Whitehaven Coal Ltd

ASX:WHC

Earnings Call Transcript 2018-Q4

[Operator]

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

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

Well, good morning, everyone. And thank you for making the time to join us for our June quarterly production report. I'm joined here today with the usual cohort with Jamie Frankcombe, Kevin Ball and Ian McAleese. First, the highlights. It's been a very good quarter and a nice way to round out what's obviously been a pretty buoyant year for the industry more generally, but I'll just go through the highlights quickly before turning to the individual site commentary. Our performance has been very strong on safety. Certainly, year-on-year has been a good result, and I'll talk in more detail to that, but 6.91 is certainly a very good result as far as we're concerned. For the June quarter, ROM production totals of 5.9 million tonnes and the saleable production of 4.7 million and sales of 4.8 million tonnes certainly also have been a solid result. The full year total of 22.9 million is in line with our previous year and in line with our guidance. That full year saleable coal production at 20.9 million, again, in line with our guidance. Full year coal sales, including our purchased coal at 22.1 million is 7% up on the previous year. Maules is running well and it's just come in under the 11 million tonnes for the full year, having done 2.9 million tonnes ROM coal production for the quarter. Saleable coal production at 9.7 million is 8% up year-on-year, and we do have all the equipment on the ground now to be able to run at 13 million tonnes per annum. Our Gunnedah open cuts have delivered another good year for us with saleable coal production of 5.4 million, up 12% and coal sales of 5.3 million tonnes, up 16%. We did, as you know, complete the Winchester South transaction during the course of the year and now are earning 100% of that property. And at the same time, we've also rounded out 100% ownership of the Tarrawonga joint venture as we've previously announced.Just over to the managed production coal sales numbers there, just to run them through quickly for you. For the quarter, the managed ROM coal production at 5.84 million tonnes. It was 11% down on our previous corresponding highlight of the June '17 quarter. But our year totals are pretty much flat, 22.9 million versus 23.1 million year-on-year, 1% down. The managed saleable coal production of 4.75 million versus 5.47 million, about 13% down, but again, flat year-on-year on the totals. And our total coal sales of 4.76 million versus 5.4 million, again 13% down, but again, flat on the year, but slightly up with 22 -- just over 22 million tonnes versus 20.67 million.Whilst you may recall back in the month -- in the quarter of March, we did actually -- we were showing a very positive trend in our downward pressure on our TRIFR rate and year-on-year we continue to exhibit that, but we have slipped slightly back from where we'd like to be quarter-on-quarter and rounded out the year at 6.91. That is better now, 7.42, in the previous corresponding quarter, but I'd have to say, more work remains to be done here and, certainly, whilst good, we're not satisfied with the 6.1 overall. Our managed coal sales, including our purchased coal, for June quarter is 4.8 million tonnes, down 13% on the previous corresponding quarter and it's largely attributed to the combination of lower coal availability in Narrabri as we've discussed during the course of the year, and certainly, this quarter, in particular, quite substantial slippage from our June quarter into the first quarter of next year July by virtue of some weather-related congestion at the Port of Newcastle. These factors contributed to a reduction of our equity coal sales, including the purchased coal at 3.9 million tonnes for the quarter, down 7% on the previous corresponding quarter. The benchmark pricing. If we look at the average pricing for the quarterly average here at USD 196 for hard Coke, USD 140 estimated as we know for the low-vol PCI and USD 132 as the settlement for the semi-soft coking coal. Our achieved price in June that time for met coal was USD 131 per tonne. Certainly, the strong economic activity during the quarter saw the globalCOAL Index well supported during this period and averaged $105 during the quarter, certainly a good result. After considering ash -- and energy premiums, the Maules Creek thermal certainly has been doing well and the semi-soft at USD 121 per tonne. However, the dynamic between the semi-soft and our thermal coal continues to play out during the quarter and limitations in the availability of PCI out of Narrabri with the lower volume of tonnes certainly has conspired to bring a lower volume of metallurgical coal sales in this quarter than what we would have preferred. However, Maules Creek thermal coal is still performing very well and our average premium over the GC NEWC Index at 9% is certainly a very solid result.As I say, the dynamic between our semi-soft and also our thermal coals has led to lower penetration of the met coal sector than we would like. And certainly, that's contributed to by Narrabri's tonnes. Narrabri's tonnes, probably about 600,000 to 700,000 tonnes of met coal down, previous from we would otherwise would have though, which is a bigger driver of why the met coal numbers are where they are. The table, which we've provided over the course of the last few quarters now we've updated for you. I just draw your attention to the splits between the various