Whitehaven Coal Ltd

ASX:WHC

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Whitehaven Coal Quarterly Report Investor Briefing. [Operator Instructions] Please note that this conference is being recorded today, Thursday, 18th of January 2018. I would now like to hand the conference over to your speaker, Mr. Paul Flynn, CEO and Managing Director. Thank you, sir. Please go ahead.

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

Thank you, operator. Good morning, all, and thank you very much for joining in on our December quarterly production report investor call, first one, obviously, for calendar year '18. I'll just take the usual format as I do, go through the highlights and through the report, and then we can move through to a Q&A session then after.I did get some strange feedback then on the line. I hope that's settled down on your end and I'll continue to speak until told otherwise.So the highlights firstly just for the December quarter. Pleasingly -- very pleasingly, the safety momentum that we've been looking to generate, certainly in the last quarter of September, has continued through the December quarter, and our TRIFR rate at 6.19 is now the lowest we've ever, ever recorded as a company, which is fantastic.Our ROM production at 5.4 for the quarter was a little bit down. We'll come to that. As looking at the 6 months now, 11.2 million tonnes for the first half. Saleable coal production in this quarter is 5 million tonnes and just under 11 million now for the first half of the year. Coal sales, including purchased coal, 5.8 million tonnes for the quarter, and we got, again, 12 million tonnes for the first half.During the course of the quarter, we have agreed with Idemitsu to purchase the 30% of Tarrawonga joint venture that they own. So with only very procedural matters now to be cleared with that acquisition, we'll move to 100% in the new financial year. It's where it will be most evident.Also pleasingly, we finished the drilling campaign, which we mentioned before, to delineate the magnitude of the displacement in longwall 10 (sic) [ longwall LWA110 ]. And we've certainly confirmed that there's a narrowing of that displacement, which is very positive for us. That's certainly given us the confidence as well as our performance through -- mining through longwall panel 7 to decide to mine through the fault zone in longwall panels 8 and 9.And of course, during the course of the quarter, we paid our first dividend in 5 years. So that means $200 million is going out to shareholders and is a very welcome return to dividend-paying status for us.The production results, as I say, down below, flat December period-on-period at managed ROM at 5.4, same with the December 2016. Our managed coal sales, as I say, 5, flat across that same period. Managed coal's -- total coal sales at a managed level up at 5.8 versus 5.25 for the quarter period-on-period.Over the page there, the equity production and sales summaries, as you can see there. Again, very, very flat, I suppose, from the equity salable and sales slightly up, but on a year-to-date basis, 8.6 million tonnes of equity sales of our produced coal versus 7.8, some 11% up over the period. Our coal stocks have come down dramatically over the 6 months, as you would imagine, given that we've got lesser production than we would otherwise preferred. Certainly, our sales performance has remained strong given the large stocks that we brought into the year but down from what was nearly 2.8 down to 1.4 at the December quarter-end.Moving on, sales and pricing. You can see that we provided some extra data here now just to try and simplify the discussion for not just these calls but then also to provide a handier way for people modeling the price outlook from a revenue perspective. So what we've done here is we've provided this table and then a subsequent table later on over a longer period, a quarter-on-quarter indexed summary, if you like. And this is information we've previously given, but to provide and tabulate it in this form hopefully gives you a little bit more to work with. What this table refers to basically is what was the thermal NEWC Index price during the course of this quarter, what was the metallurgical JSM price -- obviously, that only applies to term contracted tonnes -- and then what was the metallurgical spot price during that same period. And then what we've done is then, obviously, laid that out relative to the prices that we've achieved during those periods. So if I just quickly, quickly go through that.So we've had, obviously, an average Newcastle price of $98 for the quarter, our achieved price for the entire suite of our thermal coal production. So like all the way from Werris Creek at the sort of 5,700 level right through to Maules Creek, obviously, greater than 6,000, have achieved that $98, which is very good.From a JSM quarterly perspective, you can see pricing during the quarter at $126. Our achievement during that period was $113. So you'll really reckon I'm proposing here what to use, if you -- for the JSM quarter, if that's what you're using in your model, should be 10% to 11% as being the average of discount across those periods.Of course, there's distortions from time to time that we've all observed in the market, but as you'll see in that table over the page, we've got a much longer price history. You can see that works. And in terms of the metallurgical coal price average for the period on a spot basis, our realizations were 3% below that for that quarter. So I hope that's useful for you, and I suspect we'll have some more questions on that a little bit later on.Turning to the mines themselves. Maules Creek, obviously, ROM production at 5.2 (sic) [ 2.5 ], up 3% on the previous corresponding period. Total coal production at 2.1, similar to that previous period. Coal