Whitehaven Coal Ltd

ASX:WHC

Earnings Call Transcript 2020-Q1

[Operator]

Welcome, everybody, to the Whitehaven Coal September quarter production report briefing. [Operator Instructions]I'll now hand over to our host speaker, Managing Director and CEO, Paul Flynn. Please go ahead.

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

Yes. Good morning, everyone, and thank you for joining us for the September 2019 quarterly production report. As usual, I'll just go through the highlights and a quick discussion on each of the operations and our projects and then we'll move into the Q&A session.Just on the front page, I'll quickly go through the highlights. Our safety performance has been very, very good. I'm pleased with the results, but I'm conscious of the fact that it's just the first quarter and remain to be ever vigilant on our safety. September quarter ROM coal production of 4.4 million tonnes, this result period-on-period, but we are comparing ourselves against a period where, I would say, a lot more changes. September quarter saleable hot coal production of 4.9 million tonnes, similarly up period-on-period. Our coal sales of 5.5 million tonnes, 14% up period-on-period. As many of you know, we've announced that we have entered into an agreement to purchase the 7.5% Narrabri from EDF and which will give us an equity position of 77.5% in the Narrabri mine. Tarrawonga's equipment is -- appears on site now. And so we'll soon be commencing our ramp-up to 3 million tonnes per annum. Rocglen has remained closed in the last quarter, so we had commenced rehabilitation there. And our guidance for the full year remains unchanged. So just on the safety, obviously, the results here at 5.14 compare well to our last quarter of the year's total of 6.16. But obviously, there's a myriad of reasons why we need to be focused on safety and there are constant reminders within the industry that we need to continue to push hard. But we're pleased to see this improvement. We are very conscious of the fact that vigilance is required in all times in a business like ours. Our managed total sales, that's just in the box at the bottom of the first page, at 4.4 million tonnes versus 3.6 million, 22%; 4.9 million on the saleable coal versus 3.9 million; and total coal sales of 5.5 million versus 4.8 million. But again, just remind you that these increments are relative to a period which had a change-out in it a year ago. And as you know, our guidance for the full year maintained as it is, is flat year-on-year as we wait for production from next projects to come in. The equity totals across the page, as we usually present themselves there as well, reflected similar sort of changes period-on-period again with the change-out. As we've been producing now for some successive quarters, our analysis is there and just realized pricing's there for you all to get a [ steer ] on our realized pricing versus the average for the period across gC Newc, the JCM Quarterly semi-soft price and then average semi-soft prices as well. In this period, gC Newc pricing at $68 average was index average, and we've achieved USD 73 price by comparison. The products -- our met coal products go at USD 100, it's been the average outcome that we've achieved. Obviously, that's, I believe, by JSM pricing and through the period, by $115. And the average semi-soft spot price during that same period of $86. So based on the outcome, that's the average of $100. I'll delve into this -- into the managing period of September, cost period-on-period again reflects this change-out that we had in the previous corresponding period. So I won't go into too much more on that other than to say that pricing realizations have been relatively solid and, of course, Maules Creek has I think a calculated premium of 17%. And as many of you know, that's a function of the fact that we have a fixed component of those premiums that are received, which are off a lower base of an average coal price, do represent a higher premium relative to the average on the spot price more in the [ fourth ] quarter. So it's 17% above, it does reflect that fixed price component, particularly to the actual component rather than the entity. It's variable with the base gC Newc, but the fixed-price component will tend to inflate that premium calculation, and the underlying gC Newc price has softened. Over at Maules Creek. Maules Creek had a solid start to the year. And as many of you know, as we talked extensively through the Investor Day, our inaugural Investor Day which was -- thank you, [ Paul and Sandry, ] it was well supported. And so people will be part of our ongoing Investor Relations activities. And as we said there, the Maules Creek will have a slower first half versus the second [indiscernible]. The splits for Maules will be likely 40-60 period-on-period. Our focus in this first half, as you know, is to get to the bottom of the pit in the southwest area so that we can create the opportunity for in-pit dumping. And that won't occur until the second half as we reiterated. But production, as you can see, has been at that 2 million tonne mark for the first quarter. That will continue to ramp in the second quarter and then obviously, in the second half will be much better again when the [ grade ] we'll see, in particular, being 30% in resource is better represented in that second half rather than this first. Managed metallurgical sales of [ 360,000 ] for the quarter, which is about 17% of our product split. And overall back on the table across the page, you can see that metallurgical sales were about 20% of our sales overall for the company.The autonomous haulage system preparation continues, and we are in the final stages of testing and commissioning and also the necessary introduction with the regulators in order to allow the first fleet to commence operation later in the year. That is proceeding well, and we're looking forward to speak into that first fleet in autonomous haulage at Maules Creek.Narrabri would -- Narrabri finished the year largely with a solid quarter, and we continue that form pretty much replicating that last quarter's results again in this new first quarter. 