Coronado Global Resources Inc
ASX:CRN
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Coronado Global Resources Inc
Earnings Call Analysis
Q2-2024 Analysis
Coronado Global Resources Inc
In the second quarter of 2024, Coronado Global Resources achieved a significant increase in overall production, with run-of-mine (ROM) coal production rising to 7.4 million tonnes, marking a 24% increase from the previous quarter. Saleable coal production also improved, reaching 4.1 million tonnes, up 22%. This growth was complemented by a substantial decrease in group mining costs, which fell to $91 per tonne, down 27% from the first quarter, underscoring the company's focus on operational efficiency.
The company experienced a tragic event with a fatality at the Buchanan mine, leading to a temporary suspension of operations. While the operations resumed shortly after, the incident highlights the industry's inherent risks and the company's commitment to safety. As of June 30, the total recordable injury rate improved to 1.01, down from 1.18 the previous year, indicating a positive trend in workplace safety.
While revenue reached $674 million in the second quarter, up 1% against the prior quarter, the company faced pricing pressures. The average realized met coal price stood at $195 per tonne, reflecting a drop from higher prices earlier in the year due to increased supply and lower demand. Particularly, the Australian premium low volatile index price decreased to $242 per tonne, down 21%. Despite these pressures, positive market indicators emerged, with expected price elevations due to Indian demand restocking post-monsoons.
Coronado's growth strategy hinges on organic projects, particularly the Mammoth Underground and expansions at Buchanan. The Mammoth project, expected to start production in December 2024, is projected to add between 1.5 million to 2 million tonnes of saleable production annually. Importantly, these projects are financed through existing cash flows without needing to raise additional debt or equity, strengthening the company's capital position.
As of June 30, Coronado reported a net debt position of only $5 million and a robust liquidity of $414 million. The company's capital expenditures for the year have reached $137 million, primarily directed toward organic growth initiatives. Looking ahead, the company reaffirms its guidance metrics for 2024, aiming to sustain operational improvements and cost efficiencies even amidst challenging market conditions.
Coronado is also making strides in sustainability initiatives, focusing on emissions reduction. Their ongoing gas pilot project aims to utilize waste mine gas, with a goal to achieve a 30% emissions reduction by 2030. The approval of new Ventilation Air Methane (VAM) units further demonstrates their commitment to sustainable mining operations, aligning with global environmental standards.
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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 a 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 for 2024. Today we released our quarterly report to the ASX and SEC, in which we outlined our production and sales statistics as well as other key information related to safety, coal markets and financial performance. A more detailed outline of our financial position and results will be released to the market on the 6th 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 Group CFO, Gerhard Ziems. Within our report, you will see our notice regarding forward-looking statements and reconciliations of non-U.S. GAAP financial measures. We encourage all listeners to review these statements in conjunction with our other filings with the ASX and SEC. We also remind all participants that Coronado quotes all numbers in U.S. dollars and metric tonnes unless otherwise stated. With that, over to Douglas.
Okay. Thanks, Andrew. Let's get into this. For the June quarter, the Coronado team remained focused on our plan and achieved outcomes and milestones as set by our plan, delivering materially improved production, sales, cost and revenue results. It is pleasing to report our business delivered higher group ROM coal production at 7.4 million tonnes, up 24% on the March quarter. Higher Saleable production of 4.1 million tonnes, up 22%, higher sales volumes at 4.1 million tonnes, up 8% and materially lower group mining costs at $91 a tonne, down 27% and higher total revenues of $674 million, up 1%, along with several other underlying and enabling milestones within our plan.
These results reflect 18 months of hard work from everyone in the business to drive the business forward and produce positive results. But the job is not finished. Our plan has more to offer. We will continue to press for further operational and cost gains in the coming quarters by the safe implementation of additional productivity improvements and the development of our organic growth pipeline, and I'm excited for the benefits ahead of our shareholders as we progress our Mammoth Underground project and expansion works at Buchanan, both of which have extremely positive prospects and continue to be developed from the operational cash flows of our business without the need to raise additional debt or equity from the market. But before I elaborate on our operations, I will start by focusing on an overview of our safety performance.
