Whitehaven Coal Ltd

ASX:WHC

Earnings Call Transcript 2023-Q3

[Operator]

Welcome, ladies and gentlemen to Whitehaven Coal Q3 FY '23 Quarterly production update. [Operator Instructions]

Thank you for joining us today. I will now hand over to Mr. Paul Flynn, Managing Director and CEO. Thank you, Paul.

[Paul Flynn, executive]

Thank you very much, operator, and good morning, everybody, for taking the time to dial in this morning for Whitehaven Coal's March '23 quarterly production report. As usual, I'll head through the highlights, get into the body of the report and then move into Q&A.

Highlights for the quarter. Average coal prices at AUD 400 was a pretty good outcome. Obviously, less than what we've seen, obviously, in the December quarter. But period-on-period, it was actually a step up on what we saw last year for the previous corresponding. March quarter run-of-mine production at 4.3, down 12% on the December quarter. We'll go into the details of that shortly.

Equity coal sales produced coal of 3.4, down 2% on December. Managed coal sales of produced coal at 4.1, down 4% from December.

Cash generated during the quarter at $1.2 billion and the cash position of the company generally healthy at $2.7 billion. Tax bills have been paid. And I'll talk about the dividend and the buyback in the later section of this report.

Since the buyback started, we bought about [ 16 ] back now of the voting shares available to be purchased and spent just over $1 billion in [indiscernible]. And we expect the buyback program to resume on Monday, 24th of April.

And the other highlight for this period is that our Board has approved the small CapEx version of Vickery. And I'll talk to that a little bit more just -- and we have provided some additional information slides for you, we can go through at the end of the formal report.

[indiscernible] to the page, just in terms of the coal production, as I said, 12% down the December quarter, a couple of features, obviously, which have been playing out there, which we've announced to the market which will go through. Maules ramping up over the previous corresponding quarter, did not ramp up to the extent that we would have preferred and I'll speak to the issues associated with manning and so on that's playing out across the industry more generally, but as it relates to us and Maules Creek in particular.

Just the tables here, the ROM coal production at 4.3 versus 4.8. Managed saleable coal production at 3.6 versus 4. Managed sales of produced coal at 4.1 versus 4.3. Minimal coal purchase during the course of the quarter. And as you can see, total sales at 4.1 versus 4.6 and we have drawn down stocks during the course on a quarter-on-quarter basis. The equity numbers there play out. Generally, you all know, 80% to 82% depending on variations of salable and so on of those totals above at the managed level.

Over Maules Creek. Maules did produce 2.3 million tonnes during the quarter, 9% up on the previous quarter. It was less than expected. And the key drivers for that putting weather aside in the month of March and was only March, that was the weather affected one. But labor generally is certainly causing us some challenges. And then we have the added challenge of congestion in our pit with limited dumping locations, and we can talk about the detail of that. But it's essentially the out-of-pit dump versus in-pit dumping and the need to quarantine still our AHS fleet from demand fleet in the pit. So that is causing us some productivity loss as a result of that. And it's a process we will need to work through.

We suspect, we probably got roughly -- in rough terms, about 12 months where we can manage to keep these fleets apart. But we are feeling that we are closer to the end of this journey in terms of the development of AHS. So it will need to cross the critical threshold of being able to blend manned and unmanned equipment together, which we are starting to do in limited form as we speak. So that is on the positive side.

March sales at 1.7 million tonnes in line with the December quarter, reflecting the salable coal production volumes and stocks are pretty meager there now as we've drawn them down during the course of this quarter. Narrabri tonnes were lower than the previous quarter at 1.2 versus nearly 2, most of which was planned as we run down to the back of the panel, which has now been finished, but we -- but we were suffering some productivity losses really just as a result of the thinning seam again expected. That's planned. But there was quite a little bit of work required just from an operational perspective and productivity did suffer as we moved into the lower cutting cost phase at the back end of that panel.

Panel has been completed. So we are -- we have commenced the relocation and we expect to be cutting at the end of May in Panel 203. Saleable coal production, as you can see, 1 million tonnes of the coal, was down 43% on the previous quarter and the sales of 1.45 -- 1.5, 25% down. Again, you can see we've drawn the stocks down there to a good degree.

In terms of the Gunnedah ops, I'll move firstly to Tarrawonga, Tarrawonga's Coal ROM production there at 521 compared to 348. Saleable coal production at 540 compared to 254. So the quarter itself was really quite a decent quarter, but it is -- it's obviously -- the increment over the previous quarter was obviously against heavily winter affected weather. So those proportional steps up are really just a reflection of returning back to a little bit more normal operation relative to the weather affected first half of the year that we had.

Saleable coal production for the March quarter of 0.5 million tonnes, was up 113% compared to December on that basis. Our sales for the quarter at 600,000 tonnes, again up on the total for the same reasons. Werris, as you know, is coming through the end of its time, 261 versus 416 and saleable coal production of 410 versus 336. It's a function of the fact that we've drawn down our stocks during that period as well.

We did suffer a geotechnical slippage during the quarter, which was unfortunate given it's close to the end of its life. So it is a little bit of a disruption. But not particularly major. And we're just working through what the impact of that will be for next year, the last year of Werris' production life. Saleable coal production of 400,000 tonnes, was 22% above the quarter. But again, this is weather affected periods versus not comparison.

I'm moving down to the table for our equity coal sales and realized pricing. So obviously, pricing in the quarter from a thermal perspective, you can see the average for the period of 248, certainly down on what we've seen in the past and realized numbers there, 280, yielded a 13% improvement over the average of the index for the period. I don't want to make too much of that because we are in a softening coal price environment. So as we've always talked about, realizations, we'll look better when the coal price index is coming down.