sales for the period, 2.35, up 11% on the previous corresponding period. Metallurgical coal sales of 0.5 million tonnes, 24% of total sales from the mine. Semisoft production at 512 million tonnes (sic) [ 512,000 tonnes ], 24% of the total production and nearly 860,000 tonnes, 19% of the production for the half year.As you know, and as we've talked about in the past, as the hard coke prices have been running hard and steelmakers' ability to pass on input cost increases into steel prices, semisoft take-up has been subdued. And that continues to be the case at the moment, although I do note, as we've returned to this new calendar year, it seemed that Chinese interest has started to liven up a little bit in the incremental semisoft sales. Let's see how that pans out. But it's certainly -- as it currently stands today, there's been more incentive to achieve the premiums on our very good thermal coal product out of Maules Creek than necessary chase that incremental sale in the semisoft market.ROM coal production, as you know, 5.1 million tonnes there for the half year, 18% up on the previous year.Overall, very pleased with Maules Creek. And in fact, Maules Creek, the momentum is actually -- is improving. And as you can see, our guidance there, we're saying that we'll get 11 million tonnes for Maules Creek for this financial year. So a bigger second half now that we've got all the gear on the ground and some additional gear is arriving during the course of this next 6 months to bring us to the full productive capacity of 13 million tonnes in July of this year, '18.Narrabri has had a variable time over this last quarter. There's no doubt about that. In our December quarter, 1.642, 12% lower than the previous corresponding period. Our saleable coal production for the quarter at 1.7, and coal sales were at 1.8 for the quarter. ROM coal production for the first half at 3.9. Saleable coal production for the first half, 3.8, and sales at 3.8 also, modestly down on the previous corresponding period.Conditions at Narrabri have been changing, and certainly during this quarter. And what we are seeing there is the early -- the earlier onset of what was the predicted requirements for further roof support being required. But our predictions were that, that would be at later in the mine life when we certainly pass the 300, [ to-date ], 320-meter threshold of depth. But we're certainly seeing that transition come a little bit earlier. So we would say since we've passed the 250-meter level, we have been -- we've seen the need to put further support into the roof. And so what we've done is we've certainly reallocated labor where required from production to ensure that we've got that secondary support regime in place that we believe is now necessary for these deeper panels in the mine. And so that's certainly diverted attention -- or diverted labor resources away from production during this quarter.We certainly don't believe that once installed, the secondary support regime will mean anything for a changed production guidance. In fact, we think we'll be able to produce at the same rates as we previously predicted once the support regime is in place. But it will come at an additional cost, which is what we've outlined here. So rather than x amount of bolts per meter in the roof, we got to put more. And the implications for that is that we're saying there's $2 a tonne expected now just for that additional roof support that we think is required to maintain the production output that we would expect from what is one of the best underground mines in the country.So that's where -- that has transpired during the quarter. Now there is a tail of work here that needs to be required even though production has resumed at pretty normal levels already. There is extra work going into this over the course of the calendar year, I'd say, over the next 6 months in particular, quite intensive work to continue to put more secondary support in the roads that were previously driven 12 months ago.As I say, it was expected always to occur, and everybody knows that deeper mines require more roof support. It's just happened a little bit earlier at Narrabri, so we're onto it.Now relatedly, but different, the drilling program that we had signaled 6 months ago that we would have finalized by this time has been finalized. And what we can see from that is the longwall -- displacement of the fault in the longwall panel 10 certainly is diminishing, and that's a very positive thing to be able to report to you.Similarly positive is that based on our performance of driving through longwall panel -- the fault area in longwall panel 7, we've made the call that we will drive through the faulted areas in longwall panel 8 and 9 as well. Consequently, that does mean that there's an uptick obviously in the previous guidance that we've given on those 2 panels in particular. So the related impact of that is that in financial year '19 and '20, there's some 300,000 tonnes extra that will be produced in that period. Obviously, we're driving through. That's a cautious period. You do slow down, but there's no relocation involved for those 2 panels going through that fault now. But you will still yield an extra 300,000 tonnes in each of those 2 years. So the new guidance for that, 7.7 and 7, respectively, for FY '19 and '20.But with the delays we have had in reallocating labor around the pit during the course of the year, we have reduced our guidance for Narrabri for this current financial year to 6 million to 6.5 million tonnes for the year. Roadway development has continued according to plan during the course of the quarter.The Gunnedah open cuts have done pretty much in line with what we expected them to do during the course of this period, produced 1.26 million tonnes of ROM during the quarter, so not remarkably