As reported in a prior public announcement on the 31st of May, the company temporarily suspended operations at Buchanan mine following a fatality of one of our team members, Brock Jackson. The incident occurred at the commencement of the evening shift. We are deeply saddened by this event. I'll take this opportunity to once again extend our sympathies and condolences to the family, friends and colleagues of Brock. An investigation into the incident is underway. And until the investigation is concluded, we cannot provide further comments other than to note our continued support for his family and coworkers. And Buchanan mine resumed operations on the 3rd of June, and there are no directives or restrictions on the mine. This tragic incident is a reminder to all of us that there is no more important outcome from our day of work than returning home to our family and friends safely.
Now turning to our safety statistics as at the 30th of June. At the group level, our total recordable injury rate was 1.01 compared to 1.18 at the same time this year. And if we split by segment, our Australian 12-month rolling average, total recordable incident frequency rate as of the 30th of June was 1.29 compared to 2.52% in the prior year. And our U.S. 12-month rolling total recordable injury rate was 2.26 compared to 2.56 the prior year. Both rates are lower than prior year and below industry averages.
Turning to our operational performance. Both our Australian and U.S. segments realized improved production rates, sales volumes and lower costs compared to the March quarter. In Australia, our Curragh Complex delivered ROM coal production of 3.8 million tonnes and Saleable production of 2.7 million tonnes, reflecting increases over the March quarter of 37% and 23% respectively. These significantly improved results are multifaceted and outcomes from our plan, but are principally due to the completion of the historic prestrip waste deficits and the subsequent removal of 4 fleets in late March, combined with improved productivity from our dragline fleet as we take advantage of improved pictometry gained by engineering changes made over the last 18 months.
The dragline fleets continue to meet our improvement targets with the ratio of waste removal by draglines compared to truck and excavator at 44%, up from 37%. And total waste movements in the June quarter and year-to-date are on plan.
During the June quarter, Curragh also experienced less interruptions to production with lower rainfall reported quarter-on-quarter. However, heavy rain late in June did see about 100,000 tonnes of ROM production deferred to July. And Curragh's railing to port were also temporarily impacted by a traffic accident on the Blackwater line in late June that resulted in a rail outage for approximately 5 days. The cost structure at Curragh has materially improved quarter-on-quarter following the fleet removals, productivity improvements and contractor rationalization.
The Australian segment average mining cost per tonne sold for the June quarter was $81.70 per ton, reflecting a 36% improvement quarter-on-quarter due to the operational improvements previously mentioned and combined with higher production. This cost per tonne improvement equates to approximately 100 million tonnes of gross mining cost improvement in the quarter and is the lowest cost per tonne rate for Curragh since the March quarter of 2022.
At Curragh, we are targeting further productivity and cost improvements in the September quarter with the planned removal of an additional contractor fleet. This is about 13 pieces of equipment that are removed from operations. The removal of this additional fleet is not expected to impact current or future production plans at Curragh. Upon full demobilization, this will take the number of contractor fleets removed from Curragh to 5. And plus the introduction of the new Coronado Komatsu PC7000 excavator, which is contributing to our overall productivity gains at site and coal exposures.
Operationally, Curragh finished the June quarter in a strong position with elevated stockpiles. And the positive momentum achieved in the quarter has flown into July as we strive to continue to deliver according to our plan.
Our U.S. operations also performed well in the June quarter, delivering improved production, sales volumes and lower cost per tonne. The U.S. operations delivered ROM coal production of 3.6 million tonnes and Saleable production of 1.4 million tonnes, reflecting increases over the March quarter of 11% and 18%, respectively. The June quarter ROM and sales production were higher at Buchanan as we continue to mine in our newly developed southern panels. During the quarter, the mining conditions improved and, as forecasted, yield improvements started to materialize. Subsequently, Buchanan's ROM production was up 11% and Saleable production was up 21% quarter-on-quarter.