The JSM Quarterly obviously for the -- average for the period, 268, and we've achieved 234, so about 13% down. The volumes are very small, as you can see in the balance of the report in the metallurgical side of the business.

From a split perspective, the March quarter, we had high CV sales as proportion of total sales at 68%. And then the mid-CV at 26% and metallurgical at 6%. So the $400 was pretty good from a perspective on the AUD perspective. And we see the market continuing to maintain itself at around the current levels that we're at.

Overall, the metallurgical coal side does look like it's starting to become a little bit more interesting. And so while 6% of our sales were in the met coal space in this period, we do expect that to change in the new year, given that some usual pricing is starting to look pretty decent relative to the thermal coal price, which seems to have found its floor in around the $175 to $200 mark, which I think is very positive. I do think that will continue to hold there and [ firm ] as the northern winter obviously left was milder, and therefore, left stops on the ground for most of the consumers up in the northern hemisphere. Japan included it for that matter. And so drawing that down now through the summer, we'll see them obviously confront the challenges of restocking and that restocking opportunity obviously is without the benefit of access to Russian coal for our key -- our key markets. So I think that will continue to see things [ firm ] during the course of this calendar year.

As you can see, export volumes through the Port of Newcastle have been pretty mild during this period as well. And met coal prices, whilst they have inflated quite nicely and look pretty good, they have softened since the time of the end of the quarter. And so -- but we do see, as I say, structurally a very tight market playing out over the balance of this calendar year.

I'll move over to the Corporate & Regulatory. We do get quite a few questions about the buyback and for those people asking, we put a summary together of the buyback program since its inception. And as I mentioned earlier, we've spent about $1 billion in the buyback to date, and we've purchased essentially about 16% of the company's voting shares. So we've laid that out for you in terms of what we call tranche 1 and tranche 2 in terms of how we played and then cut that also on a financial year basis for you. So since we commenced the buyback program, we've spent about between dividends and the buyback program itself in aggregate, about 1 -- just under $1.8 billion in terms of returns to shareholders during that period.

And as I said earlier, we'll be recommencing a buyback program now that the quarter is out, so I expect that just to recommence on Monday.

We thought that we are getting quite a few questions on the domestic coal reservation policy as well. So I thought I'd throw in some information there. Our commitment there is 200,000 tonnes per quarter, essentially for 5 quarters, commencing from the 1st of April. So we are now in the third quarter. So in the next quarterly report, we will separate out the tonnes associated with that and report those separately. As you know, we are constrained to a price of AUD 125 per tonne. And the AER has finally come out and given what it believes to be its view on a fair margin being $18 a tonne. So essentially, what you do is you claim your $125 or whatever the bid price you've said you've agreed with the generator, when you've agreed an arrangement with them. And to the extent that your costs are [indiscernible] $18 essentially margin in $125, then you apply to the AER for a top-up. So as I said, we'll let those sales separately in the next quarter.

Safeguard mechanism is really just a place market here for everybody. I know it's well reported that the government is going through the consultation process associated with this. We have 2 facilities, of course, that have long been reporting under the [indiscernible] program and therefore, partly safeguard mechanism but I think it's really just a matter of months now before we can automate exactly what we think the implications are of for the coal mining industry. And of course, there's likely to be divergence as well in terms of the treatment for underground and open cut.

I did skip over the logistics part, but down in the development section of our quarterly there. You will note we have internalized as you probably saw report in the paper a small acquisition, but we did internalize the contract of [indiscernible] coal from now Gunnedah operations. So from Tarrawonga down to the Gunnedah CHPP, there's $15 million of capital involved in that. That service was previously provided to us by Bis and so it just came to us. It was an opportunity obviously to internalize that. We were suffering from underperformance in that area in the past. And so with the opportunity to internalize that contract, we took that and in fact, we are seeing what was a manning challenge for Bis is actually improving from what I can tell with the applications for new drivers to cover now that we own that fleet, and it gives them access to a larger organization with more opportunities within it.

Now on to Vickery. As I mentioned before, we've highlighted this notion that we were going to have a low CapEx small version startup of Vickery, transitioning to a bigger version at some later point when the Board has a separate opportunity to consider the full version at a later date. So the Board has only sanctioned, what we call, the early mining case. The objective of early mining being to access revenues earlier and utilize essentially the existing processing take-or-pay capacity in the business currently. And so there's about $150 million that will be devoted to this project. The box cut itself represents about $50 million and about $120 million of the $150 million is capital relates to the big version of the project.

Now whilst we would think that we could get construction started in June, Werris Creek obviously coincides with the advent of the early mining case being approved. So we are looking to transition our people to the extent that they can or want to move over to the early mining version of Vickery as well as utilize the equipment that we have that is -- will be progressively stood down from Werris where we've allocated some money that [indiscernible] all that and redeployment at the small version of Vickery.

The Vickery coal as we've talked repeatedly about is very high-quality coal. It will be slightly better than Maules from a thermal perspective, making it probably the best thermal coal you can buy in the seaborne trade. And it also has a very strong semi-soft product, which is better than Maules Creek as well.

Total volumes, we think under the small version will be in the 1.2 million to 1.3 million tonnes per annum, match to the processing capacity of our Gunnedah CHPP. And as I say, usefully, we'll be absorbing take-or-pay both on rail and port that will have spare as a result. We have some spare anyway today, but we will obviously have spare with the advent of the closure of Werris as well. And so that is usually going to absorb that until such time that the Board chooses to consider the big version of Vickery at the fullness of time.

