Whitehaven Coal Ltd

ASX:WHC

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Whitehaven Coal quarterly report investor briefing. [Operator Instructions] Please note that today's conference is being recorded, Tuesday, the 16th of October 2018.I would now like to hand the conference over to your speaker today, Mr. Paul Flynn, CEO and Managing Director. Thank you, sir. Please go ahead.

[Paul J. Flynn, MD, CEO & Director]

Thank you, and good morning, everybody, and thanks for making the time to join us for our first quarter for FY '19, September production quarter. As usual, I'm joined by my colleagues Jamie Frankcombe, Kevin Ball and Ian McAleese. And I will go through the highlights and then move on to the physicals shortly. At first -- on the front of our quarterly release, the highlights, safety has continued to be a strong performance, which is positive for us this quarter. One of the key highlights, obviously, this quarter was really moving through the longwall changeout at Narrabri, which we did successfully and recommenced production in mid-month of September, which we'll talk to you shortly. The ramp-up is proceeding well as in addition to that, which is positive to see. September quarter ROM production of 3.6 million tonnes, reflecting that changeout-related backdrop. Obviously, we're missing quite a few tonnes by having a full changeout in this current quarter. Managed coal sales -- coal saleable production of 4 million tonnes. Our coal sales for the quarter 4.9 million tonnes reflected that drawdown of what was large stocks that we brought into this first quarter of the large -- last quarter for FY '18. During the course of the quarter, we did, as you know, lodged the EIS for the Vickery Extension Project, which was very good, and it's currently on public exhibition. Winchester South is moving along with the appointment of Project Director and a small technical team has been on the ground. And of course, we did declare our $0.27 dividend for -- prior to the final for FY '18 and which was paid out during the course of this quarter.Over to Page 2, our physicals, as I said, 3.6 million tonnes versus 5.7 million, some 37% down quarter-on-quarter. Obviously, given that we've had a full changeout for Narrabri during this period, and that does obviously leave us with quite a big difference between those 2 quarters. Managed saleable coal production at 4 million tonnes versus 5.9 million, 32% down and managed totals coal sales at 4.85 million versus 6.1 million, 20% down on a period-on-period basis. Now the equity table there as we normally produce there is for you to see. Safety, as we say, has been going well, slight retreat on our previous quarters' performance. So they're doing very well relative to the NSW industry average, but we do acknowledge there's more work to be done here. Our overall objective is to improve year-on-year, and we know there's some others in the industry show us that further reductions can be achieved, so we continue to push hard in that direction. The production commentary just for this quarter. I thought we just explained that just a little bit. As you know, we've had, in the last quarter of last year, we certainly had some delays in moving into the changeout period for longwall panel 7 to panel 8. And so that, as I said, that entire changeout completed now within this past quarter, the September quarter. So during that period of less production at Narrabri, last year, we were oriented to drive the open cut mines to produce more to compensate for those lower tonnes at Narrabri, which will be reset during the course of this and the next quarter. We do reiterate our full year guidance for our saleable coal production for FY '19 over a range of 22 million to 23 million tonnes on the managed basis for the full year.To sales and pricing. Equity coal sales, including our purchased coal for September quarter of 4.1 million tonnes, is 14% down on the previous corresponding period. And our managed coal sales, including purchased coal, 4.9 million tonnes, is 20% down on that time. The September quarterly average prices, which were a matter of record, now you've got the hard coke at $188, and low-vol PCI at $137, and relevant to us is semi-soft at $129 for the quarter. Our settled price is on our met coal products in total was USD 128 for the quarter which is a pretty good outcome.On the thermal side of things. Obviously, with significant growth activity in many of our markets, pricing for thermal coal has been strong at $117 average for the quarter. That has certainly been a very good result. And across all our coal -- our thermal coal sales, we've achieved $113, which is a pretty good outcome. That Maules continues to achieve its very positive premiums over the gC average for the month, 9% being the outcome for this quarter. And given the distortion between gC Newc and lower-rank coals, I think the $113 versus the $117 outcome is actually very good -- very good result during this period. We provided that table as we have been accustomed to doing that, so you can see the quarter-on-quarter comparisons between the relevant prices for the quarter and our achieved outcomes. At Maules, over the bottom of our page here. Full year production guidance at 11.8 to 12.2 is reaffirmed. Coal production at 2.26 is down 13% from the previous corresponding period. There was a little bit of rebalancing going on at Maules given the hard drive that we had in the last quarter to cover some of that deficiency out of Narrabri. So there is a little bit of rebalancing going on in this quarter and the next. And so we'll see that normalized during the course of this next quarter. Metallurgical coal sales at -- was about 600,000 tonnes -- sorry, production 600,000 tonnes which is 31% of the total saleable production for the mine, the sales themselves on a managed basis were 326,000 tonnes for the quarter.As we talked about before and the same phenomenon seems to continue, albeit feature the market present, we're not chasing the incremental spot-based semi-soft sale. And as you can see, even given with today's prices at gC Newc level plus those premiums that we've cited 9%, there's still not a lot of incentive, but not just us, but the rest of our peers from the reduced semi-soft to go and chase those incremental sales. So for us, again, we're about -- we'll certainly continue to pursue JSM price contracts, but certainly spot sales of semi-soft is not something we're incentivized to do at the moment.Narrabri, as I say, not much of a story from a production perspective to talk to, but certainly the main feature of the outcomes we're looking for, for the quarter was obviously the timely and safe relocation of the longwall from 7 into 108, which has occurred. Production, obviously, was commensurately lower as a result at 550,000 tonnes, saleable coal production at 700,000 