The mine continued to experience improved skip efficiencies following the maintenance work undertaken early in the year, and our conveyor belt systems continue to perform well, resulting in skip counts continuing to operate at their best rates in the last 2 years.
In the September quarter, our plan currently has development of the next panel in the Northern District ready for mining. And for a portion of time, we may have the ability to run both longwall sections at the same time. This is forecast to further increase the product yields from Buchanan, given the Northern District has a higher-yielding section.
At Logan, ROM and Saleable production in the June quarter were up 11% and 14%, respectively, compared to the March quarter. These production improvements are due to the reestablishment of mining in the Powellton mine and incremental tonnes gained from highwall mining at our surface operations. The U.S. operations noted a significant improvement in cost per tonne in the June quarter, principally due to higher production rates achieved. The U.S. segment average mining cost per tonne for the June quarter was $110 a tonne, reflecting a 10% improvement quarter-on-quarter. As a result of these strong June results and our forward plans, we today reaffirm our previously announced 2024 guidance metrics.
I'll now hand over to Gerhard, who will take us through our financial position and give us a bit of a market update.
Thanks, Douglas, and hello, everybody. I'll keep the short today. Our June quarter revenue was USD 674 million, up 1% compared to the prior March quarter, mainly because of higher sales volumes despite the fall in prices. Our year-to-date revenue was $1.3 billion, down 10% on this time last year, mainly because of lower met coal index pricing.
Coronado's proportion of met coal sales revenue as a percentage of total coal revenues year-to-date was close to 96%. The percentage of met coal sales was higher than prior year, which was about 90% because of the delivery in minor -- in prior year of certain U.S. thermal coal contracts that we negotiated when thermal coal pricing was way higher than met coal prices at the time. And that was kind of a pattern across the industry. So we went from 90% up to 96%. The group realized met coal price for the quarter was USD 195 per tonne, which is a blend of FOB, FOR and U.S. domestic pricing contracts, reflecting an 80% average realized price versus the Australian premium low vol index.
As of 30 June, the company had a net debt position of $5 million, which is comprised of a closing cash balance of $264 million. We had $242 million in senior secured notes outstanding. And then $27 million in interest-bearing liabilities associated with the completion of the Curragh housing arrangement. As discussed last quarter, the business was negatively impacted in the first half by the additional payment in March to the Queensland revenue Office of AUD 79 million, inclusive of interest relating to Coronado's acquisition of the Curragh mine in March 2018.
Coronado had available liquidity of USD 414 million as of 30 June, comprising of cash, short-term deposits and undrawn available borrowings under the ABL Facility. Year-to-date, capital expenditure closed at USD 137 million with the majority of spend related to our organic growth works at Buchanan and Curragh. In terms of coal markets, met coal markets, both the Australian and U.S. met coal index prices decreased in the second quarter. The benchmark Australian premium low vol average index price was USD 242 per tonne, down 21% compared to March quarter where it was $308 per tonne. The benchmark index, average index was, U.S. East Coast index was $218 per tonne, down 15% compared to March quarter where the average price was $256. So down from $256 in March quarter to $218. Prices fell during the quarter because of an increase in seaborne supply from Australia, given the dryer operating conditions. But we have seen an increase in price from late June following operational issues from some of our peers in the Bowen Basin and in the U.S., which has impacted supply. Subsequently of course now in July, prices have come down again, a different subject.
Coronado expects that in the September quarter, prices will remain elevated on the back of Indian restocking appetite after the monsoon season, which probably starts in -- at around early September. In the same period, met coal supply is expected to be restricted with the mine production issues from our peers as railway maintenance occurring, particularly in July, August across the Queensland network.
The SGX forward curve, just as a data point, as at 12th July, is projecting an index price of $255 per tonne for the remainder of this year. These pricing projections continue to suggest a higher pricing environment for longer than the forward pricing environment well above the long-term average price of $199 per tonne. I hand back to Douglas now. Douglas?