variable from what we've done in previous corresponding periods. Say Nar -- sorry, Tarrawonga, we obviously are moving to acquire that remaining 30% of the Tarra joint venture. In the new year, that gives us another 600 million tonnes per annum of equity coal production, which is very positive, as I say, very procedural thing now remaining to formalize that. But there'll be little impact of that in this financial year. You'll see that obviously in the new financial year.Rocglen, trucking along with 200,000 tonnes ROM for this quarter, 424,000 tonnes for the half year.Werris has had a really relatively slow period. As you know, it does in that first early period. And certainly, the second 6 months is always weighted more heavily for Werris Creek, annoyingly. But we are into those sections where the thicker seams are exposed now and production has stepped up quite nicely at Werris Creek. So we're sitting seeing that. But it will definitely have a solid second half of the year. And unfortunately, that's just the way the mining sequence works at Werris Creek.At Sunnyside, as you know, not really as much a production focus but certainly an opportunity at these prices to complete the rehabilitation obligation there, and at the same time, extract the remaining 800,000 tonnes of coal, we believe, can come out of that during the course of that activity. And we see this is a very good opportunity really just to demonstrate again another example of the good rehabilitation work that we've done in the region. So that's very positive.The corollary of obviously Narrabri's impacts with its production but also offset to some degree by Werris Creek stepping up with an extra 0.5 million tonnes during the course of this financial year is that our saleable coal production guidance for FY '18 is now 20.5 to 21 on 100% basis.Turning now to Vickery. You may have seen an announcement late last year that we have made some small changes to the Vickery planned footprint, and we have removed what we term as the Blue Vale pit from that plan as part of the EIS submission that will happen by the end of this quarter. That small pit, which is at 6 million tonnes, I would say is a contentious matter as far as proximity to the river despite the fact that scientifically, we were very comfortable with the work that we had done to prove that it will have no impact whatsoever on the river. But given the optics of it and the community concern that was being expressed, we thought it was the right decision to take that out of the EIS submission. And community feedback from that decision actually has been very positive.So just to reiterate, end of March, end of this quarter, we will lodge our EIS, all things being equal. And as I say, 18 months, 18 months for the regulatory hurdles to be jumped through.Over the corporate level, as we normally do, provide our guidance in terms of what our hedging position is, relatively modest as you can see. And again, the return of capital with our $0.14 per share to shareholders and then also the $0.06 unfranked dividend, that was very good to be able to provide that. Of course, the tax ruling came across as expected and is on our website available to people interested.As far as the outlook goes, outlook, obviously the coal price environment has been very good, as you can see from the table of the results that we've provided, and the outlook looks very good. Certainly, structural -- on the thermal side, structural side of that looks very positive. Demand has always been very strong, as you know. And as power station rollout in Asia continues to gather momentum, demand for our product in particular has been very, very encouraging. Somewhat frustrating and I suppose we'd like to have a bit more coal, but -- because we can [ still ] have return, and certainly we can extract at the moment.High coking prices, we have been strong. We have seen that moderate a little bit. So I think that there might be a little bit of that to come, but certainly, adversely, we always say that when those prices do actually come, then semisoft interest starts to reinvigorate. And as I say, we have seen a little bit more interest in incremental semisoft sales since this new year has started.Exploration obviously has been relatively modest, as you've seen us do in the past. Obviously, just doing the minimum necessary to maintain our exploration tenements in good order. And as I said, we've provided some more sales and pricing data just over a longer time horizon, just 4 years, so that hopefully, that works as a rule of thumb that you could use, whether or not you're measuring thermal against gC NEWC, whether you're measuring met against JSM or met against the spot market. But there's -- essentially those December numbers, actually, 0, 11 and 3 are pretty good estimations that you could use over time for modeling purposes.So with that, overall, it's been a solid, solid quarter, lots going on. Of course, Narrabri, as I say, going through a temporary transition as we've responded to the need to put more roof support into Narrabri. The cost impact of that at $2 a tonne is relatively modest. It obviously won't be required in the shallower panels once we flip over onto the other side of the mains, as it has been in the past, those shallower panels on the northern side of the mains. But certainly for the panels in the deeper sections of the mine, our view is post 250 meters of cover, an extra $2 per tonne is necessary. But otherwise, production outcome should be fine as we predicted in the past for Narrabri and will continue on its way and certainly one of the top underground longwall mines in the country.So with that, thanks for your attention, and we'll open it up for Q&A for those who'd like to ask questions. Just Jamie, Kevin and Ian are all here for questions if you require.