tonnes, sales at 875,000. The longwall recommencing the third week of September which was great and has assumed the production profile consistent with where we'd like to see it, which is very, very positive to see. Secondary support regime that we've been putting in place and we've talked about now or over the last few quarters is certainly doing what is achieved, what's meant to achieve, which is positive, and roadway development, as you can see, there are 2,824 during the course of the quarter.Over to the Gunnedah operations. Total ROM production at 800,000 tonnes, down 11% from the previous corresponding period. Both saleable, coal production at 1.27 million and 1.4 million, respectively, were significantly higher than ROM coal production as we continue to draw down stocks during this period, and that was a feature of the production -- the ROM production outcomes versus saleable and in sales as well for each of the mines below Tarrawonga, Rocglen, Werris and Sunnyside. Tarrawonga produced 438,000 tonnes of ROM, but saleable and sales were both ahead of about 521,000 and 547,000. Rocglen the same phenomena again. I know you recall that we brought large stockpiles into this quarter at some 3 million tonnes of total stocks as at the 1st of July. And then as we sought to draw those down during this quarter, you'll see the same phenomenon. Werris Creek had 167,000 tonnes of ROM production for the quarter versus saleable coal production and sales of 470,000 and 541,000 tonnes, respectively.Key feature of the work that's going on, as you would know were certainly publicly, is that, as I mentioned, the EIS for Vickery has been lodged and is now on exhibition. And that exhibition period closes on the 25th of October. The process going forward is somewhat new to us, given that there -- the newly constituted IPC as opposed to the old pack arrangements that many of you will be familiar with. So the process itself will go through some change, I believe, in terms of how these new IPC interacts with Department of Planning and Environment. Although we are very keen to hear that one of the underlying tenets, if you like, of this new process is that they are looking to achieve shorter approval time lines than what has been delivered in the past. So we very much welcome what that process outline. But certainly, by the end of this year, we are looking to have the first public hearing of the IPC of the project and look forward to have the balance effect approval pathway unfolds in this [ completion ]. Winchester South, as you know, has been an exciting addition to our development pipeline. And it's very pleasing that we've got a project work on the ground and a technical team. We have been on the ground there, doing a number of assessment work that are necessary and engaging with the various stakeholders being the government -- state government, local council, mayors, indigenous stakeholders as well and a range of different on-site inspections been going on as we speak. We are looking to convert the previous Rio base resources that we published in the past into our own perspective on the resources pool of Winchester South project. We expect it will be due at least shortly. From a coal outlook perspective, I mean it's quite an interesting time. There's no doubt that with good growth around many of the jurisdictions that we're at the world uniformly, which is quite good, but certainly in our backyard, there has been solid demand for our products. We're seeing Chinese power generation up significantly year-on-year. We're seeing some coal supply sort of additions to seaborne trades, certainly out of Indonesia and some of that are a little bit out of the U.S. but Indonesia being the main feature there. Adding to what it is obviously a strong demand environment. But importantly, what we're not seeing is any real supply additions at the higher end of the CV spectrum coming in to change the supply-demand balance for quality coal. So that seems to be -- that certainly seems to be a feature of the market we're dealing with at the moment. Obviously, and talked about now a lot is the difference between the 5,500 market and the 6,000. We certainly can see that there's more production in China going on at the 5,500 level, obviously, complemented by the Indonesian incremental production that we're seeing as well as the 5,500. It certainly is adding to the weight, if you like, on the pricing for the 5,500 market. But as I say, at the 6,000 level, there's certainly a [ scarcity ] of new supply additions that are evident and very strong demand as some of the jurisdictions that we're exposed to are changing the nature of their quality requirements. I know we've talked about Taiwan in particular as a notable example of that. But Korea also, more recently, bringing in further requirements. And that certainly is driving -- that's driving further strength, if you like, in the 6,000 market. I do note that even with our commentary before that not just us but our peers not chasing semi-soft incremental sales, but we know that people are like we are, moving some of that coal into the thermal market. But even given that, obviously, the premium end of the thermal market has held up very well. And from where we stand here, the outlook looks quite solid, and we're literally in the way of supply -- new supply coming on that we can see that would disrupt that supply-demand balance that we see. But we are expecting, of course, in this period, being the shorter period, there certainly is ordinarily some softness in pricing here. But I think even that softness that we've seen in a more recent week or so is quite subdued. And so the outlook looks very solid leading into some of that, obviously, their winter, which is going to drive continued support for decent pricing.So that pretty much wraps up our quarter for our first quarter for the year. I'd say that production has been lower than the previous corresponding quarter. But as I say, it's rebalancing here and, obviously, remains driver of that lower production being the fact that Narrabri had a full changeouts during this quarter. Good to see it back in production again and moving forward at a rate which we would expect it to do in this past 3, 4 weeks that it's been operating. So very positive in that regard.So with that, I'll hand it over to the operator, and we can start the questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Peter O'Connor from Shaw and Partners.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Paul, a Couple of ones on the markets. Fascinating pricing in a market over last quarter. So I just want to ask you about that. But firstly, the level of stock you talked about at 3 million tonnes and the drawdown during the quarter, are you now back at normal? And what is that level? Or should we expect more drawdown of stocks over the next quarter?