1.8 million tonnes of ROM. You can see the saleable and also sales reflect that number. So we've held the stock position largely that we carried into this new year which is a good thing because we're rapidly approaching the commencement of the build-up for the change-out from longwall panel 8 to 9. So sales has been very positive and continue in that good form. So that bodes well for full year. Roadway development, both cut and flit and also conventional roadway development, of 7.2 kilometers for the period was a solid result also. The project to replace our truck cylinders during this upcoming change-out is on track. And our normal change-out, as you know, is about 6 weeks. And we've said that we should have extended for another 2 weeks to ensure that we get to the -- not just the change-out but also the full refitting of these new truck cylinders into our trucks during the course of this change-out. So the total period for longwall change-out we're budgeting an 8-week period for that production. Hence, those hang on stocks [ to their ability ] to sell coal through that period.Gunnedah does look a little bit differently from what you've seen in the past. Of course, Rocglen's production is no long represented. And in fact, Sunnyside has also come to a completion from a production perspective. So we've had our ROM tonnes for the quarter of 665,000 versus 800,000 the previous corresponding period. We have drawn down the stocks at Rocglen in their entirety, and there's a few remaining stocks with the Sunnyside which had bolstered the saleable coal production and sales of produced coal numbers for this quarter.Tarra's numbers are relatively flat period-on-period. As I say, that key focus of Tarra is preparation for the ramp-up to 3 million tonnes with equipment arriving during this quarter and next. Werris Creek. Werris Creek, as you know, after it had its glory at the end of the year, generally falls into a more subdued period which it had according to plan in this period, and it continues to build. There's actually quite a bit of stripping as we laid that next pit, at the top of the pit at Werris. Rocglen and Sunnyside, I won't really spend too much time on in the sales of the remaining stocks. We finished Rocglen, as I say. At Sunnyside, that's [indiscernible] stocks which will be sold during the course of this current quarter that we're in.I'm now going to take you on Page 6. And just to really cover, I suppose, now that you are familiar that we'd given at the Investor Day which was just recently and that many of you have attended that. Not much has changed at Vickery in terms of the process or where the project sits in the approvals process. Currently, we are awaiting the report of the Department of Planning on the recommendation of the project and associated draft conditions, where we're told that that's on track for, I think, the end of November delivery of that report. And if that turns out to be the case, I think you would predict that then the IPC hearing, which is one of the necessary key remaining parts of the approval process, will probably fall into the new year.In the meantime, there's various elements of work going on there with drilling being undertaken on-site just in terms of definition of the final [ box-cut ] location. And of course, our existing approval for the 4.5 million tonnes, what's required to do the necessary works to qualify for commencing construction during the course of the quarter which we undertook and completed by the necessary time line. Winchester South, moving forward. We've got some work going on in terms of assessing not just the quality from the drill program we did earlier in the year, but there's also more drilling going on to define geological structures within the proposed pit footprint. And then there's the associated negotiations with various regulatory authorities and NABERS on infrastructure pathways for necessary things, such as electricity and water. But overall, going well and proceeding according to plan. At the corporate level, for the record, just for a hedging position, we began just focusing on the acquisition on the 7.5% of Narrabri, but that agreement is dated as at the 1st of July from an economic interest perspective. So once settled, then the key remaining piece of this is ministerial consent, which is just a process-related matter, which will be completed soon, but we will be essentially recording an economic interest in 7.5% from the 1st of July. Exploration, we have noted to you because we certainly been spending a few more dollars on exploration as it relates to Vickery, Winchester South and, of course, at Narrabri Stage 3 project. So $8.6 million during the quarter. It is worth noting. And met coal's -- the outlook, I noticed that during the course of the Investor Day, is subject to much discussion and I suppose in a sense the summary of the factors that we see is influential in the outlook, the statements we mentioned during the time. Remember, there are also, obviously, ongoing concerns about trade relationships and there's certainly some slowdown in unloading the coal into China and, of course, influential in some markets is obviously a low LNG price. All those things combined, certainly that provide some uncertainty in the market which seems to -- certainly brought down coal prices to what appears to be somewhat of a [ floor book ], some support around the USD 65 now and in more recent times, that since we're recovering back through the $68, and, I think [indiscernible], we've reached the $70 level. On the met side of things, clearly, the impacts of those above matters and certainly affects those as well and -- but we do see some players who are not normal participants in the Asian demands, both on the thermal and met side, retreating as a result of subdued pricing which I think will have a firming impact in the market. Now for the sake of completeness, we have provided the table of guidance that we provided as part of the year-end results. And with that, that concludes my presentation. I'll hand back over to the operator in order to get into the Q&A session. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Lyndon Fagan from JPMorgan.