[Operator]

[Operator Instructions] Our first question comes from the line of Clarke Wilkins of Citi.

[Clarke Harold Wilkins, Director and Metals and Mining Analyst]

Just a question on that Narrabri. I'd like just to reconcile the comments that if it was expected, the ground condition would be required, why is there an additional $2 a tonne? And how much of the additional sort of reserve resources actually do require that additional sort of roof support that's below the 250-meter and where the extra $2 a tonne effectively does apply in terms of the additional costs?

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

Yes, thanks, Clarke, and Happy New Year to you as well. Look, it certainly was expected but not until later on the mine. And as I say, we would have thought we'd be well past 300 meters before you traditionally see these types of needs. And as I say, it's just essentially more bolting into the roof essentially is the basis of the work we're doing. Now of course, in the short term, there's been more than that going on just because you don't need to put a bolt in there if there's no signs of something going on. But as there has been signs of deterioration in the roof stability, there's been extra work going on around the place to do that, firstly to remediate that. And then obviously, our view is that we want to continue to maintain the production profile that we think the mine is capable of delivering. So we're estimating, going forward, that all of the tonnes in the mine post this point require this more intensive roof support regime. Now as I mentioned just briefly, there is a tail to this. There's a tail to this to overcome over the next 6 to 12 months and, that is those roadways that we've previously driven, which are below the 250-meter level, that we think, just to be sure, we will go back and provide and install the secondary roof support regime that we now deem appropriate. So as I say, the shallower panels, call that, the first 5 on the southern side of the mains. You'd look at those and you say no, they don't require it as the first 5 on this side didn't require a more intensive approach to that. But anything from that 250 onwards, we think, will, and that's why we've estimated that at the $2 per tonne.

[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]

Jamie, a question regarding Narrabri. So additional support, additional time, how do I think about development rates going forward and developing meters as the longwall tonnes? Big blocks, long blocks, slower development, how do you think about that?

[Jamie R. Frankcombe, Executive General Manager of Operations]

You shouldn't see any change, I guess. I mean, this is what we would call our secondary support program. So development rates will be much the same as what we've planned for and achieved because on the primary development, we'll be putting up our typical roof support patent, which is the 7-foot bolts and a number of those. And I guess this is a secondary program where, once the continuous mine has developed far enough in advance, we then come in with a separate crew with separate machines, which then install the cable bolts, which is the mechanism of the secondary support. So development drive these rates, in and of themselves, will not be affected by this increased secondary support regime.

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

So how far -- is it mains development only or is it longwall panels?

[Jamie R. Frankcombe, Executive General Manager of Operations]

It's everything.

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

[indiscernible]

[Jamie R. Frankcombe, Executive General Manager of Operations]

It's everything that's greater than the depth of 250 meters. So at the moment, as Paul has indicated, we've already completed the gate rates for 108 block and we're doing the installation phase now. So there's some catch-up work to install. We already had done some secondary support in 108. We've got to go back and put some additional cable bolts just to catch up for this increased regime, as I say. But 109 going forward, we're about 10 cut-throughs into that. So we're starting the secondary support in 109, and of course, we'll do some in the mains as well.

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

It sounds like you're using owner labor or is this contract job?

[Jamie R. Frankcombe, Executive General Manager of Operations]

No, we brought in some contract labor to -- and we've got additional labor there at the moment for the catch-up. By the end of this year, that will reduce to what will become a more stable, systematic program. And that's part of what that $2 increase in cost is associated with.

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

Okay. And tell Paul, big thumbs up for the details on pricing, very good, really.

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

Yes, well, I hope that works for everybody. We put a bit of thought into how we might aggregate that into 2 products for you. And as we talked about, we've got as many contracts and terms as we have customers, and we're trying to distill it into something that's usable for you.

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

If you gave us a low CV price, even better. But anyway, thanks, really appreciate it.

[Operator]

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

[Lyndon Fagan, Analyst]

Look, I just wanted to explore the issues around placing semisoft. I guess we've noticed the semisoft price tick up over the last few weeks, yet you guys are sort of saying it's difficult to place volume. I just wanted to try and marry up why the price is rallying yet you're unable to sell into it. I just didn't quite understand that. And then I guess the second question is more around Maules and how the outlook is there in terms of the mix. Is it -- I get that there's not a big spread between thermal and semisoft at the moment and maybe it's fine just selling it all as thermal, but can you ramp up semisoft production over the future years? Or can you accelerate the sort of ramp-up of the whole mine and just sell it as thermal? Like, is there a review happening there?