I have got some slides here at the back of the document. So we'll go through the highlights of that for everybody as well. On Narrabri Stage 3, look, not a lot to report there, the hearings that go through the judicial review challenge in the Land and Environment court at the state level occurred, and we were quite pleased with the passage of that hearing, and we feel like we've put our best foot forward in defending the claims against the approval by the IPC of the Vickery Extension project, also with Narrabri underground project.

So the other aspect of that, of course, everybody knows is the EPBC. A reconciliation request that has captured a significant amount of projects in -- at the federal level. And we've been encouraging of the minister to include Narrabri Stage 3, as part of the first tranche of projects, will be considered under this reconsideration requirement and so we look forward to that playing out as soon as we can sort of rising to move on without any disruptions to Stage 3 planning, which we don't, at the moment, have any issues in that regard, but we assume we don't want to see this process consume available time along the way.

From Winchester South perspective, the only real change there period-on-period is just that the open -- the second exhibition period of the project has closed. We've received all the submissions from public during that period. We now have formally sent our response to each of those submissions. So the Board is now in the state government's hands in terms of how they would like to process the responses to each of those submissions put in by the public.

Overall now, I'll just flip in the page. Our guidance, as you know, was revised on the 12th of April, reflecting the challenges that we've seen from a labor perspective and congestion at Maules Creek principally. That did have a related impact of course on sales and unit costs in this period. And I'm sure we'll explore that further in the Q&A.

Now I will just go through these slides quickly for everybody just on the small version of Vickery. So I won't take too much time since I hope you want to jump into questions.

So just for everyone's baseline knowledge. This is a very low CapEx, low startup -- low risk startup to little -- Vickery project. It obviously utilizes the Gunnedah CHPP latent processing capacity and also take-or-pay obligations that we have on port and rail. It has the benefit of bringing revenue forward. And obviously, the prices that we're experiencing have been pretty good. So that's going to make a good contribution. There's the obvious blending benefit that Vickery and Maules Creek for that matter and Tarrawonga represent across our business, and that certainly plays out nicely in blending with Narrabri coal to just name one opportunity.

We obviously do have the opportunity to spread our overhead costs across our broader base with the closure of Werris and to redirect and redeploy good people across our businesses also and equipment. There's also an known opportunity as well.

The geography there in terms of map, I'm sure everybody understands what's going on there, and I've mentioned each of those key points in both the body of the report and the executive summary in the front.

It is a low CapEx startup and there's very little regret capital in it, which is very positive. A $100 million of the $150 million is -- there's overhaul and there is infrastructure associated with water management and site-based facilities. The box cut itself, which is necessary for the broader Vickery project is about $50 million. As I said earlier, regret capital about $30 million there of the $150 million lease. A $120 million well spent in terms of the contribution to the Vickery project when the broader approval is addressed by the Board.

And we've put some assumptions in there just for you in terms of average coal prices that we've assessed over the first 3 years. Parameters there, which you'll be well aware of, 9:1 strip ratio and very high-quality coal, which is very, very positive for us. There is a time line there with a depiction of where the initial works will start at the Vickery mine site. And there's just a little bit of history for you. I do note one correction there just for those who have very keen watches of these things. The small version of Vickery actually was approved in September of '14, not '13, my apologies. And the IPC didn't do it. It was actually directly approved by the department itself given that it did not have the requisite number of mine sites to mean that we'll go across through -- within predecessor of the IPC, which was called the Planning Assessment Commission.

All right. And then over the page, I'll just give you a quick recap on where Vickery sits from a coal quality perspective. Vickery coal, given it was mined in still living memory, if I can say that, of the market and very keen -- many of our customers are very keen to see this coal return, so -- which is very positive. And you can see why. I mean the ash is very low. The energy is very good. It compares favorably to Maules Creek, which currently is the high watermark from a thermal coal perspective, but Vickery will be superior to that. And as you can see, Tarrawonga was great, but it's small in terms of volumes. And you can see there's an obvious blending benefit for us across our business with the Narrabri coal.

And so with Werris actually falling out of our portfolio in a year's time, our portfolio of thermal coal will be 6,000 plus during the course of a cycle. And so what that means generally is, hopefully, we can stop talking about realizations up and down because in the steady market it will be a plus adjacent new class of business rather than -- but that is in a steady state market. So as we've noted, we benefited from a falling coal price from a realization perspective. I know everybody understands this, but I thought I'd just reiterate it just to be sure.

And let's just focus on what the Board has done here. They have approved just a small version of this and what's relatively modest capital to take advantage of what's otherwise going to be in the absence of a small version of Vickery stepping forward. Increased costs in our business as a result of take-or-pay -- latent take-or-pay, obviously, overheads over a smaller base in our Gunnedah operations as well. So there is quite a bit of a benefit to us in bringing this forward and absorbing these costs, which has otherwise been our business for years to come. And that, of course, opens up the opportunity for the Board to sanction the bigger version than they see fit.

And from a management preparation perspective, we think we'll bring that to the Board, the full version that is within this calendar year -- so later in this calendar year. And -- but of course, the Board -- what that does just for one's education, given that we've -- we're unable to secure fixed prices for any of the construction packages for Vickery, what's necessary here is an approval that our project of retain can then take to the market and tender in order to get an appropriate assessment of what we believe to be the full construction of Vickery project. And given the tightness of the market, the inflation and as you well understand, nobody is doing anything on a fixed price basis these days. But we certainly -- the feedback from the market has been with an approval in hand, the various suppliers and constructors will know we're serious. They'll do the necessary work to put proper prices on the table, and that will give the Board an opportunity to assess what the full construction costs of Vickery will be. So that's one of the important pieces of the puzzle for a future review of the bigger version of Vickery.