products. The high CV thermal coal at 59% versus the low CV at 23%. As I say, this is an aggregation of a couple of factors here, which are driving that, namely, our Werris obviously fits into that component and we also have, as I say, with the lower coal availability at Narrabri and some of those tonnes by virtue of the impacts of out-of-seam dilution have caused us to have an elevated low CV number of proportion for this quarter. Now the rest of the pricing index is quoted there and our price is relative to those achieved and then also the related discounts to those indexes. They are tabulated on the bottom rows of the table. Over to Maules Creek. The new quarterly production record of 2.93 million tonnes is certainly a solid result for the quarter with the mine operating at an annualized basis in the quarter just under 12 million tonnes, which is very positive. Coal sales at 2.352 million was up slightly on the previous corresponding quarter. The ROM tonnes, as I just say, just under 11 million tonnes, is 13% up on the previous corresponding quarter. And our saleable coal production at 9.67 million certainly a positive result. As I say, all the equipment is now on the ground available now to operate at a 13-million tonne ROM rate and you will see us push ahead and start to achieve that in the second half of this financial year. Metallurgical coal sales at Maules Creek specifically have been actually pretty positive in this quarter, and at 740,000 tonnes at 31% of the total coal sales at the mine, has been a pretty good result. Now although overall for the year at 2 point -- nearly 2.3 million tonnes is 23% of the total sales for the quarter. The margin between the spot semi and our thermal coal price has obviously been a challenge, but I think if we look at semi relative to the hard coke, it's actually not in a bad place. It's really the relativities of all the thermal coal pricing to semi-soft, which is the bigger driver of our decisions to move coal into the semi market or not. Moving over to Narrabri. ROM coal production obviously in what for us and by Narrabri's standard has been a lackluster quarter, production was 1.2 million tonnes, down 29% of the previous corresponding quarter. And our saleable coal production for the quarter expectedly is about 880,000 tonnes in coal sales and 800,000 tonnes for the quarter. The full year result for Narrabri was not bad given the overall difficulties that we experienced just as we're trending deep with the mine at -- just under 6.3 million tonnes, 13% lower than the previous corresponding quarter. Sale of coal production at 5.8 million tonnes, 16% lower in the previous year, and coal sales of 7.6 million -- sorry, 5.8 million tonnes for the year, again lower than previous year.Sorry. ROM coal production at Narrabri for the June quarter and the second half of FY '18 were impacted by a series of longwall mechanical issues as we've noted before and also compounding what was a localized weighting events, which we experienced over the last couple of quarters that we've been commenting. These factors combined to slow the rate of retreat for this panel, panel 7, and delayed the commencement of the change-out, which we had previously expected would occur during this past quarter. The change-out of the longwall panel 8 now is now expected to occur during this month or commence during this month. And we look to recommence cutting of coal in early to mid-September. The installation of the accelerated secondary support regime, which we put in place during the quarter this last financial year is going very well and is ahead of schedule. Roadway development, just for everybody's note, is about 17 kilometers for the year. The Gunnedah open cuts have performed strongly during this quarter and had a good year overall. Production is higher than expected and costs are actually now in the first quartile, which is a pleasing result. Tarrawonga, Rocglen and Werris Creek and the rehabilitation project of our Sunnyside produced a total of 1.7 million tonnes of ROM coal for the quarter and just under 5.7 million for the year. Saleable coal production for the quarter at 1.443 million was certainly a good result and coal sales for the period at just under 1.3 million, again, very positive. Safety certainly leads the way in our group. So the Gunnedah safety record has been very strong and Rocglen and the Gunnedah CHPP, in particular, now going over 2,000 days injury free, which is a tremendous result.The splits here between the Gunnedah operations now. Tarrawonga mine has done pretty well at 600,000 tonnes for the quarter. Saleable coal production and coal sales for the quarter at just under 0.5 million tonnes and just 400,000 tonnes, respectively. The completion of the acquisition of the last 30% of the Tarrawonga mine from Idemitsu during the quarter was certainly positive and going forward will add about 700,000 tonnes to our equity sales -- production and sales this new year. Rocglen has done very well for the quarter at 314,000 tonnes, the saleable coal production there at 235,000 and sales of 213,000 tonnes. The mine is scheduled to close at the end of this year, so we'll then switch over into a rehabilitation project, which is going to go for about 18 months. The full year ROM total of just over 1 million tonnes is certainly a good result. Saleable coal production for the year -- the full year, just under 1 million and sales also similar. Werris Creek has certainly had a big quarter as it normally does, frustratingly leaving its big run until the end