[Paul J. Flynn, MD, CEO & Director]

Thanks, Peter. Yes, pricing has been very good as you say, $117, as you can see, if you go back to our table, and I'm sure you've got that table over a series of quarters now. So $117.51 certainly good outcome, certainly the best that we've seen in those 4 quarters I've outlined for you and the $113 that we've achieved, given that distortion between the 5,500 and the 6,000 being a good result. I mean, much talked about, as we know and as you know, the 5,500 market. But despite that 6,000 -- high end of the quality spectrum is very well supported. The drawdown in stocks, Peter, was obviously a feature -- we did bring a lot of stocks into the year as we did last year. So we do want to draw those down. No, I don't think we need to draw them down too much further than that, but it is a function of having, as we had over the last few years, a heavier second half than our first. And as a result, you do tend to build a few stocks in there. We do have the added conundrum as some of you would have noted in discussions before, where -- particularly as it relates to say, Gunnedah ops, say, for instance, where we've got trucking limit which is truck total movements on a calendar basis as opposed to a financial year basis. And that's added to things like, as I say, Werris Creek, where we do hit those deeper sands with the thicker sands which produced more coal, say, for instance, with the latter as the sequencing occurs in the latter part of the financial year. And so this is just part of having a portfolio of mines, and we do see that there's some variations time to time. But I think, as we've seen over the last couple of years in particular, the first half has been a little bit lighter, the second half has been a bit heavier. And this year is going to be no different in that regard.

[Peter O'Connor, Senior Analyst of Metals and Mining]

And Paul, back to the mix, the -- that mix of 17% for the quarter, it's obviously lowest in the last couple of quarters. Thinking ahead with the pricing where it is, should we think about that our ratio had been below 20 for some time until the pricing reverts to whatever normal is? And then in that context, the comments you made about met coal sales at Maules Creek versus met coal production, is that reflecting that pricing the market and you're withholding the incremental tonnes?