I'll try to skip through that relatively quickly. So I think, operator, that will do me for the moment, and we'll open the lines up to a bit of Q&A, if that's all right?

[Operator]

[Operator Instructions] Our first question, thank you, Paul, is from Rahul Anand from Morgan Stanley.

[Rahul Anand, analyst]

Paul and team. Look, Paul, I just wanted to talk about Maules Creek first up. Obviously, you highlighted some of the key drivers for the performance there. But I wanted to understand what's changed since the time of the site visit? I mean, was this not part of the planning? Has the labor issue led to perhaps the over congestion in the pit? And then looking forward at the assets specifically, you talked about the interchange between autonomy and manned trucks. Does this mean that we'll have a bit of a volatile performance going forward as well? I'll come back with my second.

[Paul Flynn, executive]

Yes. Thanks, Rahul. Yes, thanks. I'll try and work my way through that. I'm joined here, of course, by Kevin and Ian, as well so they can chime in on any of these questions [indiscernible] questions, that I'll have it covered off.

But let me just start with the labor side of things. Look, labor, as you would have seen, and I'm sure they would have heard when the site visit was taken place. But labor continues to be a challenge. And it's not just labor in total volume, I must say, Rahul. And just to get into a little bit of detail, it's not just total volume of people, which is a challenge itself. We are making headway in that regard, bringing people on, but there's a lead time associated with getting those people on the ground and trained up and working efficiently. And there is a cost associated with that as well as I'm sure everybody understands. So -- and we're not talking about 3 and 4-type percent. It's inflation at a national level plus in terms of what we've got to do in order to find the people to come and work for us.

Now the government seems to be making all the right sounds, the federal government that is in terms of opening the doors a little bit more ultimately for labor to come through. And we are working through that as well from importing skilled labor perspective. So that is -- that is slow, but it is yielding some results.

Now the other dimension of labor, which is quite frustrating is, absenteeism is causing us a bit of a headache along the way at all our operations. And I'm not quite sure, quite frankly, what's going on there, but I do -- it was better before COVID. It's worse since COVID. So I don't know if people just feel like they can take sick leave even more, but there's certainly an absenteeism issue that we're seeing. And I know the rest of the industry is suffering the same because I talk a lot with our peers about this. And so that is playing out.

Now in terms of the operational constraints for AHS, I'll speak to that. I'm sure Ian will chip in here. Look, at a high level, we have made a decision to find some more time for the AHS to play out. And we feel like we're at the sharp end of being able to transition to a more fulsome deployment of AHS. So for those who went to site, they would have seen one site -- one fleet running around, but we have actually started the second fleet running around as well. And so that is -- we are trialing that. But that is a good step.

And we also have started limited, I mean very limited manned and unmanned interaction. So that is a very positive step. But we can't keep obviously a persevering with this trial forever. So even though we have found more time, we think it's about 12 months to give Hitachi a final opportunity to move this over to a commercialized proposition. In the meantime, it means keeping these autonomous fleets separate from the manned, and that does -- that is -- there is a productivity penalty that comes from doing that. And the convergence of that, obviously, is a time when we're transitioning from out-of-pit dump reliance to almost entirely in-pit dumping. So keeping those fleets separate when you are going to be entirely dumping within the pit, obviously, it is something we've got to work our way through when we think, again, there's a productivity cost associated with that.

So that's -- that's the features that we've referenced in our announcement on the 12th, and that's a little bit more color for you in terms of what's going on there. Ian?

[Ian Humphris, executive]

I think -- maybe only to add to that, Rahul, you asked a question about the Southwest corner. That is still a priority that we need to get done. And as Paul said, obviously, we're trying to keep -- we have to keep the fleet segregated which has meant then that Southwest corner as we -- I think we explained to you, becomes the next large volume of pit material to the extent it probably fits nearly 2 years' worth of capacity in there once it's established. So whilst we've been pushing that down and we've had some challenges in that area, it's tight back to the congestion point Paul's made out and the same geology and a few other aspects that made that more complex. The other areas that have been available in-pit have been smaller to the point Paul made with the remaining ex-pits still being tied up with AHS.

[Rahul Anand, analyst]

Sure. Okay. Look, my second question, perhaps one for Kevin. Kevin, obviously, net cash position pretty strong here, $2.7 billion. Just a quick recap, perhaps would be helpful in terms of how you're going to be thinking about buybacks, yield and then also potentially smaller Vickery followed by bigger Vickery? I mean, are you going to start putting some capital to the side for these things and start planning for the future?

[Kevin Ball, executive]

Thanks, Rahul. I think the $2.7 billion in net cash, there's about -- it's probably about a tax bill there from the first half on a tax bill from the quarter you got to take account of. If you look at the net profit, I think the broker consensus feel is falling somewhere between 2.5 and 3 for the full year. If you take 50% of that, that's about the capital that we're looking to allocate to shareholders in the form of dividends and share buybacks. So the dividend that will be decided by the Board in August but the buyback will commence that again on Monday, and we'll execute that taking that towards meeting that metric of about 30% of the NPAT for the year.

On the capital front, I think as Paul has outlined, the investment in Vickery over the next 1.5 years -- or 1 year, 1.5 years is not substantial. In fact, it's really a sensible extension for employees from Werris Creek and it uses up the capacity we've got at the CHPP and across the road and some port take or pay. So when I look at the economics on that, I'm very encouraged by that.