of the financial year, but it's certainly come home well. 583,000 tonnes of ROM production for the quarter, saleable at 630,000 tonnes and sales of just under 620,000 tonnes. ROM coal production full year just under 2 million tonnes is 8% higher than the previous corresponding year. And our saleable coal production and sales of 2 million and 2.1 million tonnes, respectively, just over 25% on the previous corresponding year. The Sunnyside rehab project is going well and has produced in this quarter a solid outcome of 234,000 tonnes, having now opened up a good amount of ground exploration coal. The project going well, and as we say, we're treating this as what we see, a very good opportunity to demonstrate a contemporary rehabilitation exercise in the local communities so that people can see what landform and rehab activities look like in a contemporary example. ROM coal production for the year is actually ahead of schedule at 356,000 tonnes. And with large stockpiles on the ground, sales are 100,000 tonnes for the year. The Vickery Project has crossed a significant milestone during the quarter where we have signed all the relevant agreements for the rail access now for the project. This was the last piece of the puzzle as we've discussed on a number of occasions during the course of the year and now throws us into the final assessments required for that confirmed rail corridor. There has been a few other small changes during the course of the last 6 months in terms of the requirements for lodgment of the EIS, so one of those being the economic impact studies have to have some new requirements. So we are busily doing those during the course of the next month. And we certainly will complete that during the end of the next 3 to 4 weeks and look to lodge our EIS in the second half of August. The timing of the project, as we said, was always about the time that Maules was fully ramped, which will essentially coincide with what we're allowing to be about an 18-month period to go through both the state and federal approval hoops. And the joint venture process, the creation of the joint venture, we'll run that process concurrently during the pursuit of that larger approval. Now the Winchester South project, as you know, is a strategic acquisition for us to diversify our footprint into Queensland, and pleased to say that we've now formalized the ownership of 100% of that project by paying USD 150 million to Rio Tinto during the course of the quarter. There's a further USD 50 million will need to be paid in 12 months' time. And then we also were able to mop up the 25% minority joint venture interest. So as I said a couple of times, hats off to the Queensland Government for enabling us to process the ownership of this new tenement in short order. I'm very pleased to have what's a very good metallurgical coal prospect now in our development pipeline. Cost pressures have been exhibiting the sales during the course of the year and I suppose we compounded that a little bit by having less Narrabri tonnes than we otherwise would have liked. So the weighted average impact of that plus diesel fuel prices have been higher than expected. As we know, Maules Creek's got some long hauls at the moment. The corollary of all that has seen our run rate and costs elevate to about $62, that's slightly up from where we guided before, $62 for the year. There are some accounting changes on the horizon, which we'll look at during the course of the next few weeks, and we are contemplating the early adoption of the leasing standard, which will convert our operating leases into on-balance sheet financing.Our coal outlook looks pretty good. So I think overall, the appetite for high-quality coal in the Asian region has been very strong, as you can see by obviously the pricing that's been experiencing. But counter to what people might be saying, China seems to be taking up quite a bit in the seaborne trade and certainly coal-fired generation is up year-on-year, so that's certainly driving higher prices. That doesn't seem to allow some other tonnes, which are swing players in the markets such as the U.S., to emerge and start to contribute to the seaborne trade. But certainly, that's not obviously enough to temper what's otherwise been a very strong underlying demand and a very solid pricing as a result. Metallurgical coal prices have continued to be pretty strong. As I say to you before, the issues that we perceive in this market is not really that the semi-soft is out of step now, it's actually reasonable relative to the hard coking price. But we do see obviously the gC Newc pricing being high relative to the semi prices in this period and that, coupled with some activities, some constraints in Queensland, in particular, with that rail dispute and a tight market underlying what is going to be pretty good pricing in the short to medium term from our perspective as far as we can see for this new financial year. Our exploration expenditures, just for the sake of everybody, 1.6 million tonnes -- sorry, $1.6 million for the quarter. So overall for us, I have to say it's been a solid quarter, nice way to round out the year. Of course, we would have liked a few more tonnes out of Narrabri from what we've been experiencing there, throwing ourselves with gusto into the change-out and look forward to bringing that back online in this first quarter. But a good financial year, and we look forward to publishing some solid financial results in a few weeks' time. Thank you. Operator, I'll hand over to questions from the audience.

