project, but it will be a lot cheaper to establish.
And then what does it do to the long-term cost? Again, we don't normally good guidance, but it will definitely reduce the overall cost of power and then therefore, also Coronado. Probably single digits, not double digits, single digits for Curragh.
Yes. Okay. So I'll pass it on, just one last question. Why the sensitivity over the capital cost of this project?
Say again?
Why aren't you disclosing the CapEx on this project?
At this stage, I don't want to give -- provide you guidance, but we can refer to the previous announcement we have made on this. And also we guided towards roughly $105 million.
You have given that number.
Yes.
We have had a previous guidance at [ 105. ]
Okay. Sorry, I did miss that. I'll pass it on.
[Operator Instructions] Next question comes from Glyn Lawcock from Barrenjoey.
Maybe just a little bit more on Curragh underground, if I could. Could you maybe just talk me through what's required on the permitting side? And have you left enough time in the time line to get it done? It just seems like you've approved the project. You're going to start spending buying all the equipment you need. Just what are the risks around the permitting?
Yes, we have in the project identified, and that's one of the critical path items Procurement of equipment and approvals is what owners on our critical path. We've assembled a team of the best in my view, including our U.S. expertise, but from an Australian perspective, some of the best to support us in understanding our time lines.
The approval we're seeking is a change in mining method approval. The areas have proved to be mined. We can mine that area from an open cut perspective. It makes more sense that we mine it from an underground perspective. And using the mining method that we're looking to deploy being bought on Pillar, there will be no surface substance and particularly this area that we're going into.
So we're on a program for approval. We've already engaged the authorities and explained to them what we're seeking to do. And we will work through that time line. But we are comfortable with the best information we have at this stage that the time lines are set or realistic.
From a procurement perspective of a fleet, we're going through the procurement phase at this stage. We can see that we can secure fleet well within time. And we're procuring in a manner that totally derisks ourselves if there are any delays, but we're quite comfortable with what we've got planned at this stage.
And sorry, can I just maybe delve a little bit deeper then on the permitting. Does it have to go back for public review or anything like that? Or is it just simply the mines department makes the decision? Like how much rigor is involved?
At this stage, we'll be going through the relevant mine departments for approval and the government authorities for approval.
But you don't think that goes back out the -- it doesn't reopen you up to public scrutiny or anything like that?
At this stage, [ the price is now, ] it could, but at this stage, no.
It could. But at this stage, you're being told no. Okay. Maybe just staying on Curragh, just the -- with the underground, too. Are you planning to bring your workforce out from the U.S.? I mean I know it's all well and good to say you've got underground experience, but they're all sitting on the other side of the world. So is that the intention? Or would you -- how do you actually cross-pollinate to get that experience from the U.S. to Australia's Curragh underground?
Two things. We've actually got Jeff in the room with us today. So we've already been having parts of our SMEs, our experts in the U.S., working on this project for over a year with us at the moment. So we're tapping into the best skills we have into the business. Yes, some of those people will be moving across to support us in the start-up of the project. But we've got a mobilization team that's fully established, fully manned at the moment with the right skills to start a project of this nature. And there are the skills within Australia for the size that we're starting out.
As I said, we're ramping up in the first phase to 3 continuous miners. So the size of the workforce or the skills we're looking for is in large, but that's part of our planned ramp-up phase, and we can see a pool available.
Okay. That's great. And then just the wage rise you put through, what sort of rates do you have to give in like percentage-wise?
It's a 4-year agreement, and it's a 4, 3, 3, 3, that we've managed to achieve with our workforce.
Okay. And then sorry, just safeguard mechanism, does Curragh fall under that?
Yes, we do.
Any thoughts on -- because I think it's quite a heavy emitter of CO2. What's sort of the cost [ impost ] do you think you'll end up with from that? Any ideas?
Yes, it's not here yet, Glyn. It's not here yet, but there are some positive signs, probably more positive than 3 weeks ago. And also -- but at the moment, it's not 100% clear working on it.
And our U.S. operations are really utilized VAM units on our underground mines and delivering great results out of that. So our plan would be for the underground that, that technology would come to bear and the learnings that we've proven within the business. From an open cut perspective, we've got the gas pilot program where we're drilling into the coal seams that will be mined by open cut mining methods, and tapping that gas in advance of the mining and using it as a valuable resource. So we've not been idle. While this has been worked through the government systems, we've been progressing projects that will help mitigate the impact and well progressed.
So just listening to Gerhard's response. So it sounds like it will be an impasse, but perhaps given what the government is doing and some of the changes may be coming down the pipe, impasse won't be as great as originally thought...
That's why the -- it looks like they're not splitting underground and open cut. So the undergrounds are now at the same level as open cuts. And therefore, it could look a lot better. So -- but again, at this point, too early to give guidance on this.
Correct.
Okay. And then just one final question. Just the BMA sales process, I know you can't say too much, but are you still in the tent looking at the BMA's assets?
[indiscernible] unfortunately, just -- we can't comment.
Your next question comes from Paul Young from Goldman Sachs.
I had a few questions on the coal market, more specifically on realized pricing and coal mix. I know you sold a little bit of met coal in the thermal market from when we had that arbitrage between the 2. What price did you actually achieve for that met coal sales in the thermal market? And how much more volume is there to go? Or is that done?
No, no. Listen, we're not switching anymore. That's finished. I mean there is no switching happening this year. So I think that finished end of last year. Certainly, nothing more switching at all in quarter 2. If you look at the price realization, it was, in quarter 1, exceptionally well. In quarter 2, it's impacted a little bit by -- if you look at the details, it's impacted a little bit -- well, it's impacted by more FOR sales and domestic sales in the U.S.
Yes, okay, understood. And then just on the U.S. it might be a little bit too early to talk about initial discussions with U.S. steel mills. I mean, the U.S. steel market seems to be still pretty tight, but production is stepping up a little bit, steel prices down, profitability for you still pretty good U.S. met coal market is still pretty tight. I mean where do you think -- when do you start your discussions with U.S. steel mills for negotiations for next year? Or is it just too early for that yet?
A little bit too early. I think the U.S. game, they try to knock at the door a little bit, but it's too early. Usually, these discussions started in September. I think we are a little bit -- a few -- 1 month, maybe a little bit more off, but some people are knocking at the door, but nothing concrete yet.
Yes. Okay. And just last question, just on costs. You mentioned that just before about the labor -- labor cost and trajectory there, and we just touched on strip ratios. But just on the transportation piece, first of all, how has sort of rail availability and productivity been in the [ bone ] with horizon? And then also, what are rates for -- looking like in the second half on both rail and port?
Yes. Don't have the rates handy. But look, I think the Blackwater line has profoundly improved in the second quarter. So we had issues in the first quarter, absolutely, dragged into probably April as well, but that performance has improved. So we are not too impacted by -- or not at all impacted by any transportation issues at the moment.
There are no further questions at this time. I will now hand back to Douglas for any closing remarks.
Well, I'd just like to thank everybody for participating today. And if you've got any follow-up questions, please don't hesitate to contact our Investor Relations team.
Thank you to everyone for participating in the call today. That does conclude our conference for today. Thank you for participating. You may now disconnect.