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

Thanks, Lyndon. Look, just a couple of things just to clarify on that. In the current -- in our current situation now, to the extent that we're not signed up with any particular customer for an incremental tonne, we're making the judgment, firstly, is this customer someone we would work with longer term? Or is this just a casual tonne that someone's looking for? After that judgment is made, then we look at the economics of it. Now currently, as you can see from obviously the very strong prices for thermal coal, so at $106, and at the moment, we've been getting 10% on top of that for our premiums for our thermal in an unwashed form, we're about $4.50 to $5 underwater at the spot thermal -- at the spot semisoft price at the moment. So our judgment is at the moment, if there's a customer who would want to take a long-term view of, and we certainly got some of those, then we'll sign up to some of that. But to the extent that we're -- these are not sales that we think have an enduring or a relation that has an enduring quality to it, then we're looking more judiciously as to how we do that. The mine itself in terms of its capability to produce the semisoft, there's quite a high degree of flexibility there. And as the mine gets deeper, even more so. So we're not concerned about that. In fact, longer term, we still think the strategy is still right, but we know we're going to go through periods where steelmakers are able to pass on increments in cost quite liberally. And we think we're in one of those at the moment. So we do see that as a temporary dynamic, and I think with hard coke coming down, certainly softening over the last little while, I think that is related to, as I mentioned, some of this extra semisoft interest we're seeing starting to reemerge. So nothing wrong with the longer-term dynamic. We just know that we're going to go through these periods when you do get these distortions, and it's not dissimilar to the industry with good prices producing whatever in the past, whatever tonne was necessary despite the inflation that was happening in their cost base. It's exactly the same thing on the steel side at the moment. So a dynamic we've seen before and a dynamic we know that reverts back to normal over time.

[Lyndon Fagan, Analyst]

Okay. And just back to Maules, can you just remind us, is there any scope to accelerate the ramp-up of production given the strength of coal markets at the moment?

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

Look, Lyndon, well, it's equipment based, obviously, the ability to ramp up. And we've got the balance of the equipment already coming in for the 13 million tonnes per annum. And that is obviously the production limit currently authorized for the mine. So we're certainly stepping up in this year with the equipment that's on the ground now, as we say, and we've revised our guidance up to 11. But it's -- the mine is getting bigger and the mine needs to be a little bit bigger in order to accommodate more equipment. And so that's the limiting factor here in terms of how quickly we're ramping up. We're not sitting on our hands here, leaving tonnes in the ground that could be extracted and sold. We're certainly pushing it hard.

[Operator]

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

[Glyn Lawcock]

Just back to Narrabri quickly, you talked about the capacity being unchanged longer term. You had confidence in that. Can you just remind us what is the capacity you think is unchanged at Narrabri then despite the conditions we talked about?

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

Yes. Look, I think what I'm referring to there, Glyn, is, but for anomalies which we've talked about obviously 6 months ago with the fault, and now we've given some guidance on how we're going to manage that fault, our view is the production aspirations for Narrabri -- our aspirations for Narrabri haven't changed. What we do -- what we have accepted is that as the mine was going to get deeper and it was always going to do that and this obligation for the secondary support was always going to intensify at those deeper depths, they have emerged at an earlier time in the mine's life. But once the roof is appropriately supported, there's no reason to think -- with the scene we've got and the general stability in the ground that we've got, there's no reason to think that we can't maximize production in a way we've always aspired to do at Narrabri. So we're not tempering our enthusiasm for the productive capacity of the mine, but we are acknowledging there's $2 more in cost that go into this roof support regime we now deem necessary.

[Glyn Lawcock]

What is that long-term aspiration in ROM terms in tonnage?

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

Well, I think you've got to look at it -- 7 million tonnes, I think that will be very low. Obviously, the site is authorized now to produce up to 11 million tonnes in ROM production per calendar year. So we see -- the reason why we've asked for 11 million, we're not saying it's going to 11 million, we're just saying, at certain periods in time, that will vacillate between 8 million to 10 million, in that sort of magnitude. And subject to other things appearing from time to time...

[Unknown Executive]

Changes.

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

There's no reason to think that, that shouldn't be able to be achieved. We certainly don't see the secondary support regime influencing that in any way. Once that's in place, production should be as we want it to be.

[Glyn Lawcock]

Yes, okay. And then just back on pricing, I know we've talked about this on and off every quarter, but just when you look at the long-term intentions on your semisoft and you're getting discounts to spot as well and it's all about timing, but where -- do you still think -- and what is your aspiration long term then in terms of the pricing of the semisoft product? Will it always be a mix of quarterly contract and spot? Or are you still aiming to get it all onto a quarterly contract? How do you think about that [ panning out ]?

