Jastrzebska Spolka Weglowa SA
WSE:JSW
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
22.01
44.91
|
| Price Target |
|
We'll email you a reminder when the closing price reaches PLN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. We'd like to thank you for your interest. We'd like to welcome you to the earnings conference for the first 9 months of this year, I'd like to welcome you on behalf of the management board.
Let me begin by introducing the representatives of our company, who will present today. Mr. Tomasz Sledz, he's responsible for technical issues; we have Mr. Artur Dyczko, who's responsible for strategy and development. And then we have Mr. Pasieka, who's responsible for market environment; I'm responsible for financial affairs.
So if we look at the first 9 months of this year, above all, we'd like to draw your attention to our production results. So we have to 10.8 million tons of coal, and we've produced 2.48 million tons of coke. So the average prices for our products were 676 PLN per ton in terms of coking coal, and then we had 1,115 for coke, and so our [deet] result was 1.6 billion with a net result was PLN 700 (sic) [ 704 ] million, which was more or less half of the result we had last year in the corresponding period. So in this period, we spent more than PLN 1.4 billion on CapEx, and we've introduced -- we've bumped up corridor works by some 10% and we exceed -- have exceeded 54,000 running meters.
And so I give now the floor to Mr. Sledz who will tell us a little bit about our production results.
So our coal production. So we've produced 10.8 million tons of coal, of which 3.2 million was steam coal and 7.6 million tons was coking coal and 70.1% of our production was coking coal as a percentage. And we had said that we were going to increase the amount of coking coal. So total production was down by 3.8% compared to the 9-month period of previous year. So I had said that we would increase our production quarter-by-quarter because we were down after the first half of the year.
So we're up in Q3 over Q2 by 9%, so production is moving up. So we've had 2 additional longwalls, so we have additional longwall in Pniówek and another 1 in Knurów section of the Knurów-Szczyglowice mine. So we've launched a semi-automatic longwall. So this is P1. And so it has basically -- it's on the Pniówek mine. Why do I call it semi-automatic? Because of the -- basically, the power system is operated by a single employee, but the upper section and the lower section of the longwall still need to have certain employees who are able to open up the roadways.
Another project that we've launched on the 12th of November, we've done some 20 meters in this roof and bulk system. And so if we combine them, we would have a fully automated longwall. So we still have 2 more roadways, and we wouldn't have to hire any employees to do that or have employees right there, so employees would not be at jeopardy of any risks.
Another interesting thing. So we have our renovation plant, which has produced a special tool to do renovations. And so in our new mine that we're building in Bzie-Debina, in 2022, perhaps a little earlier, the first longwall that will be operated there, we would utilize equipment manufactured by our own plant. And so basically, this would be a longwall operational machining. This is one of the goals that we're endeavoring to achieve.
If you look at our corridor works, here, we're quite peaceful. We had said last year that there was a shortage of this corridor works in terms of running meters, and so we've done some 11% more in corridor works. And we want to do some 10 kilometers more this year than we did last year, and this would give us the ability to work safely for another couple of years. So last year, we had a ratio of 4.3%. This year, we're up at 5%.
If you look at mining cash cost is PLN 389.65, so it's down by some PLN 75 compared to Q2. So that means we've got more production by 9.1%. That's driven down, of course, the mining cash cost. So we have inventory of 1.5 million tons. I would like to quiet any fears you may have. So the capacity we have is 2.2 million. So we have another 800,000 tons we can add to the stockyard. That's saying that we would go ahead and fill that stockyard yard up or the coal yard up. Well, we continue to hold 1.5 million tons, so our ongoing production is being sold on an ongoing basis, and our goal is to bring down the stock of the inventory to roughly 1 million tons.
If we look at production of coke and inventories, here, it's down by 7.4%. We produced 2.487 million tons in comparison with the corresponding period. We still had the Debiensko coking plant, which had produced some 300,000 tons. So you could say that, more or less, production is at the same level as last year. So it's 93.7%, which 90.7% is the utilization of production capacity. So we have had an increase in the cash conversion costs because external costs have grown, admin costs have grown.
If we look at the inventory, we're up by 50,000 tons. Compared to the end of Q2, we now have 377,000 tons. That's it for my presentation. And I'll go ahead and give the floor to my colleague who's responsible for sales issues and for talking about the overall market environment.
So welcome, ladies and gentlemen. We usually talk about the steel production and sales market in terms of what's happening in our company because we are under the influence of that. We sell the bulk of our products in the European markets. So in the 3 quarters of this year, we can say that steel production in the EU has shrunk by 3.5 million tons in the EU. That's the production shrinkage in the EU.