[Paul J. Flynn, MD, CEO & Director]

No. Just your last part first. I mean, that's just timing. That's just timing in terms of when deliveries are. So at Maules in particular, our commentary is. But overall, I would say, yes, look, I think at this point in time, unless there is some material change in, say, soft pricing relative to thermal, and as I say at the moment, we're doing very well out of the thermal price market that's delivering us a very solid outcome, given the -- this is completely a bypass-type arrangement achieving that 9% premium. Look, I think, this is the trajectory, I think we'll see ourselves with the balance of this year. I don't see it changing too much unless, of course, something alters. But I don't see any drivers for that change as it currently stands. The hard coke price is held up quite nicely as you can see. And as we commented and discussed, I believe and, I say, it's through these quarters over the last 12 months. Whilst that phenomenon exists, I think we're driving hard with the steel production. Obviously, customers willing to pay the price for the -- that have been passed on them for the higher input cost of the higher hard coke component of their coke blend. And semi-soft sales are subdued. Nothing will continue to be that for this year.

[Peter O'Connor, Senior Analyst of Metals and Mining]

So when you say this year, you mean fiscal year '19 or calendar year '18?

[Paul J. Flynn, MD, CEO & Director]

I'm talking fiscal year.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Okay. And in your experiences or Jaime's experience, how do you see this play out? Is it the semi-soft coal that goes into the thermal coal market that caps out that market and brings back the pricing relativities? Or do you remember or recall how it plays out or typically plays out?

[Paul J. Flynn, MD, CEO & Director]

You're going to have to give someone else a turn here. Yes, this is a cyclical business. This goes through cycles as well. But I mean, we have seen, like I say, uniform growth now starting across -- has emerged across the world which is a positive thing to see, and that has driven -- that has certainly driven underlying demand for the hard coke. So the numbers that people would have predicted the hard coke would be at this point in time, if you went back 12 months ago, certainly look different from what the people achieving today. So look, it will be -- it will go in cycles but this part of the cycle seems to be extending further. And whilst we're in this particular paradigm, it's just not to say, there's no incentive, additional incentive for us to go wash more coal to produce the semi-soft, unless, of course, they are for long-term blue-ribbon customers that we've said we'll always do it for to make sure we can meet their needs.

[Operator]

Your next question comes from the line of Lyndon Fagan from JPMorgan.

[Lyndon Fagan, Analyst]

Paul, just on the production. Can we just visit Narrabri? So I guess to get to your ROM guidance, we need about 2 million tonnes per quarter for the next 3 quarters. Should we be spreading that evenly? Or is there anything else we need to be aware of? I mean, obviously, this quarter has had a bit of a ramp-up. But just wanted to make sure we kind of get the profile right for the next little while. That's the first one.

[Paul J. Flynn, MD, CEO & Director]

Yes. Okay, I'll do that one first, Lyndon, thanks. Look, I think generally uniform. I mean, we have the faulted area to traverse, which we talked about at [indiscernible]. So that might be in this next quarter, in this current quarter we're in now in the December quarter. It will be in the next. So there will -- we have budgeted one at back, because as we work our way through that faulted area, we do rate our production expectations to be able to traverse that area safely. Having said that, that's compensated anyway for what is clear running on either side of that. And I'd say, the most important things we're seeing here is that production volumes have ramped up quite nicely now that we're back into cutting. Yes, the roof is looking very good, and all the secondary support that we've put in place is doing what it's designed to do. So that -- I think if you split it across the next 3, you'll be fine.

[Lyndon Fagan, Analyst]

Okay, great. And then moving over to the Maules. What is mine sequence recalibration sort of mainly in terms of how long does that last? We're trying to forecast Maules. I guess, I wasn't aware of the mines sequencing recalibration, and I wasn't too sure how long that it last.

[Paul J. Flynn, MD, CEO & Director]

Yes. It's a temporary thing, Lyndon. And I'll give some answers. Ian or Jamie can give you some more color. Look, it's a temporary thing. Look, we put a bit -- fair bit of extra coal out of the pit in June. Narrabri, as you know, was obviously short of its target, lamentably. So there was -- so the mines slightly out of sequence in terms of coal produced versus over them removed. It's a big pit. And so this quarter, this quarter, there's a work done just to reset that to make it balances in a more sustainable pattern. And you'll see that in this December quarter. So you'll see that right -- right the ship, I think, from a Maules' perspective when you look at those 2 quarters together.