Thanks, Gerhard. So in the second quarter, our business continued to invest in organic growth projects at Mammoth Underground and Buchanan using cash flows generated within our business to fund this growth. Coronado has more than 800 million tonnes of met coal reserves and 2 billion tonnes of resource to draw upon. So beyond the growth projects presently afoot, we've identified additionally potential other organic growth projects within this reserve base, which potentially have more attractive metrics for our shareholders over the long term than what's available in the market. And our present organic growth investments remain within budget and on schedule and continue to be assessed at multiple substantially lower than recent market opportunities, which we expect will create significant value for our shareholders over time.
So turning to Mammoth Underground project. It remains on schedule, but subject to regulatory approval. During the June quarter, we submitted the required statutory approvals for this project. All our procurement activities are progressing to plan with equipment orders placed and delivery schedules agreed with the providers, and these delivery dates are before our planned commencement dates of the project. Mammoth has a full leadership team in place at the moment, which is supporting the construction of the project. And the response to our expression of interest for staff and workforce has been extremely pleasing. In June, we completed all necessary earthworks in S-Pit and highwall stabilization work has commenced in preparation for portal development. Our engagements with the regulators and the communities continue to be positive.
As a reminder, Mammoth has a substantial high-quality met coal reserve of 41 million tonnes of ROM coal with coal qualities expected to mirror the existing Curragh North open cut. Once fully operational, the project is on target to deliver an incremental increase of 1.5 million to 2 million tonnes per annum of Saleable production in its first phase. And subject to receipt of the regulatory approvals, first coal from Mammoth is expected in December of 2024.
Organic growth plans in our U.S. operations also remain on target with capital works at Buchanan continuing during the quarter to invest in the construction of a new surface raw coal storage area to increase the mine storage capacity, ultimately reducing the risk of bottlenecks and allowing our longwall equipment to run at higher capacities. In the June quarter, excavation works continued with the completion of the access roads and bridge extensions. And the scheduled date for the new stockpile facility to be complete remains on plan of April 2025.
In the quarter, we also progressed the construction of our second set of skips to increase the mine's hoisting capacity to surface. As at the 30th of June, shaft excavation works and concrete lining works are complete all the way to shaft bottom. And the next stage of work, which is shaft equipping, is progressing to plan. Full completion of this project is expected in quarter 2 2025.
And now turning to emissions reduction. We continue to progress our gas pilot project at Curragh during the quarter. This project is targeting to capture and beneficially use open cut waste mine coal gas with downstream use cases being explored, including power generation and uses of diesel substitute in our mine fleet.
Gas production from Europa 1 and Europa 2 wells commenced in January of this year, and we've continued to monitor gas flow from the wells to build our data record and to understand the reservoir's performance. During the June quarter, Coronado and its partners commenced a second gas converted truck trial to assess the performance of a 793F truck engine with upgraded conversions. Early results are positive and in line with what our expectations were for the trial. This trial will run over the next 8 weeks.
Given the positive success of our Ventilation Air Methane, VAM unit at Vent Shaft 16 to reduce emissions, we committed to undertake a commitment to install a second VAM unit at Vent Shaft 18. The construction of the second VAM unit is -- was completed in April, and testing was conducted in May and June, and I'm pleased to announce today that the new VAM unit at Vent Shaft 18 was approved for operation by the Virginia Energy Oil and Gas Board on the 18th of June and is now fully operational and actively reducing emissions at our Buchanan mine. The establishment of a second VAM unit is expected to further reduce Coronado's emissions. And this is all part of our strategic path to a 30% emissions reduction by 2030.
Coronado considers itself an industry leader in the implementation of these emissions technologies.
And with that, I'll now hand over to the operator to take your questions. Thanks, Darcy.
[Operator Instructions] Your first question comes from George Eadie from UBS.
First question is on guidance for this year. When you released guidance, was the 2 weeks rail downtime on the Blackwater line known?
Yes. So obviously the motor vehicle accident that occurred that cost about 5 days at the back end of June wasn't known, and we're working to mitigate that. I must say that the rail providers above and below rail have been very good in working with the industry to mitigate it. And then the maintenance work that was planned for the month of July has been known for a while, and we've been working to mitigate that. So that is considered. It's not [indiscernible] for us, but it's common to everybody in the industry that use that rail corridor.