You asked about that we set money aside for big Vickery. I think I'll deal with that in due course when the Board makes that decision when that decision comes to the Board. But at the moment, I'd say the balance sheet is in pretty good health. We're compliant with the capital allocation framework we put out to market. Clearly, if we have no further need for that capital at a future point in time, we'll make a decision about what best to do with it. But that's what where we see it, Rahul.

[Operator]

Our next question is from Glyn at Barrenjoey.

[Glyn Lawcock, analyst]

Paul, in your commentary on the market, you said lower production is supporting the floor for the gC NEWC price at around $175 to $200. And that's obviously considerably higher than consensus for long-term prices. What's the key driver behind that for the high floor price? Is that where you see cost [indiscernible] right now?

[Paul Flynn, executive]

Yes. Thanks for that question, Glyn. I don't think I've made that leap of joining those 2 observations, but now that you've raised it, less volume in the market certainly does keep prices healthy. I think the challenge at the moment in the market is really just that there's a little bit more coal and gas and oil laying round in stockpiles after a mild winter. And we can see those, but those capacities have been drawn down and consumed, and that just takes a little bit of time. And of course, summer is coming for the Northern Hemisphere, so that will continue to drop down.

And as I mentioned earlier, being able to restock is in a vastly different world now than it was this time last year. And so without the access to Russian oil, gas and coal, you are going to see prices remaining high across all these areas. But that's not to say it's not without volatility, but I think directionally, supply/demand in the coal side, in particular, in the high CV end of the coal pool of global seaborne coal is going to be very constrained.

Now on the other side, you're saying there, well -- sorry, I'll just add some further comments. Our friends in Japan, of course, are now living in a world where they don't have access to Russian coal. They stopped taking it at the end of March. And so whilst they do have the comfort of having some stock on the ground at the moment, their focus is turning to how do I resupply. And directionally, our bigger customers are starting to look for greater rate of duration in their contracts with us. So we are working through that with them, and we are interested in signing up longer-term deals with them.

And this -- I know in the past, we've talked a little bit about from 1- to 2- to 3-year type duration deals that we've done, but we now have the prospect of some customers asking us for longer. So even 7 to 10 years in duration. So that's telling us that there's a high degree of anxiety in the market of being able to resupply.

Now the other part of your question was really just about the longer-term price. Now I think that's a good thing to focus on here. Long-term prices, I'm pretty sure, everyone can conclude. There are no resentments to the current market. And in a constrained world where there's essentially limited investment in new capacity, none of those price curves that you see from any of the commentators, I think are reflective of that new supply/demand constraint going forward. And so there's underinvestment in coal, of course, underinvestment in gas and oil. And all these curves are going to have to be reassessed.

Now you are seeing that from the various commentators come along, so they are actually starting to revise this upwards. And so where that lands, I think that's going to take a little bit of time for these commentators to the [ Wood Mac's ] and others through to land where they feel comfortable. I have seen some numbers already from credible commentators in the $130 million to $150 million range. And so I think that's -- to me, that's actually more reflective of where the underlying tightness of the market will be over time.

[Glyn Lawcock, analyst]

All right. And just on Narrabri Stage 3, you mentioned it is now being reviewed by the Federal Environment Minister after requests from the Environment Council of Central Queensland. Why was Narrabri Stage 3 picked up and not Vickery? What is that actually involved? How long do you expect it to take? And what's the worst case scenario that come out of that?

[Paul Flynn, executive]

Yes. Vickery is already approved. So that was -- we need not to worry about that. So it did capture Narrabri Stage 3, I think with 19 other projects that got caught up there. We were encouraging, as I mentioned earlier, of the minister to include Stage 3 in the first tranche of projects to be reconsidered. The interaction we've had with the Central Ministers department looks like that's moving ahead, which is good. And so I can't predict exactly what the time line would take in order for them to work their way through this because this is new, being reconsidered in this way.

We know the government is minded to try and provide some clarity to everybody here pretty quickly because there's a lot of projects here, not just ours wrapped up, and they can't essentially allow this to be a log jam for the system. But we do have plenty of time up our sleeve. So it's not causing us any particular concerns from the Stage 3 perspective. And to the extent that we are getting to a timeline where we think it would be concerning, we'll have more to say about that if that occurred.

[Operator]

Our next question is from Lachlan Shaw at UBS.

[Lachlan Shaw, analyst]

Team, thanks for the update. So just a couple from my side. So firstly, just on -- I guess, weather and production -- productivity and also labor. Again, that's been a real headwind for industry recently, whether it's forecast projected to improve [indiscernible] and we're starting to see some pockets of labor shortages easing. Can you just comment on how you might expect that those headwinds to fade and improve operational performance in the business going forward on the 12, 18 months for you, please?

[Paul Flynn, executive]

Yes. Thanks, Lachlan. Look, from our perspective, it depends on who you want to point to for your data points. I mean, they're saying that we're potentially moving back into a drier phase. And now, in March, I didn't feel like that. In March, we had quite a bit of a downfall, which did cause us a few hiccups.

No, we're near as bad as obviously in the first 6 months of the year. And so nowhere near is bad. But we do have the legacy of having a lot of water in our pits, and that is causing us ongoing management constraints in that sense.

If it moves back into a drier phase, we'll continue that water relatively quickly. And having been through a drier period quite a significant drought in '18/'19 which broke in early '20, we have made considerable progress in drought proofing our operations. So we feel a whole lot better moving into a drier phase than we were in previous periods. So that is an issue.