[Lyndon Fagan, Analyst]

So again, do we split it evenly through the remaining 3 quarters or have we got another set of softer quarter ahead of us?

[Paul J. Flynn, MD, CEO & Director]

No.

[Jamie R. Frankcombe, Chief Operating Officer]

No, we'll be out of it by the end of December. It's a 1-quarter impact, the September quarter. By end of December, we'll be back on budget, and then it will be evenly distributed for the second half of the year.

[Lyndon Fagan, Analyst]

Okay. So December quarter weaker than the 2 subsequent quarters is what you're saying?

[Paul J. Flynn, MD, CEO & Director]

No, no.

[Jamie R. Frankcombe, Chief Operating Officer]

Stronger, stronger. We got a weak quarter, September. So we'll be back on budget by end of December, that's going to be a very strong quarter. And then for the balance of the year, so the second 6 months, that will be fairly evenly spread.

[Lyndon Fagan, Analyst]

Okay. All right. And final question. Just in terms of forecasting the lowest CV thermal coal sales that wrap around just under a quarter of the mix in the last 2 quarters, is it going to stay around those levels? Or how do we think about sort of achieved pricing for thermal over the next 6 months -- 6 to 12 months?

[Paul J. Flynn, MD, CEO & Director]

Yes. Lyndon, look, that's a good question. If you look at both June and September, they do look strangely familiar in terms of the splits. And that is because -- essentially, the key change in there, as you know, we're going through a series of difficult circumstances in Narrabri in particular during the last quarter of last year. So whenever we were dealing with those roof falls, we've got contamination of rock coming in. And when we talk about lowest CV, we're talking non-gC Newc if you like. And I know we talked about this a little bit more color in the past. But when we say that, we mean, in Narrabri's case, we've experienced the quality drop off associated with the roof fall. You end up being around the 5,800 mark. So It's certainly not 5,500, not by any measure, but you do end suffering some quality degradation when those roof falls are ongoing. Now that's obviously not a feature of the operations now. In fact -- but it is -- it is a legacy of some coal sales that went out which was including that type of coal, which we brought into the new year. I think we had some balance, 600,000 tonnes I think of that Narrabri stocks we brought in to the year. And so you're seeing some of that trickle through into this now. So I expect this to back off, the percentage from the 22% you see now. I expect that to moderate because we're back into normal cutting in Narrabri, as I say, the roof is looking good. Secondary support is doing its job. Quality for Narrabri will resume the type of quality we normally expect out, and certainly doing that now.

[Operator]

Your next question comes from the line of James Gurry from Deutsche Bank.

[James Gurry]

Can I just ask with Vickery, you said that it's a new process that you're going through? I don't want to be negative but just help me understand what's the risk or what's the possibility, given that you've got public hearings and whatnot that you come out of the process with the mine not approved even at 4.5 million tonnes or is it the case completely that it's 4.5 million or 10 million tonnes and various conditions might be attached to the approval that you expect?

[Paul J. Flynn, MD, CEO & Director]

Yes. Thanks, James. Look, it's a good question. Firstly, just let me say, it's approved of 4.5 million and regardless of patents with the current application, it's always approved of 4.5 million. So you don't lose that. Now obviously, that's not our preferred approach to exploiting this deposit, otherwise we would have done it already. We think the extension project is vastly superior on many levels. And many of those levels are actually aspects that go to a better approval from a community perspective, from an environmental perspective, from every which way you look at it. It's superior, in our view, to the 4.5 million even, as I say -- we won't lose the 4.5 million approval. We'll always have that. But there is a new process you can navigate. The expressed desire is to truncate the approval time lines that people -- that DPE has been performing to with previous approvals. So in the case of Maules, say, for instance, as our most recent experience. You're talking some 1,300 days before you actually -- and this is in the approval process, not all the work that goes associated were actually -- before you actually lodge the EIS. And so the government stated objective here is to go -- to get to 500 days. And so, in aligning what was the old pack process with the new IPC, I do believe there will be -- there'll be probably be 1, maybe even 2 potentially, public hearings that are in addition to what you otherwise saw in the past. I think that's probably a good thing, I think, in terms of community consultation. I don't think there's anything to be concerned about in that regard. The Constitution of the IPC to our [ advice ] at least, it looks good. It's led by a very credible person who's on the scientific background. And so I think there'll be a lot of rigor applied to that process which is good. Former Chief Scientist of New South Wales is leading that, which is great. So look, I think whilst there is some process uncertainty with this new process yet to be fully outlined for us, all the things that we are hearing so far from a process perspective seem reasonable. And again, with the underlying objective here actually turning these things around in a more timely fashion than what approval times have drifted on to become over the last few years. So I think it's probably a positive development in the end the way it's going.