Yes, just making sure it wasn't 1 way moving to 2. Awesome. And then maybe just on Curragh as well. So now you've taken 5 fleets offline, you've put more dirt in the dragline system. Both of these are absolutely great for costs, and we've seen that, which is great. But in terms of coal on [indiscernible] is there risks here? I guess how many strips in advance of pre-strip have you now done and what sort of [indiscernible] risk in 3 to 4 years you need to bring back a contractor fleet for another large double strip pre-strip campaign or something.
No. Our intent in this plan that we've been executing is to set the mine up that it's got a long-term sustainable stripping ratio, and that's geared towards dragline operations. So the last 18 months, we mobilized additional fleets into the site to catch up on the waste deficits that occurred, but also to set up the geometry of the different pits to have longer strike length and also better configuration for dragline on our productivities. And that's how we have gained. Our plan is at 44%. We're hoping to get a little bit more over time out of it. But that's the ratio that we're running to dragline and truck and excavator. And that's sustainable at the stripping ratios that we have. The plan does have further tricks available to clearly bringing an underground mine into operation that's lower cost and brings us derisked supply because it's not exposed to the wet weather, gives us options down the line, which will further mitigate the risk of having to bring additional contracted fleets on to site for what you described.
Yes. And maybe just second on Buchanan. You said the next panel in the Northern District will be ready this quarter, September, and higher yields. Can we just quantify this a little maybe? Is it ready now? And how does overall yields live from Buchanan? Are we talking sort of 60% or sort of mid, high 60s?
So, no, it's not really quite yet. The development for that panel has progressed really well. We're actually slightly ahead of our original plan. The team has done well. So we're busy setting it up. It will be ready in this quarter to start mining but not quite now. And the yield improvement between the South and the North is about a 6% improvement at the moment. It might get a little bit higher than that, but we're looking at mid-50s that the north will offer us.
Your next question comes from Daniel Roden from Jefferies.
Just wanted to, I guess, get a better sense on the Mammoth Underground approvals and where you're, heads up with that? And maybe just update us on the timing of the closure of the public review and how much time after that is required for the regulatory approval?
Daniel, the good thing that we have is working through [ Des's ] process is, it's fairly well defined. So we can set time lines. And what we've done to our program schedule is set outer limits of Des's design program that gives us a delivery date of approval in late November. So that's what we're working to at the moment. There's obviously gate stops as you work through it, as you've called out, public consultation is one of those. I think what I'm comfortable in saying at this stage that I don't work against any of Des's information that they'll want to manage more than me publicly is our request for information have gone very well with them to date, and we're actually a little ahead of our time schedule that we've planned for the project.
Yes. Okay. Perfect. And you still, I guess, with an expectation of it closed in November, are you still comfortable with the December quarter first production? And I assume that's going to be very modest [indiscernible].
Yes, that's right. It will be modest, but it's a milestone that we're going to achieve. All other factors, our civil work is progressing really well and actually a little bit ahead of program. Our highwall stabilization is going well at this stage. So that actually put us in a position that will be really [indiscernible] works as soon as available. And our second delivery is all [indiscernible]. Really good shape.
[indiscernible]. And I just wanted to -- I guess, the balance sheet is looking, like it's in [indiscernible] in a better position with the turnaround in costs and production [indiscernible] on M&A [indiscernible] [ Anglo fest tenders ] are due in the coming weeks. I guess you want to refresh the expectations on how you're thinking about that M&A. There's lots of coal assets up to sale at the moment. Yes.
You're right. There has been quite a bit of activity in the market to date, and there's clearly more. These are good assets. But what's in front of me and the team and in our plan at the moment is far more attractive for our investors and shareholders. We've got projects in organic growth that we can manage the risk of. We clearly understand those projects and at multiples much lower than any of the opportunities that are presenting themselves in the market at the moment. So that's where our focus is as a business, is on our organic growth opportunities. On the Anglo process, I'd rather not comment about the assets and their process at this stage. Our focus is on our organic growth.