[Operator]

[Operator Instructions] Comes from the line of Clarke Wilkins from Citigroup.

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

First, could you just talk about a bit more these weighting issues at Narrabri. Are they related to the sort of the intrusions in the faulting previously? And are they going to continue across into the additional longwall? Or are they just very localized in that sort of Longwall 7? The other one point just in regards to sort of the Maules Creek potential for expansion there. You sort of said 18 months sort of time frame for the approvals for Vickery, but also the risk is that takes a lot longer in New South Wales given what we've seen to date. So is there sort of any potential expansion of Maules Creek being done in conjunction with Vickery given the strength you've seen in the thermal coal market?

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

Yes, thanks, Clarke. Look, I might just -- I'll start at the back end of those 2 questions and make a couple of comments also on Narrabri and hand over to Jamie. Maules Creek, itself, what we've said there is we're talking about the ramp-up to 13 million tonnes, which is the currently approved run rate for the mine. We do see that there's an opportunity to do more out of Maules going forward, but that is -- that's an approval exercise, which will take some while to pursue. And we are doing a study at the moment to look exactly what is the total upside for Maules Creek. Is it another 2 million to 3 million tonnes? Or is it something greater than that, that we might be able to extract out of the existing footprint we've got. With Vickery's timing, we would obviously like to pursue that as quickly as possible. And to that end, you've seen us make some modifications to the package that Vickery represents itself late last year with the removal of some of the small extraneous pits that was giving the community some concern, and now finalizing this rail linkage is really the missing piece to the puzzle in order to [ pursue ] this through. 18 months is what we've allocated all along for the approvals processes. We have been briefing the state and federal government on the progress of the EIS preparation, so they're well understanding of what the proposition represents. It is already approved, as you know, 4.5 million tonnes per annum. So our desire is try and make sure that the government whilst looking at the whole does focus on the differences from the currently approved project versus what the enhancements are, which we believe add a lot of value to the community in particular. So the timing of bringing it on is really just around how quickly we can get ourselves through the state and federal hoops. But it will actually end up coinciding more or less with Maules at 13 million, although Maules at 13 million, unless we can get this project through those state and federal hoops quicker than expected. On Narrabri, look, Narrabri really has just been -- there's nothing new there. It's really just as we've talked about in previous quarters, the transition that Narrabri is going through and experiencing further weighting as a result of increased depth of cover. And so we have suffered quite a few mechanical issues during the course of the last couple of quarters with our [ MUS ] AFC. And so that was being unhelpful given that we've been going through this transition of this increased secondary support regime that we've been putting in place. So there's nothing new from what we've spoken about before. But it certainly has conspired to deliver us both tonnes in this year than obviously we would have preferred. But certainly, nothing changed from what we've previously been discussing, particularly our last quarter. Jamie?

[Jamie R. Frankcombe, Chief Operating Officer]

Yes, look, the only difference, I guess, that I can point to in 107 was that, look, in terms of the weighting events, we have the fault line that runs through 107, 108, 109 that we've spoken about previously and we were very successful driving through that fault in 107. The weighting areas associated with the very thick and strong layers of messy sandstone and conglomerate do extend through 107, 108, 109, but it does diminish as we go further to the west and we're dealing with that with the preconditioning, which has been reasonably successful. The only difference in 107 was towards the back end of the block and the cause for delays through the back end of May, sort of early June was -- there was a mid-face fault in 107 that showed up parallel to the face so we had a large block of the roof come down through that period, which was quite difficult to recover. So that's unusual, not typical. We haven't seen that in the other blocks. So I guess, the other things that we're aware of, very confident about their location, very confident about our ability to drive through those.

[Operator]

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

[James Redfern, Vice President]

Just had 3 questions, please, if that's okay. Just on Narrabri, just given the longwall move and staying in production of Longwall 108 in September, do you see any risk to the guidance of 7.7 million tonnes for FY '19? And I've got 2 more after that, please.

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

[indiscernible] Sorry, James, I was just busy writing down. Is there another -- you said there were 3 things, did you?