[James Gurry]

I'm looking forward to outcome. While we're on the topic then, can you contrast that with Queensland. And you seem to be indicating here that there might be some hope to bring forward. I know you've only got a hold of the project in June. But I think previously you might have outlined the 5-year sort of horizon in terms of approvals and development and getting to first production everything going on. Can you just contrast?

[Paul J. Flynn, MD, CEO & Director]

Yes. Yes. Look, James, there is -- there certainly is a contrast. So you're right to point that out because we feel it and have expressed our appreciation for it. Certainly, the Queensland state has been very welcoming of Whitehaven's acquisition of Winchester South. It's clear to us that they see this as a very good deposit, the government that is and want it developed. And so obviously, that doesn't mean you're going to get approval, but it does mean that the underlying desire here is actually to see that deposit which is certainly on the ground for a long time developed. And so we're keen to work with the government. The government is talking to us about various ways that the project can be treated in terms of how it's -- what different of the roots, the corridors that you use, if you like, through the approvals process. So we're exploring the pros and cons of each of those alternatives at the moment. Obviously, with the objective of bringing on as quickly as we can. 5 years, as you mentioned, certainly is reasonable. I think it can be done earlier than that. But as we mentioned in the quarterly here, we're obviously going through all the data we've inherited now from Rio, and there's lots of information there and we've done a hell lot of work. A lot of it is quite dated. So our immediate focus is actually to get on the ground and validate some of this data for ourselves, which we've been -- which started process of last week, in fact. But we'll cut the resources again, consistent with our view of the deposit, and I would see -- I'd be really pleased if we could shorten that time line to development quickly, given that you can see that we're in decent financial shape and can fund the development of the [indiscernible]

[Operator]

Your next question comes from the line of Glyn Lawcock, UBS.

[Glyn Lawcock]

Just 2 questions. Firstly, Maules Creek. I don't quite understand the commentary around the June quarter -- I'm sorry, the September quarter and the June quarter where you pushed it hard. I mean, you're pushing the 2.9 now for the March quarter, the June quarter, it was 2.8 back in June quarter of '17. So I'm not quite sure, it doesn't make sense when you say, push it hard and you had to back off. And so if I look at your guidance now, you're going to have to run it 13 million tonnes per annum for the next 3 quarters to make guidance in fiscal '19. And you're saying you cannot run it 13 million tonnes rate until fiscal '20. So it's -- I can't square the circle with the commentary on Maules Creek. And then the second question is just on your low CV sales. I understand the issue around Maules and [indiscernible] as high-energy thermal, and I understand the Narrabri issue. But your guidance is 15% for low CV for '19. Just if you could talk a little bit about, you said you've got the Narrabri is like is a 5,800 when you've got the contamination. What's the remainder of your low CV? And how does that look from a pricing perspective? Because I noticed the 5,500 Newcastle price [as a point at ] flat is about mid-60s. So I'm just wondering where your price sits, your cost, and can you do a bit of blending to try and maximize the price you get for it?