If you look at the global production, global production of steel has bumped up by nearly 4%. So we have to say with some sadness in our hearts that steel production expansion is not taking place in the EU. But actually, in other markets, especially in China, where it's grown up by -- risen by 8.4%. We had a decrease in steel production in Poland of some 8.4%.
So if we look, ladies and gentlemen, at the numbers, we can say that only Austria and Sweden have seen expansion. All of the other leading steel producers, France, Germany, Spain and Italy have recorded strong decreases. What is the reason for this? We talked about this at the most recent earnings conference. The most important thing is the trade war between the U.S. and China. This is having a ricochet effect on the European Union, and so an uncontrolled influx of steel. So the limitations we have on incremental growth of import, well, this tool or the set of tools is very insufficient. And we've also seen automotive constriction, so the number of registrations of new cars is down. At the same time, we see softer demand amongst the EU car manufacturers in terms of their exports. There's a lot of uncertainty in terms of the new standards for fuel exhaust. This has had a major impact on the European automotive industry.
You've also heard about changes in ownership among steel producers. This has also contributed to a feeling of uncertainty. You look at the remaining Galacia, and it's been taken over by Liberty. Recently, the purchase of British steel by a Chinese producer, the uncertain role of the Italian [indiscernible] company and what's going to happen in terms of ownership of Mittal, and then also, the engine company was an other engine has taken over, so we see ownership changes amongst the steel producers in Europe. But new owners should be perceived positively because steel production would be continued.
We talk about declines in various production countries. One positive piece of information is that according to industry experts and the partners we meet with, because we're talking with the biggest players in Europe, that this level should not continue to plummet, rather we should anticipate steel production expansion in subsequent periods.
If we look at the prices of steel, ladies and gentlemen, in the European Union, we've seen regular declines quarter-on-quarter. If we look at the first 9 months of this year versus the first 9 months of last year, the average steel prices of flat goods byproducts have fallen by some 19%. If you look at the long goods, the prices fell by some 13%. Steel prices in the most recent quarter, in particular, were not strongly under pressure because of production limitations, but we can say the margins were at a very low level on the metallurgy market.
Another thing that we see in the market, the Asian market is generating signals that steel prices are starting to trend upwards again.
If we look at coking coal prices, we can say that macroeconomic indicators are of great importance in China, Japan, India and Brazil. In the period under analysis, the first 3 quarters of this year, we can say that these indicators softened, which means that the import of coking coal was lower in these countries than originally anticipated. In India, the monsoon season is -- has been extended, and this is a period when coking coal is not ordered. And they may also have restrictive import limitations. Well, last year, they were at the same level, but there are -- but other countries had better macroeconomic indicators that also had some of these restrictions.
So over the first 9 months of this year versus the first 9 months of last year, we can say the average price of coking coal has fallen by some 6.2%, this is for premium hard, and this was exacerbated in Q3. Because if you look at the difference between Q3 and Q2, prices fell by nearly 21%. If you look at semisoft, you can say that the price decline topped 20%. So this could be linked to what's happening with steam coal prices because steam coal prices do have an impact on semisoft coal prices.
Dear, ladies and gentlemen, if we look at coke prices, we have to remember that the margins in the Metallurgy business are dwindling, and this has had an impact on coke prices in the first 9 months of this year versus the first 9 months of last year. Blast from its coke prices fell by a 12.3% on the European market. If we look at the Chinese coke market, they fell by slightly less than 9%, so this was a smaller decline. So if you look at the total globe -- well, globe trade, it was 5.4 million tons, it shrank by some 18% compared to the previous quarter. And this was a result of Chinese exports having shrunk by some 60% compared to the previous quarter.
Our presentation normally portrays an overview of the overall market over the year in terms of what the key drivers were for price movements. In Q3, we can say that there are no factors limiting supply, but there are many things that softened demand. And as a result, the price of coking coal sank by some $60 per ton.
Maybe a few words about JSW's prices vis-à-vis the most important industry indices. If you look at the coal prices we attracted, so there's a discount compared to the TSI Premium Hard Index. You could say we had a certain type of premium in a way. Of course, the prices have fallen and the price formulas that we use in our contracts extract or sustain higher prices from previous quarters for a bit of time. If we look at coke prices in turn, you can say that our prices followed the market. We're in line with the market. If we move on to steam coal prices achieved by JSW versus the overall industry, we can say that the prices we had were higher. You could say that's markedly higher than on the overall market. So basically, the contracts we have are long-term contracts.