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

Well, I don't think that's changed too much, Glyn, in terms of what we -- our aspiration, percentage-wise, still remains the same. We think, over time, we grow Maules Creek's penetration. And certainly, customer reception to the price, as we've always said, has been very positive. We have been renewing the existing term contracts, and all of those ones are stepping up in volume, which is good. In terms of whether someone buys on JSM or buys on a spot basis, that is a customer-by-customer proposition, and you have certain customers who just won't buy on a basis other than the ones they're buying. So we'll always -- we will always have a mix. Over time, we would prefer to have more on a contractual term basis than we would have on the spot basis. But we do accept that certain customers, that is the way they buy and they're not going to change it for Whitehaven no matter how good our semisoft product is. But certainly, our aspirations continue to drive for more term business because that gives the business more certainty.

[Glyn Lawcock]

When you say term business, you mean term on a volume perspective as opposed to -- and each one will have a different pricing agreement?

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

No, no. When I say term, I mean, term with the price. So if you say at the JSM quarterly settled price, I'd like to see more tonnes on that price basis. Not just volume.

[Operator]

Your next question comes from the line of the [ Ryan ] from [ AMCI ].

[Unknown Analyst]

It's [ Ryan Holtz ] from [ AMCI ]. A quick -- actually, 2 little questions. I know we're kind of -- we've spoken about the additional roof support quite a few times now, but what difference in the reserves? Like specifically, is it a significant amount of tonnage that we're expecting to have this additional $2 per tonne? Or is it just we'll hit the steps at the quickest space, at a quicker time period? If that makes sense.

[Jamie R. Frankcombe, Executive General Manager of Operations]

As we said, I guess we always expected and anticipated that at some point in the life of the mine, we would be going to this increased secondary support regime. And we anticipated that based on the geotechnical studies that have been done at Narrabri. That would be around about when we've met the 350-meter depth of cover. So those costs were already built into the life of mine planning for Narrabri for those tonnes at that depth. So really it's just the increment between the 250 to 350. So simplistically, it's the additional work we've had to do in 107, certainly in 108 gate roads and some of 109, and then the mains in that area. But in terms of tonnes, it's a bit hard for me to give you an answer. It really is just an incremental increase that we've seen from this point to the point in the future where that would have been the case anyway.

[Unknown Analyst]

That makes sense. The other thing, just reading through the performance -- the quarterly review there, I know you gave a bit of comment about the dividend. I know you mentioned that the dividend paid in the past year signifies the company's return to a dividend-paying status. And I don't know if that is just language or if that is an indication of future paying dividend or maybe just a bit of commentary on that, but if you kind of gleaned over that.

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

Well, [ Ryan ], as we've previously said, the board's position in terms of dividend policy is 25% to 50%. That's not to say that there's not the opportunity to pay specials as and when that's possible. So our view is the company's been through a very capital-intensive period, first with Narrabri and then with Maules, obviously, and shareholders have been patient whilst the dividend cap has been turned off. Obviously, the $0.20 per share with 2 constituent components was a pretty fulsome way to return to dividend-paying status. And our view longer term is that in the absence of any need to retain capital within the business, we will be sending it to shareholders.

[Operator]

Your next question comes from the line of Paul Young from Deutsche Bank.

[Paul Young, Research Analyst]

A question again on Narrabri and the extra support. So the $2 a tonne implies 14 million to 16 million additional cost per annum based on sort of 7 million to 8 million tonnes of ROM coal. Just circling back on the additional support in the developed tailgates and also the main gate, can you just give us an indication of what the cost will be to come back and support those areas? And also the time frame involved. So when do you think you'll complete that?

[Jamie R. Frankcombe, Executive General Manager of Operations]

I guess, Paul, the cost is at $2. We're talking about $2 a tonne, I guess.

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

All in, all in.

[Jamie R. Frankcombe, Executive General Manager of Operations]

So, and time-wise, I mean, we would anticipate that the catch-up would be complete by the end of this calendar year. So catch-up in 108 and -- primarily 108 and the mains that have been developed at this stage. And then, as I say, the resources that we've deployed right now, there will be a reduction in those back to what will be a steady state requirement for that systematic secondary support regime.

[Paul Young, Research Analyst]

Right. So you'll support tailgates in longwall panel 9, and then you'll capitalize that, and then you'll expense it as you mine it. Is that the way to look at it?

[Jamie R. Frankcombe, Executive General Manager of Operations]

Yes, that's exactly how...

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

Yes, same, same as we've been doing with all the other ones.

[Paul Young, Research Analyst]

Yes, I understand that. But obviously, you've got further up -- the higher cash outflow to support all those areas in the interim. So I'm just wondering about the -- obviously, there's going to be lumpy cash outflows in the interim.

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

Not particularly material though, Paul. In this period, of course, it's $14 million, $15 million, as you calculate it out during this calendar year. But that's lumpy in that sense but not lumpy in the overall context of Narrabri.