[James Redfern, Vice President]

Yes, okay. Well, I'll give you all 3. So the first one, Narrabri production guidance is 7.7 million for FY '19. Do you see any risk to that given the longwall move?

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

Sure, yes.

[James Redfern, Vice President]

Second question, cost guidance of $62 a tonne in FY '18 implies $64 a tonne for the second half of FY '18. And given the longwall move and prevailing high diesel prices, fair to assume $64 a tonne in the first half of FY '19 as well. And then the third one, just remind me, please, on Vickery, targeting first run production around calendar '21 and a similar product mix and quality mix to Maules Creek. So there's 3 there, if that's all right, please.

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

All right. Well, okay. Three questions usually requires a meeting, but fine, look, I went through all. No, that's all right. Now look, Narrabri, yes, of course, you're absolutely right to point out that due to the slippage of the retreat and the crossover, if you like, of the change-out period now into -- fulsomely into this quarter and this new year, we will be providing a rerated guidance for the FY '19 year with our results. So there's no avoiding that unfortunately, it's just a consequence of obviously pushing out that change-out period so there will be. Cost guidance overall, yes, look, it's really quite an interesting dynamic with this one because it is heavily influenced by Narrabri as you're obviously noting. The more tonnes you get out of Narrabri, our cheapest coal, the better your run rate is, of course. So we will be looking at, again, our guidance for this new financial year and publishing that as well when we publish our full year results. Vickery first coal, our expectation is that we will be starting the construction of Vickery in early -- as early as we can, but subject to obviously government state and federal in early calendar '20. And so our plan as we did with Maules Creek would be to go full bore on obviously the rail connection, although unlike Maules Creek with the Vickery Project, we still -- we obviously have access to the Gunnedah prep plant for a little while and so there will be a change. There'll be a transition period where we'll take some early tonnes out of Vickery down to the Gunnedah prep plant. We would expect that, I would have said, in covering first coal would be late calendar '20 is probably the right place to put that. I mean, there'll be some variation, but late calendar '20 in order to get some first coal out of there. But because the quality of the coal is so good like Maules, it's always a good opportunity to get some of these revenue whilst the balance of construction is still going on and obviously having the flexibility to actually put some tonnes through the Gunnedah prep plant still being in existence at that time is an advantage, which we didn't have obviously with Maules Creek where you're solely dependent on the rail connection being put in place before you could actually generate some revenue. In terms of split of products you've asked there -- so that's 4 questions in fact, we expect Vickery to be about 60% met coal in certainly in capacity of the resource -- or the reserves to deliver that sort of outcome, 40% balance of same thermal as we're seeing out of Maules Creek. We do think the met's probably a little better than Maules Creek from what we've seen. We've put some quality holes into the ground during the course these last 12 months and that confirms to us that certainly the coking properties look stronger in the Vickery Project than they do at Maules Creek. So hopefully that's hit those questions for you.

[Operator]

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

[Lyndon Fagan, Analyst]

Look, a few little ones from me. Firstly, Paul, there, I see that low CV thermal was almost a quarter of your total sales makes this quarter pretty much the highest for some time. And I'm just wondering if you can maybe give us a bit of color as to how to try and forecast or think about that fraction given that it's dragged down your thermal realization. So that's the first one. I can hit you with a few others if you like or we can just...

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

Yes, keep going.

[Lyndon Fagan, Analyst]

And look, the second one, you might have mentioned this before but the rehabilitation costs for Rocglen, if you could maybe just call that out. And the final question, now that Winchester's closed, I'm wondering whether you're in a position to share some initial thoughts on scope, fractions, costs, et cetera, given that there really hasn't been that much put out there around the asset.