So if we go on to coal sales. In terms of volume, we saw an increase in the volume of coal sales by 9% from Q2 to Q3, so we had an increase of 19% in steam coal. And so if you look at coal sales to external clients where there's an increase of 6.5%, so we were able to sustain our revenue. With the symbolic from Q3 from Q2, there was a slight increase of 0.3%. So if we look at the first 9 months of this year compared to the first 9 months of last year in terms of volumes, we had a decrease of 11.6%. But the -- we had an increase of -- coking coal sales price is up by 2.7%, and steam coal prices were up at 13% and so that means we had a less pronounced impact on the declines.
If we look at the sales of coke in the 9-month period under analysis versus the first 3 quarters of last year, we saw a decline of sales by nearly 8% while the average coke sales price bumped up by 2.7%. If we look at third-party or external clients and the coke and hydrocarbons sold to them, we can see that this declined by 8.5% in the 2 comparable periods under comparison. Thank you.
So I only have 1 slide, but I would say a couple of words about this slide. What you see and what we've observed, we are preparing and we are prepared to do battle. Do you see the numbers? There are arguments in favor of what we're trying -- what do we really need to talk about then? Mr. Sledz, if you listen to what he said, you can see where those lines of defense are in terms of what the markets bring us and how we're going to defend our position. We'd like to stimulate the situation more strongly. And we're organizing, and we're updating our strategy to do that and we'll talk about this at the next earnings conference in terms of how we're putting our plans together. But what I've been trying to convey to you to some time, we have a consistent vision and we're executing our plans as soldiers. You might say, "Mr. Dyczko, you're spending this money, but you're going to see what's happening in the overall marketplace." I'm saying to you, ladies and gentlemen, let's remain calm. All of our investments are managed in a responsible fashion, and the underlying basis is the safety of the company. For us, this is the most important thing and the safety of our employees.
Let me draw your attention to a few figures. Well, IFRS 16 changed a bit of our thinking. I assume that you've extracted those lease contracts in your models. You know how we're going to finish the year? This is visible. So we're up by 40% in terms of CapEx. What's very clear, this is in the coal segment. Tomasz Sledz mentioned this already. We're tracking very closely this situation, and we're trying to -- we've got the longwalls sectioned off, and that means we're able to produce more. So you'll come in and look at us and we can show you what's happening at the Budryk mine. You don't have worry about water because it's been drained. So we're utilizing a device like this to do the management. Most of our employees at the wash plants are electricians. So if we look at the presence that we have in-sourced from Austria, we've got the best experts in the country, which are finishing up the work on our coal preparation plant. We're optimizing the parameters.
We're saying the composition of our production, we're realistically changing the mix, the product mix that we're producing. I fully and strongly believe that we will talk more and more about the quality of our mix, product mix as opposed to million of tons. You know our business, and you know what this entails. What's most important is the CapEx in JSW. If you look at the graph underneath, you can see how we've allocated that CapEx. And this is basically 2 expensable mining pits, some 10 kilometers, perhaps a little bit more. We'll see how the year ends year-on-year. We've made the decision to do this. I understand that this is not the least expensive of cost for running meters in this country. But 2 years ago, we made the decision at the management board level that as we see the current situation that are cooling down can come to the marketplace, so we had an additional 50 crews in 2018. They were learning the business, now they're out there fighting, and we've got an additional 10 kilometers of running meters. This is something that's measurable and you come and see it.
All of the roadways, our employees are quite young. Well, they are the best equipped for all phases. We'd like to have even more progress, but you can see that what's happening? Well, these longwalls, the wall faces have to be cut up in portions and ready for mining. Where we can also see that there's been some upward ticks in the coke business in batteries, and we'll be able to tell you a little bit more later. And then we have the turbine at Radlin. We're working on that quite strongly. So these investments in terms of our energy self-sufficient have to be pursued. They will be pursued. And at the end of 2021/2022, and we should have these engines completed, and these are investments that we're completing.
So I want to distill any fears you may have, quite any confusion you have, if you're going to be interested, we can speak to this in greater detail. If we're looking at the Zofiówka deepest mine, so we're 63% advanced there. In Bzie-Debina, this is the section where we're intensifying our work. And we're pleased to be working together with PBSz. We're 20% progress, and so the work will be intensified. We're doing a lot of work there, and we hope that by the end of the year, we'll be able to double the percentage of completion. So the deepest level at Budryk is 95% completed. We only have to complete shaft #6. We assume that, that will be completed. The coal preparation plant is completed. So next year, we'll talk about the quality of coal mix at Budryk. So I think this is an interesting topic and I would invite you to come down and see us.