[Lyndon Fagan, Analyst]

Paul, just wondering if you could perhaps explain Maules in a bit more depth? I guess if I look at your guidance, if you're going to do 40% of ROM in the first half, we're looking at around 3 million tonnes for the December quarter or more even. Is that sort of the run rate we should be expecting or look, it's sort of a fair bit lower than that obviously in the September quarter? So I'm just wondering if things are already back on track there. That's the first one.

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

Yes. Thanks. Sorry, just for all, I understand, there may be some sound quality issues so just bear with us. It's being looked at. But hoping you can hear me. So Lyndon, thanks for the question. Look, we're certainly guided certainly a heavier second half than the first. And as I mentioned just now, the 60-40 split, I think, is the right way to look at that, and that's okay in terms of our current plan. So we are stripping quite significantly in that southern corner there. We obviously want to make sure that we pull out this last element of called Braymont in that area. And as you know, or as many have come to know is, when the Braymont appears, obviously coal arrives thick and fast, given it's such a big proportion of the overall reserve, which will occur. It's better represented in the mine schedule in the second half of the year than the first. Hence, the weighting towards that. And obviously, the priority is to get that in-pit dumping opportunity by getting to the floor as quickly as we can. The southwest area is the first place we can get to the big floor to create an opportunity. But it's on track, but it is certainly weighted in the second half. No doubt about it.

[Lyndon Fagan, Analyst]

And I guess just following up on that issue. Is this the -- should we expect lumpiness for the next several years as you sort of move to in-pit dumping as far as ROM output per quarter goes or is this really the last of the volatility in that? I'm just trying to understand what's actually -- what it looks like over the next few years.

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

Yes. So we can see this year in terms of the split, those -- the second was a little bit higher than next year. And then the 3 years then after in terms of R&D plan that we talked about, in-pit dumping before because at the end of the 5-year period, would be 100% in-pit dumping. It certainly moderates. Part of the challenge here, I think we've talked about this in the past, Lyndon, is the fact that Maules Creek's production is measured on a calendar basis and our financial is on -- obviously in financial year basis. So if you're doing as we did, we had a very -- because of the presentation of the Braymont Seam in its -- in all its glory in the last half of the year, you did 7 million tonnes in that part of the year. And so for this year, then you've also -- that influences how it impacts. So if you've done more in the first half of the year, then you'll do less in the second and vice versa just by virtue of this anomaly between when the total ROM production you're calling on the calendar basis versus the financial year. Did I explain that well out for you?

[Lyndon Fagan, Analyst]

I'll just take that one. Yes.

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

So if you've done 13 million tonnes in a calendar year say, for instance, you've done -- if you've done as we are saying, the second half of the year, January to June, we'll see the Braymont present itself in a great proportion in total ROM production due to the mine sequence. So if you're going to do a 7 then, then the first half of the year is going to be 5, does that makes sense in terms of...

[Lyndon Fagan, Analyst]

Yes, I think I'm with you. Yes, I think I understand what you're saying.

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

Yes, but it's just a matter of -- just for everyone's education, it's just a matter of -- because when the Braymont turns up, it's such a big, big seam relative to the other seams. When it comes in your mine sequence, it comes with a lot of coal and so you get a distortion. The strip ratio is obviously very low during the period because you got a lot of coal that appears in a very quick period of time. And the bifurcation, the balance of the year stripping is a little higher on average to get to that overall 6.4:1. Now in this year, we have guided 7:1 strip ratio which gives -- it's most of that cost increase we have talked about at the Investor Day.

[Operator]

[Operator Instructions] Your next question comes from Peter O'Connor from Shaw and Partners.