[Operator Instructions] Your next question comes from Chen Jiang from Bank of America.
And congrats on a strong quarter with much lower cost. Just a follow-up on that. The mining fleets and people, 30 major pieces of equipment removed the March quarter and another 13 expected in September quarter. I guess for the people and the equipment operating at Curragh now, is this going to be the norm going forward? Are you happy with the mine plan, et cetera? I guess, as you mentioned earlier, it's not a temporary removal and you will not bring them back at some stage in the future? I'm just trying to think if this -- the improvement in your cost, is that primarily driven by the removal of people and fleets?
Principally, you're correct. There's obviously a host of underlying activities that drive the productivity to enable these two lots, the first lot of work that was let's catch up the historic deficits, and that was additional fleet that we invested in over the last period of time, that cost increase has now come out because that work is behind us exactly as you described. Secondly to that is the productivity improvements that we've identified as potential in our plan and what we started to see being delivered, for example, the productivity gains that we're getting out of our dragline fleets is enabling the liberation of this additional contracted fleet, and that will come out. But to sustain our dragline profile going forward and our stripping ratios that we want to have as a long-term match to our long-term mine plan designs, the fleets that we have at site is pretty much stabilized now going forward. We will continue to hunt for productivity gains. And if those productivity gains are materialized, particularly in our draglines, that's where I'll be looking for is can we get more volume moved by draglines and maybe in cast blast is another area that we're looking at a few projects on. That might liberate that we can free up more fleet. But we don't see that in the immediacy, those are projects that we deliver over time and take advantage of either an incremental tonne gain or a removal of cost gain.
Sure, sure. Maybe a follow-up. You mentioned a strip ratio. So is Curragh at the moment achieving the long-term -- sorry, improved strip ratio or long-term strip ratio. Just to remind us the long-term strip ratio for Curragh.
I have to as a mining engineering engineer qualify my answer in saying you have to average it out because instantaneously month-to-month, depending on the geometry of the pit or what you're doing in a pit will change and go up or below. But over time, you want to average that. And to answer your question with that caveat, yes, we are at our average long-term stripping ratio. There is potential to drive that down over time, but it will be short-term downs and ups.
Sure, sure. And then maybe last question, talk about your price realization and what -- and then what's happening in the macro market. So by looking at the Curragh, the June quarter price realization, it's close to 90% of the POV, the premium low volatile hard coking coal. So I'm wondering, this 90% price realization, is that mainly because of the timing of the shipments started to lag for 3 months or is something else? And also, Gerhard, if you can provide your observation of the supply and demand for the PCI coal or second-tier quality met coal in the [ SEBA ] market, that will be great. Especially what are the drivers for the PCI discount that is narrowed to 20% in July from 32% discount averaged in the June quarter?
Yes. Okay. So good question. So I think in terms of price realization for us, that has improved simply because we came from a very high price environment in quarter 1. So it's a time lag. $308 per ton, I think in quarter 1 and quarter 2 is $50 less. So we benefit here, as I always say, in a falling price environment, our price realization goes up in an increased price environment, our price realization goes down with just a 3 months time lag. At the same time, and that goes into your question as well, in recent weeks or months, we have seen the PCI relativity has dramatically improved. It's sitting at about 88% to the premium global index. So very small discount on PCI in the market right now, what is driving it, predominantly the embargo on Russian coal businesses. Russian coal businesses were targeted by the U.S. Chinese banks stepped immediately back, stopped funding any deals with Russian -- lease Russian coal businesses that usually exports into China and India and South Korea and Brazil. So it's a little bit more difficult. I think it's temporary. I think it will take some time for the Russians to find alternative routes into the market for that type of coal of which they, of course, a lot available in Russia right now, stockpile. And when Russia sales this type of coal, it's being sold at about $160, $170 a tonne. So at a big discount to today's $200 per tonne or $197 per tonne. So I think we'll take a little bit of time, but they might find a way to circumvent these embargos this year. I think the other element we see is -- and look, by the way, that is of course very positive for us. A lot of our coal sits on the secondary indices, and that's very positive for us, and we will benefit from that in the third quarter and going forward. So on the main benchmark index, we have seen that of course coming down now to $225. What is the driver for that? Well, the main reason why that price was very high and anything above $200 is pretty high, but we have seen prices above $240 for a long time, was predominantly India, India's monsoon and wont come back before end of August or even September before they start really building momentum again in terms of appetite for metallurgical coal out of Australia. We do see a very, I would say, subdued demand for met coal in the market, which generate is a positive, given the depressed steel markets, the price of $225 is not a bad price, it's a very good price. But we do see China exports still at record levels. We see Indonesia exporting coke at high levels. So there is a lot of pressure on this index on the benchmark index. And that was the reason why prices are now down to 225. There's probably a little bit more pressure on that price, maybe $5 to $10 more downside before then the CFR arbitrage kicks in and then the Chinese starts buying.