[Jamie R. Frankcombe, Executive General Manager of Operations]

Yes, and there's a few items and numbers, sorry, Paul, in that because if you think -- previously, we were thinking about a relocation around the fall in 108 but now we're not, so there's substantial savings here in terms of no cost associated with relocation, no cost associated with an installation phase. So there's overs and unders associated with what was previously planned compared to what's now being planned.

[Paul Young, Research Analyst]

Yes, okay. And just a few housekeeping issues. Next one we'll change out is Narrabri. Is that the June quarter?

[Jamie R. Frankcombe, Executive General Manager of Operations]

Yes, and we anticipate that bolt up will start around about the 20th of April, so back end of April. And we expect them to have -- in the last couple weeks of June, we'll be cutting coal in 108.

[Paul Young, Research Analyst]

Okay. All right. And when you mine through the fault in the middle of panel 8 and 9, I presume we're going to have a bit of an impact on product quality again?

[Jamie R. Frankcombe, Executive General Manager of Operations]

Correct, yes. You'll get -- 2 things will happen on that. It will be a slower rate of production through that period where we're cutting through the fault. And yes, you'll get an increase in ash for the product, I guess, through that period. But typically, what we've been able to do, Paul, is segregate that to some degree. And obviously, what needs to be managed with the wash plant, we wash it. We obviously keep that separate from the bypass. So in terms of the ash content, we see that as a minimum tick-up.

[Paul Young, Research Analyst]

Okay, okay. And then maybe a question for Paul. Just back on the semisoft pricing, I know we've done this to death, and yes, you can explain discount despite -- based on timing issues. But as far as the quality of your semisoft versus the benchmark, whoever sets the benchmark, the Hunter Valley, I presume, can you just describe the differences between -- or is there actually a quality differential?

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

It is a good question, Paul, because I don't know anybody who is getting that benchmark. So I'm sure you're doing the same analysis as we do and pulling apart the numbers that other people are providing and some after us obviously rather than before. I'm actually not seeing anybody getting that number. They're all -- people will settle a number, but they'll all be pricing it at something relative to that. So from a quality perspective, our semisoft is as good as anyone in the Hunter Valley. In fact, our sulfur generally is lower. Our ash has certainly been very positive. Their ash is slightly higher than ours. And going forward -- and going forward, Vickery will be better again. So based on the analysis I see from others' numbers, it's hard to actually see where anyone's actually getting exactly that number.

[Paul Young, Research Analyst]

Yes, okay. Well then, therefore, it's hard to believe benchmark also in that case and I guess we'll need to [indiscernible].

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

Well, I think that's why we've given you a rule of thumb because we understand the conundrum. And so we've given you rule of thumb that you can use. You've got to do something, of course, and we're trying to give you something that we think works based on our past performance.

[Operator]

Your next question comes from the line of Phillip Chippindale from Ord Minnett.

[Phillip Chippindale, Senior Research Analyst]

Just going back to Narrabri for a second, I'm just trying to reconcile the guidance change, especially the timing. So at the AGM at the end of the October, you reiterated your guidance numbers for FY '18, including Narrabri, and now you've reduced it obviously by about 2 million tonnes or 25%. So can you just give us a little bit of color around when this issue first started to emerge? Whether you had to cease production during the December quarter? And if so, how long did you have to do that for? And then I suppose when did you actually make the decision to go back over the mains road and over the balance of FY '18, et cetera, to play some catch-up for 108 in the mains?

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

Phillip, it's -- look, it's not a singular event, so I'm probably not going to be able to help you there in terms of saying that at a point in time, this changed because during the course of the last 3 months in particular and certainly even a little bit in the previous quarter, though not materially so, there's a series of events that have occurred where you see the effect of weights coming on. And what it does, it doesn't actually stop you for any material period of time in each individual event. But coupled with other things that go on as a result of that, there might be a mechanical failure of some sort that conspires to add to that time. In aggregate, in aggregate, they have certainly amounted to a point where we thought, no, it's necessary to actually reset expectations here. And -- but I can't actually point to a particular period or a singular event that was material in and of itself that would have caused you to do this at any point during that last -- certainly since the AGM. Reflecting on, I think it's actually informational purposes only really because the reality is from now on, this is what we are doing. And that's the most relevant part of it. The $2 a tonne is reflective of the work, we think, is now incremental to what's previously been anticipated in this area. But as I say, once the roof support is in place, and we certainly think we've got the support patent now, which is adequate for the depth that we're in and the forces we're seeing at work, production should be as we expect.