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

Two questions for me. Just following up on Maules Creek. Just the ash premium, could you just take us through that again and how that changes with moving price? I mean secondly, the exploration charge you've talked about, focused on, is that expensed to each period?

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

Yes. Thanks, Peter. The ash premium, just to parse it a little bit for everybody, there are 2 components of that. There's the energy benefit, which rises and fall proportionate to the underlying gC Newc price. And then the other component is a fixed dollar premium that we charge for other qualitative aspects including ash. And obviously, if you got a $5 premium and your underlying coal price is $65, that $5 is a greater proportion of $65 than the $100 it was 6 months ago.

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

Is that a quarterly or monthly or yearly negotiated number, Paul? Or is that a life of mine? Or how does that work in a per contract?

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

Just -- are you getting some feedback there, Peter, through your...

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

Yes.

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

Okay. It's not us. So I think someone needs to be on mute, I think. To answer your question in the meantime, it's relative to the contract terms. So some of them are annual payment.

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

Yes.

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

Very few of them are shorter term, then that attracts that premium. So in the second part of your question, exploration. The exploration for the projects are generally capitalized in the projects. Explorations around the operational site is expensed. So we're all seeing that number for that period. You probably didn't recall in terms of the spend around these [ very benches at ] Narrabri Stage 3. And if you look at the guidance table on the bottom of that page, you'll see that growth projects in this capital guidance of $95 million to $105 million, that capital of $8.6 million in there is part of that guidance at the bottom of the table. It's [indiscernible].

[Operator]

And your next question comes from James Redfern from Merrill Lynch.

[James Redfern, Vice President]

Just a question on Maules Creek, please? Just want some guidance around the proportion of met sales maybe for the first or the second half of FY '20. So 17% in the September quarter compared to 27% last year. I understand as you move into the Braymont Seam, the met coal sales have increased. I'm just wondering how we should think about that as a proportion of total sales. And then at the Investor Day in September, Maules Creek is still being referred to as moving towards 50-50 met sales and met to thermal in the coming years. So I just wondered if you could please provide some guidance on that going forward.

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

Yes. Thanks, James. I think you've answered your own question mostly there. So I'll just reiterate, that's certainly the Braymont. When it turns up, that brings with it the [ grand ] proportion, as you know, of met coal. Absolutely right. And so you could see the 17% from Maules had been relatively subdued. It will be higher than that during the course of the year. Last year, we are running at about 30% at Maules. And we certainly think that will be replicated in this year, but it will be -- it's timing related in terms of when that Braymont Seam presents itself as to when you actually see that kick up.

[James Redfern, Vice President]

So maybe for argument's sake, the June 20 order could approach 30%, do you think?

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

I think that's about right.

[James Redfern, Vice President]

Okay, okay, okay.

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

Sorry, the second half will be the stronger of all of this. Again, once you get to that Braymont -- the Braymont, its proportion would be as higher in the second half against the extra coal that comes out and the semi-soft comes with it. So the proportion will be higher back end than it is the first half.

[James Redfern, Vice President]

Yes. Okay. And just looking into sort of FY '21-'22, are you still thinking you can move that -- or I would not listen to that, but move towards the 50% target?

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

There's no reason why we can't. I think again, this comes back to this dynamic which we've been discussing now at least from [ 0 to ] probably nearing on 2 years, where we can find a distortion between the hard coke price and the semi-soft price relative to thermal and its premiums. And so coming back to those -- the discussion we just had before with Peter, obviously, that premiums look high on the thermal at the moment relative to the spot and semi sales price. But as far as the quarter price goes, for the JSM Quarterly price, there's definitely money in that to make the semi. So we're still tracing any contract on the quarterly price but less enamored with the idea of a spot sales and semi unless it's a path to a quarterly base contract.

[Operator]

We have no further questions at this time. I'll now hand back to Paul for any additional or closing remarks.

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

Thanks, operator. Thanks, everyone, for dialing in. I know, given that we've had the Investor Day just recently that you've got a lot of the information, but if there's anyone got any particular questions, of course, you've got Sarah McNally's number, now been taking over from Ian McAleese. I know many of you have met Sarah. But if there's any questions, you know where to find us and maybe of course, can make their own way to the company. Thanks, everyone, once again.

[Operator]

That concludes the Whitehaven Coal September quarterly report briefing. Thank you once again for joining us today. You may all disconnect.