Appreciate the color, Gerhard, especially on the Russia sanction. Just to summarize, so the 90% price realization from Curragh of the POV is due to the 3-month [ lagging ]. And the PCI discount narrow, that's mainly because of the sanction of Russia coal. And then just wondering for those PCI coal from Russia, normally do you see them as competition into Australia co? I mean eventually they will go to China or India? And then do you see that price discount creates downward pressure to Australia coal?
Yes. It's a global market. It's always competition. Australia is still the biggest PCI exporter, but closely followed by Russia. Russia owns about 1/3 of the 60-odd million tonnes the seaborne market has on PCI. And yes, it's in competition. I mean Australia is a traditional seller into China and India and other areas, South Korea. And that is putting pressure on the prices. But of course, if you embargo Russian coal, you have taken it out of the supply chain. So that's driving up the prices. It will -- that means also that will remain in place for another few weeks, if not months. But eventually, Russia will find -- these coal producers of Russia will find their way into the market again through other means. And then the -- I think the relativities will normalize. Remember, the relativity from PCI to benchmark is always like 70%, 73%, not the 88% we see today.
Your next question comes from Nathan Martin from The Benchmark Company.
Just wanted to come back to the cost side of the equation, if we may. Congrats again on a pretty remarkable quarter-over-quarter decline. Curragh specifically, came down from $127 per tonne in the first quarter to around $82 it looks like here in the second quarter. Some commentary regarding targeting further productivity and cost improvement at Curragh in the third quarter. I think a lot of that may be revolving around that planned removal of an additional fleet. But it would just be great to get your thoughts on how repeatable maybe that $82 cost per tonne number is from the second quarter in the back half? Or maybe is there even room to improve that for some of the productivity initiatives in the room of that fleet?
The number is driven by what you described in our plan, and I've been talking to it, this is -- it's really dear to us as a team is we have a plan and we're diligently executing to that plan. The removal of this fleet, we always knew would be a step change in our cost and that cost is now out. So we've got the cost out of the business, and it will stay out of the business. There is additional gains, as you mentioned in this quarter, we will take some more cost out of the back of productivity gains with standing down another fleet. And then there's another element to it, which is always a denominator. And we've had a good quarter, which has driven that number on it. So if we can sustain, which our plan does support continued good production and sustained performance, then we will enjoy the numbers that we have in this quarter, and that's what we're focusing on. Second order to your question, Ben, is there more opportunity? Yes, there is, and that's part of our plan, where we're busy driving out costs and looking for opportunities where we can offset costs that have been [ impost ] upon the business, for example, the royalty [ impost ]. And post 2026, when Stanmore royalty drops off, that's another $15 ton that comes out of Curragh's cost profile, which is another substantial step change in our costs. So in the near term, there's incremental cost differences. And then longer term, there's major step changes in our cost position of the asset and complex.
Appreciate that color, Douglas, and then maybe to your comment on denominator. I think you guys mentioned that you had increased inventories a little bit during the quarter at Curragh. When do you expect those inventories to ship? And could that improve upon your 2.7 million tonnes sold at Curragh in the second quarter as we look to the back half, increase that run rate.