[Paul J. Flynn, MD, CEO & Director]

Yes. Thanks, Glyn, and I'll try and get through that, because you asked a bunch of questions, it seem to be the theme, ask 3 questions at once. June to September. Look, really, this is, for lack of a better term, at a sequence from a strip ratio perspective, if I can call it that. Our ROM production for Maules for the quarter of 2.26. We certainly would have liked a little bit more. But there's an effort going on at the moment just to rebalance where the team had fallen behind stripping in the June quarter, rebalancing that now in this current quarter. So that's what we're referring to in that sequence. And you're right, we do need a good solid series of quarters which we are currently experiencing already. And I know we're only a couple of weeks in, but you can see the benefit of that rebalancing plan being put in place, and you'll see that December [ sustain] in the quarter. So as Jamie highlighted, our view is that we will be back to toss where we need to be at the halfway point in the year, and you'll see that and then you'll have an even spread over the last 2. The low CV, which as I say, other thermal as opposed to low CV because it's 5,800. The chief contributors to that as we've talked about to some degree is obviously Werris Creek, of course. Werris Creek doesn't produce as good a spec outcome. Not its best day. We do strip out a little bit, as you know there, for PCI sales from time to time, but that's relatively modest volume out of there. So in its entirety -- its entire production goes into the other CV bucket. And incremental to that, which is not really been visible in previous years because hasn't been functioning, but now we've opened up Sunnyside, again, to complete the rehabilitation of that site. It's going to see us extract some coal out of there 4,500 tonnes during this year, which again, is certainly low CV in nature. In fact, it will probably be our lowest calorific value coal production. But it's -- the flip of that obviously is really in the rehabilitation exercise. And that the prices you've just quoted, we actually made some money out of that which is quite good, but that also will be classified into that basket as well. So I think it was -- might have been Lyndon's call or comment before. We do think that the low CV number will moderate for the balance of the 3 remaining quarters of the year. But yes, we have had certainly, as I say, a bit more Narrabri, 5,500 material than what we would have wanted, but that really just the drawdown of the balance of the stocks that we bought into this year.

[Glyn Lawcock]

Paul, can I just ask then, just to clarify. If you took the Werris Creek which is pretty standard product as you say. Where is the pricing today versus where it's historically priced, relative to, say, gC Newc?

[Paul J. Flynn, MD, CEO & Director]

I don't have the splits in front of me here on that, Glyn, but the price is actually better than where we have been in the past from an absolute [ pricing ]. The issue, obviously, is that the quality into the spectrum has run hard. And so there's no doubt that rather than sort of a linear relationship from an energy basis that you would normally calculate when dropping down from the gC Newc level into the Korean market and then relatedly into the 5,500 market, clearly, the linear relationship has that you would've seen in the past is quite [indiscernible]. So at the 107 versus what you say, 66, if you're dropping down into that market, that's quite a gap. And proportionately, that's quite a big difference relatively to what we've seen in the past.

[Operator]

Your next question comes from the line of James Redfern from Merrill Lynch.

[James Redfern, Vice President]

I was going to ask about Maules Creek, but you've covered that one -- covered up on that. And maybe just a quick comment, please, on the Gunnedah open cut, just in terms of Tarrawonga, Rocglen and Werris Creek will decline year-on-year and quarter-on-quarter.

[Paul J. Flynn, MD, CEO & Director]

Yes. Yes, okay. Yes, no problem. Look, Gunnedah really, as I say, there are some features there which are misaligned from a financial year reporting perspective, and the most obvious one for us is that trucking limits that apply to Tarrawonga and Rocglen. So if you run hard, and they're on a calendar basis rather than in a financial year basis. So if you run hard, during the first half of the calendar year, say, for instance, and you happen to exceed the 3.5 million tonnes, say, for instance, trucking limit applied to the aggregate of both Tarrawonga and Rocglen, then you got to back off in the second half of the year, and there's a little bit a less going on. Werris Creek is a different issue. It's not constrained by that type of trucking arrangement because it's obviously got the same load point. But as I mentioned, as we know, we talked about before and, fortunately, on an annual cycle, we certainly seem to get to the deeper sands which yielded a greater production of coal, the deeper sands being the thicker sands in the second half of the year -- in the second half of the financial year, sorry, just to be clear. So yes, annoying that is, that is it is what it is. And yes, it's a portfolio benefit, I suppose. We've got other mines where we see other features are playing out. But those are the key factors that drive the Gunnedah ops.

[Operator]

Your next question comes from the line of Peter O'Connor from Shaw and Partners.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Paul, on Winchester South, you talked about validating some of the extensive work at Rio. This validation means drilling holes or does this mean getting on the ground and doing desktop work? Or how extensive is the word validation?