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

All right. Okay, I'll try and answer those. The last might be a bit hard, but anyway, I'll try. The low CV coal sales during the course of the quarter is certainly high and I don't -- I'm not suggesting that by any means we should be thinking that, that's representative of the way we go going forward. As we all know, the Werris coal has been characterized as essentially Korean in quality and that goes through that low CV number. There's obviously at Sunnyside the rehab project, that's low CV coal by any stretch. So that's more like Chinese quality. But obviously, that's a rehabilitation project, and at these current prices which are very good, you're seeing as -- well, we're actually making good money out of that coal right now. But that's low CV certainly by reference to what we normally produce as a company. Compounding that, as I mentioned, just briefly as I went through the highlights was that with the various roof falls and complications that we've had at Narrabri of late, even though we've got a 9-meter seam, we have actually been experiencing -- the sweet section, obviously we take out a 4.3-meter seam is a very low ash. But when you are experiencing roof falls and you are getting rock from above this 9-meter seam and even some of the coal above the 4.3-meter sweet spot that we're extracting, what that does is, by our definition, throws you into low CV sales, yes, because that coal comes out with quite a bit of out-of-seam dilution if you can call it that and that conspires to drive that up during the quarter this quarter. Now that's, as I say, a function of the weighting events and roof falls that we've experienced during the course of the last quarter in particular and we wouldn't expect that to be the case going forward. Rehab cost -- rehab cost at Rocglen we had on your list, look, I mean, these things are not material so we have provided this stuff for -- in our accounts. So it's not really a material number, but I don't have a number off the top of my head for Rocglen rehab. But it's not a material exercise. A lot of the work that we've been doing over the last couple of years has really been trying to arrive that final landfall. And obviously, there still remains. Obviously, the operating area that needs to be rehabilitated, not to mention further contouring and then obviously final finishing with topsoil and vegetations and so on. But it's not a material -- there's not a material issue for us as a company. And most of what we've got there I already said has already provided for. Winchester South, look, it's early days is probably the best I can say there. I mean, we're quite excited about the prospects of this asset, of course, and having gained access to it quicker than we expected. We are recruiting for someone to lead this project. And so I think this is an exciting project. We have put out some previous guidance, if you like, which were high level sort of descriptor of the project, which was largely reliant on the information that we got through the due diligence process with Rio. We think that the range of coals here, certainly some hard cokes, some semi-hard, semi-soft and there's a thermal [ coal ] that comes from this also. The strip ratio at 5:1 looks pretty good. The recovery in the area, although Rio estimated it to be very low, but recovery from the surrounding project certainly looks pretty good and I would say that's sort of around the 65% to 75% depending on the mix of coals that are coming out. But all these things need to be validated through a bit of an underground work from us. So now that we've actually got ownership, we can move to access on the ground and one of the first things we think is necessary here is to put in a drilling campaign just to prove up what we perceive to be the product splits. And from that, of course, will come some more guidance around the economics of the prospect itself. But the project is quite -- it's large scale, as I say, low strip ratio and certainly attractively positioned in terms of the mix of products that it has. So once we get our feet on the ground and doing some work here, we'll update everybody in terms of what we see as the key drivers of the economics of this opportunity, but very pleased to have it. And like I say, the Queensland Government has been welcoming us in no uncertain terms in entering the Queensland market and are very keen to see us accelerate the development of this project. But we do need to do some drilling. We do need to prepare an EIS. We need a feasibility study done. And so there's little lead time associated with doing this. I'd love to see it chase down Vickery, but the Vickery Project is well and truly advanced relative to Winchester South. So I do see the 2 of them being sequential in nature, but not far. Winchester South won't be far behind the other. So it's a pretty exciting prospect given the market environment we're in.

[Lyndon Fagan, Analyst]

Just a really quick follow-up, if I may. Just with Narrabri and those weighting issues not only impacting production rates, but also low CV sell-through dilution. I guess you mentioned these diminish once you move beyond 109. When exactly is that? And when -- maybe if you could give us a bit of color on how long these production issues are likely to last for?

[Jamie R. Frankcombe, Chief Operating Officer]

The weighting area that I referred to extends through 108, 109. And the actual area or I guess is that each panel is affected by that does diminish when you get beyond 109 into 110. But time-wise, that's sort of getting in the back end of FY '20, into FY '21.

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

Yes, and as a result of the delay in the commencement of the change-out, we, as I say, we will reset our guidance for this year. And we have -- you will recall we had given 3 years guidance based on our expectation production on our strategy to traverse those faults in the past and this will have a cascading impact on that. So with the full year financial results we'll revise that for everybody, as I say, so you can see the 3-year outlook for Narrabri.

[Lyndon Fagan, Analyst]

So just to be clear, so low CV sales at roughly a 1/4 of volume isn't representative going forward, but may be representative for that period that you called out. Is that...

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

No, no, no. I wouldn't -- we're not saying -- it's uncharacteristic to have this amount of falls during the course of a quarter, let alone a year. And I wouldn't certainly say that, that's what we should be budgeting for, for Narrabri going forward. The mechanical issues that we had with the AFC actually were contributory to some of the fall because if you stopped in place, fix -- trying to fix mechanical issues, then that's when you're exposed in terms of having some weighting or some roof falls and that certainly been the case during this quarter. So the corollary of that is obviously we've an elevated low CV proportion of production during the period. But I wouldn't say that's where we should be thinking going forward. In fact, I would have said that's going to normalize into the mid-teens going forward.