If we look at the coal preparation plant, we're working on like some 83% Zofiówka, so we're going to be able to produce and separate coal type 34 from coal type 35 there, and we want to augment the parameters of the coproduced aspect of Zofiówka. And then the pearl in our crown, Pniówek, has to have safety insured. We're more than 50% complete. We're deepening 2 shafts. We're building in a new coal mine layer. What we're trying to do, we want to utilize [indiscernible] as we see. This is difficult in our minds, but we want to utilize and improve the net yields. This is one of the drivers we see as an element where we're going to try to gain a competitive edge and defend our position. That's it from my side right now. But if you have more questions, I'm more than willing to field them.
Ladies and gentlemen, all of the activities in production, investments and sales have contributed to our economic results or business results. Our EBITDA in Q2 was lower than in Q3. If we look at the one-offs, we had the opposite situation. But if we compare the first 9 months of this year to this year -- of this year to last year, well, it was higher last year. Net profit is down by half. We had a similar result at a quarterly level. This year, it was PLN 156 million in terms of net result. So if you look at production and sales results and our net working capital, we can say that what was important here is that revenues were down, then also the payout of dividends some PLN 200 million, and then we had lower liabilities as well as lower accounts receivable in the period in our discussion.
If we now break that down and depict the EBITDA bridge, we can see that we had an upward movement in coking coal sales volume and steam coal sales volume whereas the sales prices had a negative impact. So this was the case in terms of volume as well as the sales price for coke.
If we look at the other drivers or the impact of other operating income expenses, it was positive in Q3. We didn't have any bonuses. It's like the bonus that we booked in Q2. So the EBITDA in Q3 was PLN 514 million net of any one-offs if we analyze our results by operating segment, we can say that the coal segment made a positive contribution of nearly PLN 21 million. The coke segment generated nearly PLN 49 million negative impact. Other segments had an immaterial impact. And then we had some changes in EBITDA, consolidation eliminations. This was as a result of the measurement of inventory and sales to JSW cokes, and so we had an overall impact of PLN 83.2 million.
One of the most interesting slides, I think, for you is one that describes OpEx. And we can say that Q3 was quite similar to Q2. We were able to lower costs. It's a little bit different if we compare the first 3 quarters of last year to the first 3 quarters of this year. We already talked about labor costs during the earnings, previous earnings conference. This is in line with our strategy. So Mr. Sledz and Mr. Dyczko, this is in line with our plan, our budgeting plan and our business plan, technical and business plan.
In terms of external services, we had higher costs as a result of methane drainage as well as drilling works. And so we saw some increases here, materials and energy. I didn't want to repeat things that we've already said a few times. Well, the -- we have a lot of experts in the power sector, and you're very well familiar with the parameters that we have to face here. We've been able to post our book, the cost of energy through Q3 as a result of the law that was enacted, then we have profitability and liquidity linked to the dividend payout. We have slightly lower top line, and that means our cash balance is down at the end of the quarter. You're usually interested, so we were able to generate additional PLN 60 million, thanks to the fund generating good returns, so it's around PLN 1.8 billion -- sorry, investment activities, bigger costs, that means our cash balance was down. And so this was the result.
If we look at return on assets, so we can say that the values were lower, but the operational margin continues to be in double digits. If we look at our net financial debt, we're coming down to a level of 0. You can see that we're virtually in a neutral position. We have loans available to us, and we will react to the market environment and utilizing these funds, if necessary.
So if you look at the changes in the financial debt, we had paid down previous debts, so in the form of bonds. I am not sure if we want to discuss any material technological events. So I think we already discussed them, so we'll open up ourselves to any kind of questions you may wish to pose at this time.
Pawel Puchalski from Santander. Perhaps we should start with the very top. So extraction to previous CEO said that your extraction, your production output should be higher, but it would be in excess of 15 million tons for the full year. But from the new the CEO, we heard that the previous CEO -- from the current CEO, that it would be a total of up to 15.5 million tons. So now I would like to ask whether or not do you sustain the idea of 15.5 million tons? That would suggest you would have very high production volumes in Q4.