The labor again is, we are seeing progress on the labor side of things. So we are making headway. As I mentioned earlier, there's just a lead time here. And when you get the people, you've got to get them in and trained and up to speed, and that does take a little bit of time. And the areas where we're making headway, just to give you a little bit more color, we are flying in, flying out people now, which is not our preferred model, but you've got to do what you got to do in a tight market. So we're doing that. We are overseas, as I mentioned briefly before looking to bring trades and experienced miners in. So we have a pipeline there. I think the last time I looked some 40-odd good-looking candidates across a range of disciplines, which is very positive for us. So we are making headway. It's just there's a lead time.

As I also said the other issue we had been experiencing have been, and I know it's right across the industry, it's actually just people on the books turning up. And that is from a manager, it takes a lot of time to be managing excessive sick leave taking and as you know, it's pretty easy to get a medical student these days online. So it's causing us ongoing issues. But I know this is an industry-wide issue, not just a Whitehaven one.

[Lachlan Shaw, analyst]

Yes. No, no, makes sense. Second one from me. So just in terms of Queensland, Winchester South. And obviously, there's some industry M&A consolidation going on, [indiscernible] and others. Can you just maybe outline how you're thinking about build in Queensland with the royalty, et cetera, versus buy? What are some of the factors that you think might tilt, which -- where you prefer to be? Because obviously, if you buy in the short-term tonnes in the short term versus build in processes that seem to be getting longer and longer they get approval. So just interested in how you're thinking about that decision?

[Paul Flynn, executive]

Yes. Thanks, Lachlan. I think you've highlighted all the difficult aspects of that in your summary, it's challenging. I mean we obviously like Winchester South. We're working hard on that. And we think we're actually getting to the sharp end of the state-based approval period. So that feels quite good. But we just got to push it across the line. Then we've got to undertake the federal level. And as you've rightly pointed out, these timelines seem to be elongating as time goes by. We didn't expect to have 2 exhibition periods for Winchester South. We've seen others had it. So directionally, we knew it was a risk, but we're hoping we didn't have to go through that we have. We're on the other side of it now, let's move forward.

The question on buy versus build, I think, is a good one. I think you just got to be cautious on any of these acquisitions opportunities that go around. Firstly, they better fit within your strategic crosshairs first and foremost because there's lots of people who will sell you something. And we may not fit your strategic parameters. And so we're very disciplined in making sure that anything we look at fits there and it must compete against not just the opportunity to build a project because the building of a project subject to approvals is something we can do at a time of our choosing whereas M&A occurs as and when the vendor wants to do something. But both of those things also need to be considered in the light of the buyback. And our shares, we still believe being cheap on a relative valuation basis. So that seems like a sensible use of funds as well that needs to be considered in any of that dynamic you've just outlined.

So as I say, on Monday, we'll start buying our shares again.

[Operator]

And our next question is from Peter O'Connor at Shaw and Partners.

[Peter O'Connor, analyst]

Just a couple of quick ones. What's the expected ratio of met versus thermal coal you're expecting from the Vickery box cut and the larger projects moving forward?

[Paul Flynn, executive]

Yes. That's glad you divided that into 2 pieces , thanks, but there is, look, in the early days, we're not expecting much in the way of semi-soft. But we may split out a little bit just to give a couple of customers a price test. But by and large, we're assuming that all goes into the thermal market, very good quality as it is and blended across our business, which is very good. But we will keep -- we will make sure that new customers have an opportunity to sample the thermal coal as well.

Overall, for the project as a whole, you can do 60% at Vickery potentially. I say potentially, technically, you can potentially because it depends on what the market wants. And it's like Maules Creek, you obviously have the flexibility of being able to move that coal from one to the other and quite seamlessly and Vickery will have the stronger coking properties, but it will also have the benefit of being able to move from one site to the other, depending on the spread between the those 2 prices. So -- but it can technically go up to 60%.

[Peter O'Connor, analyst]

Great. [indiscernible] the net cash position being so high. When is the company out with refinancing the [indiscernible], which I think its in...

[Kevin Ball, executive]

In the middle of that process now.

[Peter O'Connor, analyst]

So that still hasn't been finalized, I take it?

[Kevin Ball, executive]

No. Just in the middle of that process now. As you point out, the cash position, it's not refinancing a debt position, it's refinancing the facility would be the way I would say it, with no expectations to redraw. So it's just in the process of being done.

[Paul Flynn, executive]

To finalize over the next few months.

[Operator]

Our next question is from Chen Jiang from BofA.

[Chen Jiang, analyst]

A few questions from me, please. Firstly, just on Vickery. I'm just wondering what's the scenario or your backup plan is the full-scale cannot go ahead? I have a few after this, thank you.

[Paul Flynn, executive]

Yes. Yes. Thanks, Chen. Yes. Look, I'm not quite sure what the scenario would be that you're entertaining there that the bigger version doesn't go ahead. From all of what we see, it looks very good to us. It's going to be a good benefit to our business more generally. The market is definitely short. And so I think there's no concerns on our part of selling the coal. It would really just be the economics of it, and we're well down the path of looking at that already.

And I suppose -- as I mentioned earlier, the key thing for me is just that we are in an inflationary environment, although some suppliers are actually telling us that, that's starting to moderate. We're just not seeing that yet. And so when we do bring our -- the bigger version to the Board, it will be basically with 2 checkpoints. It will be the Board to look at it and bless it from a project perspective, subject to a contingency and that contingency would be inflationary impacts on CapEx. So even though the project itself, we would include contingency risk in it anyway in the underlying capital assessment, we do feel it would be prudent because of the market we're in to have a separate checkpoint for a margin on top of that so that the Board can consider that again.