[Operator]

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

[Glyn Lawcock]

Look, just quickly if we could delve into the cost one a little bit more. Just if you could make -- if it's possible to break out what was the cost impact from diesel relative to volume in that cost $4 increase half-on-half? Secondly, just like to hear from Jamie. Is there anything, given all the issues around the conglomerate layer and it obviously gets -- it's still thick over panels 8 and 9 and you're going to get deeper as you go into 8 and 9, you're going to have even more weight on the roof. Just -- are there any -- any plans to do anything different, fracking, et cetera, as you go forward? And then, finally, just low CV coal, just wondering what's happening to pricing to that relative to the index currently and perhaps what you see going forward given we're probably going to see better pricing for premium coals, what's your anticipation for low CV coal pricing?

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

All right. Thanks, Glyn. So cost impacts, I don't think we actually have a separate number, I'm just looking at Kevin here, but I don't think we've got a separate number for that. Look, it has been relative to where we budgeted on that. Cost has been quite an increase in diesel price over the course of the year, let alone the quarter. The big driver here is not just that, but as we mentioned before, we've got long hauls at Narrabri -- at Maules Creek coming out of what's increasingly a deeper pit out to a higher profile out-of-pit dump, which we say we've got a couple of years of transition before we start meaningful in-pit dumping to minimize the exposure to this. It is what it is and that's been moving at the same rate as the market more generally. We haven't taken out any hedging on this, so we are exposed to it. The conglomerate, Jamie?

[Jamie R. Frankcombe, Chief Operating Officer]

Yes. Look, Glyn. I guess, I would say there's 3 areas that we're concentrating at primarily at Narrabri to address these issues. I mean, the secondary support program that Paul has already referred to is well in place and we're now in advance, I guess, of installation time for the longwall commencing in 108 and also very well progressed in terms of mains and secondary support as we start to -- well, not start, but sort of halfway through development of main gate 109. So that program sees us getting caught up as we would suggest by the end of this calendar year and then we can start to de-rate that and have a more longer-term sustainable level of secondary support. The mechanical issues with the AFC, we continue to work very closely with the suppliers at Komatsu Joy. In addressing these performance issues, we have a weekly phone hookup with them and there's a list of action items that are being addressed on a weekly basis and we're starting to see good progress there. So we'd like to think that delays that we sustain because of some of the performance issues will be reduced on a go-forward basis. And generally, with roof conditions at Narrabri, you're right, we get deeper every panel we mine there as we head towards the west and we've got a number of projects that we're working on to look at assessing and then implementing programs to control our roof-related delays better. The preconditioning that we do in that thicker conglomerate and massive sandstone, we've been doing that now for the last few blocks. It's been quite successful for 108. We're reviewing what we did in 107, there'll be some adjustments made in that program. But generally, what can be done is being done. There's a few other things we're looking at, I guess, in terms of the roof supports. As we get deeper, what we might be able to do to tune that performance up better, but as I say, there's a number of projects we're working on, I guess, which we believe will address and reduce the impact of those issues.

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

I think Glyn, the last one was low CV pricing. I think, look, the low CV pricing is quite -- it's been quite interesting as you know. There's quite a big difference between Chinese pricing, say, for instance and GC NEWC on a relatively basis. When we say low CV from our mind, a low CV generally means for us into Korea, which hasn't been suffering any way near the same discount as what we see China exhibiting at the moment, although historically those prices look very, very good also. I know that if you look at our recent sales into Korea as our low CV market, the discount to GC NEWC is actually very small and you're talking about low single digits there in terms of discounts to GC NEWC, which is pretty good business. So if you're able, as we are, to blend even something like as low as 5,500 into a better place, then you will avoid what is a large difference between GC NEWC and the Chinese 5,500 market by delivering it into Korea. That's what we've been doing.

[Unknown Executive]

And I'd also say that, that 23% is overrepresented because of the reduced volume in the June quarter. So there's 3.8 million tonnes in the sales and 23% of that is high CV. If you look at the split first half-second half, it's about 1.5 million to 1.3 million. So I think it's driven a little bit by mix out of Werris, a mix out of Narrabri, as Paul said, and then there's a little place of mathematics in there as well.