[Phillip Chippindale, Senior Research Analyst]

So just to clarify something, when did you actually decide to start going back over some of the areas that you'd already developed, whether it's mains or longwall? And actually go back through the historical workings at that extra roof support? Or was that again one of those things you had to take on a case-by-case basis?

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

Phillip, I think it's just -- it's not relevant when that was made. The decision has been made, and we're back in areas which are not showing any signs of stress. We just said anything from 250 meters and below is going to demand that sort of treatment. And that is the assume we've made. So I think it's important, I think, just to give everybody the satisfaction that all those areas -- and some of those areas, as you know, particularly mains, they've been there for a long time. And so we want to make sure that everybody's confident the base stays structurally sound and have the right support integrity for the life of mine in particular as it relates to the mains. And so yes, that's what we've done. But I wouldn't say it's a decision that was made very long ago. It's a relatively recent decision that we just said, no, from now on, this is how we're going to treat it.

[Jamie R. Frankcombe, Executive General Manager of Operations]

Paul, I'd say back end of November, early December, and as you say, it was -- we had indications of roof movement in the gates, both in advance of the longwall phase, and in fact, behind the longwall phase, which is very unusual, and the decision was made that we will not take any risk and ensure the roof is competent. And there's a blanket rule now that -- where that definitely covers 250 meters or greater, the secondary support regime has been increased.

[Phillip Chippindale, Senior Research Analyst]

Just final question, just on Maules. Just quickly, you said the additional equipment will be on site in July. At what point do you anticipate getting up to that 13 million tonne rate?

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

Previously, we said that the -- towards the back end of calendar year '19 is when we should be annualizing the 13 million tonne a year rate.

[Operator]

We have a follow-up question from the line of Peter O'Connor of Shaw and Partners.

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

Two more. Jamie, just to be clear with Narrabri, so there wasn't an "oh my god" phone call from the GM one night because you had a roof fall and [ an outflow ] working? And if not, is it horizontal stress, roof convergence, floor bump? How does it manifest itself? And how does that slow manifestation when you do visits up there occur and why again that pitch point?

[Jamie R. Frankcombe, Executive General Manager of Operations]

Yes, look, we've experienced a number of those things. So we've had waiting events. I guess we've had movement in the gate roads. We've had some slight issues to deal with. But in terms of the mechanism, its geotechnical aspect is a bit of a black science. It's all of those things. And so the advice that we've been given is, look, just be more conservative than what previously the advice has been. 250 meters is probably a good indication of when we need to start implementing the additional secondary support. It really has been as simple as that. Let's just make that rule going forward.

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

Okay. So you haven't lost a cut through a roadway anywhere that sort of prompted you more quickly?

[Jamie R. Frankcombe, Executive General Manager of Operations]

No, we've just had some minor gathering and that sort of stuff. I guess there's been some minor roof issues to deal with, but nothing, nothing which has caused us major concern.

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

Okay. Paul, switching gears, your comments on the market today have been really interesting, particular your commentary in the text but also what you said on the call, just wanted to marry the 2 together because in the text, you talked about buoyant steel demand and attractive steel margins, which we've all seen that backdrop and it's absolutely right. You made the comment which piqued my interest about semisoft interest in the first part of this year, which is only a couple of weeks. But how do I think about steelmakers? Is it a productivity thing? Are they going full gas last half? Are they backing their foot off pedal a bit? Is that the shift you're starting to sense why they're moving toward semisoft now?

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

I think, Peter, utilization rate, you can see this -- because we're obviously not steelmakers, so the access to the information is the same. But from what we're seeing, utilization rates are up. What our customers are telling is that they're running hard. They are not -- coke times I want to keep it down as low as possible. And from what we can see and what they're telling us, they're less cautious about the hard coke price at this point than what we've seen them in the past. Our semisoft, as you know, plays well when people are a lower bit more cautious about the cost of production. And we've certainly been in the period where we haven't seen people exhibiting -- our customers haven't been exhibiting the same stresses in that regard. They seem to be able to pass that on without mainly great pushback is my observation of our steelmaking customers.

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

So if we see steel margins fall, we should think about that will shift will continue back to semisoft. Is that the correlation?

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

That's what we see. That's right. That's right. Perversely, as the hard coke moderates, people start thinking about the semisoft blend ratio. And we think that's probably -- it's early days, as I say, but it -- we think that's probably at the back of what's driving this incremental interest that we're seeing out of China in particular.

[Operator]

There are no further questions in the queue, sir. Please continue.

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

Well, I think that will wrap it up for us. So of course, thanks, everybody, for participating in the questions. I appreciate that. If there are any further questions that we haven't attended to during the course of the call, you know where to find us. But thanks again, and we look forward to catching up with you all over the next weeks and months. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Thank you.