So -- but as I mentioned earlier, because of the market the way it is, unless you've actually got an approval from your Board in hand, people aren't dividing the resources in a tight market to actually do the work to put it in proper estimates of what it would do, say, for instance, what it would cost to build, say, the prep plant or to do the bulk earthworks contract or to build the rail corridor infrastructure. So people are wanting to see a Board back commitment before they start deploying.

They're quite extensive investments on their part to actually build their estimates up to something I'd stand behind. But in terms of -- I think it's really just a matter of time before the Board has that type of quality information in front of it, before they would feel comfortable about pushing the button.

So if you said by the end of this calendar year, we've put that in front of our Board, it probably takes 6 months to go through the tendering process to get definitive numbers. So you're talking about sometime next year -- about this time next year before we actually start -- we could put to the Board definitive numbers that felt that we could rely on.

Capital. I'm referring to the capital numbers [indiscernible] The OpEx side of things, I think we understand pretty well.

[Chen Jiang, analyst]

Right. So it seems like you are very confident this project will go ahead pending for approval from the Board, is the only obstacle you are facing?

[Paul Flynn, executive]

Yes. Look, Chen, the underlying -- I'll just make a couple of comments. The underlying physical demand in the market looks very good to us. So even though it comes back to the point that one of the previous questions was focusing on just about price decks, we are keen to see a few more of the analysts who produce pricing decks continue to do their work because we do see that long-term coal price rising over time, and we are seeing more commentators give that further weight.

We want -- I think the benefit of the time that we have in front of us just to define the CapEx, we'll see those people will start to feel more comfortable about long-term prices being on the north side of $100 rather than sort of much lower than that in the past. And really, that's just a function of physical constraints in the supply side. I mean there's very little that can come on from a supply perspective and certainly nothing that looks like Vickery, nothing that looks like that at 6,400. And we've got customers who are building new power stations. So that needs our coal. So we feel very good about that side of things.

That's not to say the Board doesn't have complete discretion to approve or not. That absolutely is at the Board's discretion. But in terms of the underlying case and the broader benefit opportunity to our business overall, I think we shouldn't lose sight of that because having Vickery coal at our disposal for blending purposes would be -- is another big piece of where the value equation comes from that investment.

[Chen Jiang, analyst]

Great. Great. Good to hear. Another question, just a follow-up and most quick, please. Congestion from in-pit dumping, managing your manned and autonomous fleet. Hopefully, this is a 1 quarter disruption. Just wondering, are you comfortable with the current operation or mine plan at Maules Creek? And hopefully -- and what has been done to prevent this happening again?

[Paul Flynn, executive]

Yes. Yes. Thanks, Chen. Look, I just want to go back over some of the comments I made a little bit earlier, just so perhaps I need to be a little bit clearer there.

I was asked before a little bit about AHS is something changed. The thing that's changed is we've found a way to give the AHS system another 12 months to try and push it over the edge and commercialize the system. And so that does -- that comes with, as I said, productivity penalty that we're accepting of at the moment, given that we think we're close to the end of this journey, but there is a physical time line that we really couldn't persevere past that is basically in 12 months' time. At the very outset, 18, the 12 months' time is where we're shooting for.

And so that is keeping those fleets separate, does come at a cost. So there is a production outcome penalty that you have to pay there. Now it doesn't look -- and I know where your question is going, I'm sure everybody else is trying to angle for how does next year look like? It's nowhere near as what it is this year because we just -- we've suffered obviously in the first half of being [indiscernible] with the bad weather. And so the penalty from keeping those fleets separate for another 12 months isn't anywhere near what we've suffered in this year, of course, but we will have to take that into consideration when we're drawing the budget up and our guidance for next year.

[Operator]

Our next question is from Caleb at Goldman Sachs.

[Paul Young, analyst]

Paul and Kevin, it's actually Paul Young here. Paul, first question is on Narrabri. You just [indiscernible] seeing a step change in production from mining in the shallow Southern ground. Can you maybe just throw some numbers out there or just remind us of what the production unit cost benefits you expect from switching across to the southern panels?

[Paul Flynn, executive]

Yes. Thanks, Paul. Yes, look, weeks away, it's going to be -- well, we'd like to see this is only weeks away. But at the end of May anyway is not that far away, but there is a lot of anticipation on our side, no doubt about moving into shallower ground and more benign mining conditions for sure.

And so there's a number of different factors that go in there. But operating the shallow ground a more -- a less intensive roof-bolting pattern, as we've talked about many, many times with you about operating the deeper ground versus the shallow. The productivity benefits from going from operating in an area where we've had less weight in the roof, and we're certainly going to see a big change.

And we've estimated that the aspects or if you -- if you reflect back on the equally shallow panels in the northern side of our mine, and you go and have a look at the costs associated with that, and we'll have to take inflation into account, of course. But if you look at that and where we're expecting to go based on our current run rate, we're expecting about AUD 15. That's where we -- that's what we're thinking the benefit is. It's quite significant. And -- but that, of course, means that you're pushing at the run rates that we achieved in most equivalently shallow northern panels.

Now if you don't do those volumes, of course, then you've got less tonnes to spread your fixed costs over. But that's where we think it goes at an equivalent run rate in those panels.

[Paul Young, analyst]

That's helpful to hear those numbers again. Second question is on Vickery. And a bit to work through there. Just on a question on unit costs of the startup project. I presume you would close Werris Creek and [indiscernible] coal is a bit of a benefit there, but then you're diluting the fixed costs, as you point out, at Gunnedah. So is there any sort of sense of what the unit cost will be across -- maybe the best way of looking at it across an average of Gunnedah and Vickery?