[Paul J. Flynn, MD, CEO & Director]

Look, it's in a broader sense of the word. I don't think we need to go and dispute everything that Rio has done, far from it. I mean, from what we can see and what we know from the work that they did on Maules, it looks like that, there's been a hell of a lot of work done, a lot of holes been sunk into it. But like Maules, a lot of that work was done a long time ago, and markets have changed quite substantially, and the demand for certain products has changed quite substantially. So our view is that there will be some holes in the ground here. But generally, the holes won't be about the linear and the existence or otherwise with the coal, it's actually about the product quality and defining the split. And so there will be holes sunk in there. But our view is really just to perform yield for ourselves as to what those splits of quality will be. Largely, there was a 25-25-25-25 split proposed by Rio in terms of the hard coke, semi-hard, semi-soft and thermal. So our view is that's something that's critical to the overall yield scenario in terms of how you want to play that blend. And depending on where we land on that mix, that will drive the yield outcome for the project which is quite a key determinant in its economics. So yes, look, we're not seeking to question everything that Rio had done. I think from the work we've done, a lot of it has been very extensive and very good. Happy with that. But that was done a while ago. And as we've learned with Maules, people look at different deposits with different eyes. And Maules is look at largely from a thermal perspective, but we think it's got obviously more and better quality of coal in there that we -- the market welcome to semi-soft product. And so -- an I think the same pictures will apply to Winchester South as well.

[Peter O'Connor, Senior Analyst of Metals and Mining]

And look back to Maules Creek, 2 questions. Are you selling or have you sold any washed coal into the thermal coal market?

[Paul J. Flynn, MD, CEO & Director]

No. Sure. That's not...

[Jamie R. Frankcombe, Chief Operating Officer]

[ probably ] it's washed.

[Peter O'Connor, Senior Analyst of Metals and Mining]

So you've [ washed and sold into ] the thermal?

[Jamie R. Frankcombe, Chief Operating Officer]

No.

[Paul J. Flynn, MD, CEO & Director]

No. There's no purpose in doing that. But if you've got a whole thing covering, the tops and bottoms you want to wash, you do wash it just to make sure that you maximize the recovery of the sand.

[Peter O'Connor, Senior Analyst of Metals and Mining]

And just to reiterate Jamie's comments about what can be done in December quarter in March and June, in particular, could you just comment about the 13 million tonne rate. What is the site high-capacity today with the [ key open ] site to do that? So those -- is that 13 million tonne number achievable over the half or something 2 quarters like that?

[Jamie R. Frankcombe, Chief Operating Officer]

Yes. If you look at the June quarter, we did 2.9. that's with the equipment only recently, and so we weren't fully equipped at the stage earlier. So I mean, to run it at 13 million tonne rate, I guess we've achieved that, I guess, in shorter periods. And certainly, we've got the equipment and strip ratio, I guess, to be able to do that for this next 3 quarters.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Okay. And just one on Narrabri, the support regime, Jamie, it sounds like you're getting on top of it, which is great. and that cost guidance you gave us last year, I just want to circle back to that, is that still in place that additional cost in plus going forward? Although you've caught up, do we still assume that there will be rolling cost for that rehab with additional support at Narrabri? Or do you [think that will open ] and that drops out?

[Jamie R. Frankcombe, Chief Operating Officer]

It will drop out, but it won't drop out probably until close the end this calendar year. I mean, we're still in the process of catching up, if you like, I guess, to get to the point where the steady-state regime will be less than what the -- this interim requirement, I guess, to catch up has been. So yes, it will be in place, but I expect in the start of 2019 calendar year, it will drop back some degree.

[Peter O'Connor, Senior Analyst of Metals and Mining]

So that long-term cost you gave last year, that's still in place but it starts from once this big load is over.

[Jamie R. Frankcombe, Chief Operating Officer]

Correct. Yes.

[Operator]

There are no further questions at this time. I will now hand back to the speakers for any closing remarks.

[Paul J. Flynn, MD, CEO & Director]

All right. Thank you, everybody, for taking the time to dial in to the quarter. To the extent that there are further questions that any of you have, you know where to find us. We look forward to catching up over the next weeks and months. Thanks very much once again.

[Operator]

That does conclude the conference for today. Thank you for your participation. You may all disconnect.