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

Sure.

[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]

Firstly, on -- following from Glyn on cost. Was there a washing cost benefit quarter-on-quarter or year-on-year given your -- that arbitrage in price, so your washing less? That's the first question. Second one, relating to Vickery, how much coal can you process at the Gunnedah coal handling plant? Has that early start-up option and for how long? How much flex is there for you? And how much scope? And let's get back to Narrabri. Jamie, the spec of the longwall, what is the issue? Is it the AFC is the power or the target maingate drivers? Is it the chain? Is the beam stage loader? Where is the technical issue? And as an adjunct to that, the longwall changeover you're talking about seems quite slow. Is that because you're taking a lot of this kit out for refurbs and re-spec?

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

All right. Peter, look, I'll try and get through those questions. The washing cost arbitrage, that does form part of the overall equation that we've been looking at, as you know, we've spoken about before. Maules Creek obviously benefits from obviously not washing. But the bigger issue there really is just the premium -- the success of the premiums that we've been able to extract from the market for that quality coal in its bypassed form, thereby avoiding the wash cost and yield-related impacts as you say. So that's certainly been better. Having said that, we'd like to be penetrating the semi-soft market more fulsomely than what we've been able to do in this year. There's no doubt about that. So you can't shy away from that. But with the hard coke market as strong as it is, I mean, people just choosing to incur the cost of the hard coke at the elevated levels than it is and -- because I feel they can pass that on to their customers. So that's certainly an interesting thing. But I am, as I said before, we are seeing the semi-soft price itself back into a range, which is more indicative of where we've been in the past in more recent history from a hard coke to semi-soft comparison basis. Vickery coal, so Vickery, as I said, we have this opportunity to transition some coal through the Gunnedah prep plant in the early days. The Gunnedah prep plant can take -- well, theoretically, we have an approval for 4.5 million tonnes down the road. Practically, we have about 3.5 million tonnes. Rocglen, as we say, is going to finish in the next 12 months, so there's going to be some spare capacity there at the Gunnedah prep plant. And let's assume that Tarrawonga is chugging along with 2 million to 2.5 million tonnes. You could put easily 1 million to 1.5 million of Vickery coal through the Gunnedah prep plant to keep it occupied whilst we're continuing on with the construction on the Vickery site. There are no constraints to be able to do that currently within our existing approvals, no problem at all. Having said that, the basis of the EIS submission for the larger -- for the extension project at Vickery is that post that transition window, i.e., once the rail connection is built, we would cease trucking down any public road from our business in its entirety, so Rocglen [ going ] obviously that lead's not there. But Tarrawonga would be redirected through Vickery and railed from the Vickery site after having been processed in the Vickery prep plant. That would obviously leave us with a Gunnedah prep plant surplus to our requirements. And we would be looking at the highest and best use of that land. But otherwise, the decommissioning of that plant over the next couple of years that followed.

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

Got it. And...

[Jamie R. Frankcombe, Chief Operating Officer]

And with respect to -- yes, look, there's no issue with the spec with the AFC that's supplied to us by Joy. We've got more than enough power, I guess, in what we need for the operation there with the conversion of the 400 meter wide face. The issues that we're dealing with, I'd categorize them more as quality control. So we've had issues with the chain and the joiners of the chain that we're dealing with not only Joy, but also the Chinese supplier, [indiscernible]. And AFC gearbox planetary shaft [ per tonne ] is, I guess, and these are issues that not only we're being affected by, but also other operations in Australia have been supplied identical equipment to Narrabri that are dealing with the same issues. So as I say, it's not a matter of spec of the equipment, it's more of quality control.

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

And the change-over seems like long, is that right or is that just typical for -- given that distance?

[Jamie R. Frankcombe, Chief Operating Officer]

No, the change-over we're forecasting is the same as previous.

[Operator]

There are no further questions on the queue. Please continue, gentlemen.

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

Well, thanks, operator, and thank you, everyone, for dialing in. If there are any other questions, you know where to find us. But we look forward to what's going to be the release of our financial results now in about another 4 weeks. So I look forward to delivering those results to you, having a discussion then. And as many of you have asked on a number of different dimensions, we will reset that Narrabri-related guidance at that time. So thanks one and all, and we'll see you soon. Over to you, operator.

[Operator]

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