[Paul Flynn, executive]

We haven't given any guidance on that, Paul. And obviously, the small version of Vickery with its CapEx light footprint is obviously not the best manifestation of what we believe Vickery to be, of course, because part of the benefit of the bigger Vickery will be using a modern prep plant without road haulage down the road and using the train loop straight into the project. So there's lots of savings there in that regard. So it's certainly going to be cash flow positive, putting the CapEx aside, of course, and a large portion of the CapEx. I mentioned is related to the bigger project. So it's -- we think it's a really good way of using that take-or-pay, using up that process and capacity of the plant. Keeping the people, which is really important, given we've been talking about labor shortages and so on and using equipment that we've got in the business already to be redeployed.

[Paul Young, analyst]

Yes, absolutely, Paul. It's pretty super sensible note about it. And then on -- just on that moving equipment, when you move across from Werris Creek, what's the dollar amount of replacement CapEx on that equipment coming across? Just trying to get a sense of what the savings could be with the larger projects on mining fleet and excavators, et cetera?

[Paul Flynn, executive]

Paul, I wouldn't say that the dollars are huge on [ ANC ], but the dollars wouldn't be huge. I mean we're going to throw some money at them and give them a birthday. And the benefit is not having to buy new because we've got it already. So the birthday is cheaper than buying a new one. And of course, not all that gear that we've got at Werris is going to be calibrated for the bigger version anyway. So -- but to be able to give it a birthday and use it without any further CapEx is very positive for us.

[Paul Young, analyst]

Yes. Absolutely. And then when you say some larger project for and you put the -- I guess, the economic outcomes to the Board, I know you mentioned -- I guess, some of the assumptions that you might be using and one of those discussion points is around long-run price and where that's heading. But at this point, like what longer price can we use when you look at that project when -- and then I guess, from that perspective, does it need an IRR sort of hurdle target as amendment to get approved?

[Paul Flynn, executive]

Yes. Yes. Well, it surely should. There's no doubt we have to have an IRR minimum hurdle. And Paul, as you know, we're fully equity funded today. So the hurdle that any project that's funded on that basis is significant, and this will be. It will have to cross that hurdle as well.

So I think for sure, and I don't want to be -- I'll be down if I do down if I don't give you numbers here on long-term coal prices. But we think for sure, it's well over the $100 and we'll wait. There's work going on as we speak, which will pan out over the next quarter or 2 that we'll be able to point to objective work from other people that underpin that commentators because if we come out with our own bespoke numbers, of course, everyone can say, oh, you're just self-interested. So we would rather rely on external data points that we can point to support our own views, which we do have views, but it's all rather rely on [indiscernible] sources that data.

But I think it's well north of $100. There's no notion. I can't imagine a world where it sees $100 long term. Given that there's no supply and the demand is very good, I mean it's with new power stations coming on in very mature jurisdictions, let alone emerging. The issue is the supply constraints, not the demand.

[Paul Young, analyst]

Yes. I'd point to ask the fourth question. I know you're going to say the constitution meeting, so I'll just get that out there ahead of you. In that case, but on Vickery and when you assess that, does it compete with what we compete with potential M&A? Or are they completely separate decisions?

[Paul Flynn, executive]

Sorry, which one? Say again?

[Paul Young, analyst]

Will Vickery the larger project when you put that to the Board, will it compete for capital with potential acquisitions? Or is it completely a separate decision?

[Paul Flynn, executive]

All of them have to compete on the same page. So Vickery obviously is something we can do with our choosing, as I mentioned earlier. M&A happens when others want to sell. But the buyback is relevant. Obviously, it has to be in that dynamic in that discussion. So it will have to compete. As I say, I'm dropping a [indiscernible] in terms of how we think about Vickery because Vickery is not just a stand-alone investment itself, it's what we can do with that coal across our business. And I'm sure you've seen us talk about that, the benefits of blending across the business. I mean, if you take even the 5,500 spread today, and if you can drag some coal out of that market into a superior market, the margin difference in that spread is enormous. And so Vickery at 54 -- at 64 gives you a lot of blending horsepower.

[Operator]

We have one last question, and that is from Chen at BofA.

[Chen Jiang, analyst]

Yes, sure. Just a follow-up question, please, to Kevin, on the pace of buyback. Thanks for providing the granularity of your buyback in the quarterly. By looking at the total number of shares bought back, March quarter is roughly speaking like 60% less versus the December quarter from the total number of shares bought back perspective. I'm just wondering, Kevin, are you happy with the buyback pace in March quarter? Or do you think December quarter is a good indicator going forward?

[Kevin Ball, executive]

I think you should be able to do your math based on what we set out on capital allocation. Chen, I think between -- so the December quarter was -- we received approval from the shareholders in the October meeting. We pushed through that. We came into the March quarter. Coal prices were softening over January and February and we naturally align that to where we thought the number might finish for NPAT for fiscal year '23. And we know roughly where we're going to finish for fiscal year '23, so we know how to close this thing out.

[Paul Flynn, executive]

Maybe just a product of the difference in the first half, that's second half impact ratio. You can see it was much higher in the first half and still very good in the second but less.

[Operator]

Thank you, Paul, and we don't have any further questions.

[Paul Flynn, executive]

Yes. Thank you very much, everybody, once again for taking the time and dialing in. I look forward to catching up with you all in due course. Any questions you know where to find us.

Thank you very much. Thanks, operator.

[Operator]

Thank you, Paul. That does conclude our conference for today. Thank you for participating. You may now disconnect.