Yes, Nathan, you're correct. We did build stockpiles because we were handed with our ability to get product to port through the rain that occurred. Firstly, the rain hindered it. And then we had a run on coal right at the end of the month as a result of that, what end up being stockpiled ROM coal. And then we also had product at port that will be consumed over the course of this quarter.
Your next question comes from Rob Stein from Macquarie.
You would have noted several mine outages in the sector, which has had an impact on both operations, but then also permitting and approval processes. Can you just potentially give us a view on the relative complexity of the Mammoth Underground to, say, a typical geologically complex and fractured underground system in Queensland, like where do you see the risks, how you're managing it, noting different mining method. And then similarly, can you talk to the U.S. underground risk in that same context? And really just looking for a relative view, not skewing one way or the other.
So the mining method that we're going to deploy at Mammoth is bord and pillar. The geology lends itself to bord and pillar and also the level of cover. So our extraction ratios are going to be very favorable out of the project. The other fact that we launched in the mine straight-off Ohio will take the civil costs out of the project [indiscernible] come to a limit at this stage, not an economic limit. And we're fully permitted to mine at all of that coal from an open cut perspective, but we have our overland conveyor that would have to move. So it would have been cold [indiscernible] to the back end of the life, that this gives us the opportunity to pull forward in the life of the mine and mine through an underground mining method. Relativities to the U.S. Our U.S. operations, we've -- I believe we've got one of the best teams in the world to manage high cover because they're mining in the Appalachian, so there's high cover and highly gaseous. Buchanan is a very gaseous mine. And we've had a team with a huge bank of experience that's got the capability to manage those complexities and done it very successfully over a long period of time. Buchanan is a 2 longwall mine. So a totally different mining method to the bord and pillar that we're deploying here. Gas at the project in the first phase is pretty low in the project. So breakout gas is low. But over time, it will increase and we'll bring that knowledge to bear. And this is the benefit of having the business with strong open-cut and underground skill set and knowledge that we've developed over time that we can leverage into the development of this mine. And as we've built the business over time, all skill set together, they can look at other opportunities that has got a proven track record of successfully integrating and getting more out of operations that have been there in the past. I think you touched on permitting relativities to others. This is an area of mine that's fully permitted. We can mine all of this coal. What we're seeking from Des is effectively a mining method change. We can mine it through open cut. And what we're applying for is a change under our permits so we want to mine it through a different method being underground mining, but it takes us through an approval process with Des. So a lot less complex than trying to build a new mine and get it fully permitted from the ground up.
And just as a follow-up, the implications of [ Grovener ] and the outage there and I guess potentially an increase -- no, sorry, a decreased risk tolerance from the regulator up in Queensland. You don't think that's going to have an impact primarily owing to the owing to the mining method. Would that be fair to say?
I think it's beholden on the whole industry that we learn from each other and make sure whatever we can get from Anglo to learn would take through the industry and distribute. So we're doing that in Anglo. Has been fairly liberal with good information to industry to date that will learn. Different mining methods, different gas, different circumstances. Our engagements with the regulator to date has been positive. We've made sure that we've spoken to them early, and we've taken in all of our technical information, and our team has come away from those meetings fairly buoyant with the response from the regulator on the way in which we're approaching this project. We've got great people in country supporting us. And we've got a very strong team and we're leveraging our skills within the team to ensure that we understand the risks and we've got engineered controls in our plan around all of them. So positive feedback from the regulator that we've observed.
That concludes the question-and-answer section of today's call. I'll now hand back to Douglas for any closing remarks.
Firstly, thank you, everybody, for taking the time to join us today. I've said it a few times before on these calls that the team has developed a plan for the near term and the long term to set the assets that we have up. We're blessed with the resources we have and the team, and we've got a plan that we're diligently executing to take full advantage of this 800 million tonnes of resource ahead of us and making sure that we extract the best value we can for shareholders. And I look forward to updating you on progress to our plan and positive results into the future. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.