And the second thing that I would like to ask after volumes, we have sales, you were not able to sell 500,000 tons in Q3. I would happily learn what sales look like in Q4. Are you able to catch up?
And here's an interesting issue because I've heard the statement that you would like to reduce your inventory to 1 million tons. So I'd like to understand whether or not you want to bring it down by the end of the year? Or is this a midterm plan, medium-range plan?
In terms of production, that statement was made that we would have roughly 15.5 million tons in production volume. Actually, the production volume will be similar to last year, a little bit over 15 million tons. You've heard a lot about the Budryk mine. We're modernizing the coal preparation plant there. This investment is quite difficult. So modernization there is being done on the mine section. In order to accelerate this investment, we had to stop production at Budryk, and this is something that is a viable alternative. Because Budryk has been producing steam coal, and that's 1 million tons, so it's very important for us to modernize the preparation plant there and to produce coking coal. And that's why, as a management team, we made the decision to reduce the coal volume production at Budryk in conjunction with the modernization of the coal preparation plant, which is something we want to complete by the end of the year.
If we look at sales, perhaps Mr. Pasieka would address that, and I'll give him the floor.
I understand that you're asking about the inventory that we're planning in terms of the breakdown into steam coal and coking coal?
No, not at all. Based on what I heard 15 minutes ago, you said that you will have 1 million tons. You want to bring down the inventory to 1 million tons. Perhaps I misunderstood you, but I just wanted to ask you potentially to correct that if I misheard you. I wanted to hear generally about sales in Q4 because Q3 was a soft quarter.
So if we talk about, well, 1.583 million, 1.5 million tons, that's the inventory at the end of September.
I heard that you want to reduce it to 1 million, and you have a capacity of 2.4 million tons?
But don't worry because we're going to bring this down to 1 million tons.
I just wanted to understand when will we be down to 1 million tons because that would be a reduction of 600,000 tons?
I'll come back to that in just a second. Let me begin with the general commentary. In Poland, you know what the coal inventory is and what the inventory looks like in CHP plants, power plants and ports. Sorry, should give -- it's not a positive state of affairs for all of the entities, affected by the situation. So our inventory is just a small portion. It's negative, but it's not unnatural for the current market situation. What Mr. Sledz said, which we would bring it down to around 1 million tons, this is a declaration for the medium term. We certainly won't allow this number to be exceeded by the end of the year.
Let me ask -- you want to offer this number to be exceeded given that 1.6 million tons? You will sell all of your production?
We believe that we're going to be able to sell even more than we produced in Q4. The winter period is coming, so we're organizing our work to discharge the contracts we have before us.
I can also share some positive information. You know that in the long run we plan our coal preparation plant will allow us to change the mix so we'll be able to reduce the amount of inventory we have on coal yards. So we'll be able to handle the current situation.
So if I can shift to another topic. There was some message, a release from the company about premining. I wanted to ask, what's the stage of your negotiations? Are you buying Debiensko, not buying Debiensko? I would happily hear some more color about that subject.
And on the cost side, you had reported, if I remember correctly, PLN 1.7 billion in employee costs in the quarter. Is this the right level where we should calculate hypothetical increases or decreases? Or is there something else you want to tell us?
And a third thing, which is also about costs. Because it seemed to me that after taking over PBSz, we should have a major change in the structure of employee costs versus external costs. But if I look at the Q3, and I can say that external costs haven't grown that much, which was what I had anticipated. I don't really understand that. I'd like to ask how PBSz is impacting this or these lines?
In terms of Prairie I'll send you to that press release. We precisely stated the current status. So I don't want to expand on that. We're updating our strategy. We've been doing that for a longer period of time now. We're trying to keep abreast of what's happening on the marketplace and we're following radical steps that we had planned previously. So we have in mind also and the Debiensko project as well as what's happening in Lublin in terms of the concepts. So we can say that right now, our construction office, design office at PBSz is developing quite nicely. We'd like for that to be done for the entire group. So if we have any potential projects to open up those resources. We'd like for PBSz do that, so we want to take a strategic approach to that in the future. So JSW is building right now the Bzie-Debina mine, and this is our biggest investment project, and so we will build that mine.
You posed the question about the labor costs. We can say that it was a benchmark level. If we want to increase production, we'd have to have more expenses for labor. If we look at the company building shafts, I think we should emphasize, we tried to share with you previously that the incorporation of that organization within our company, will that affect -- won't be achieved overnight. So we've had -- well, the increase in third party or external cost wasn't directly linked to what we have here in PBSz.
Perhaps I should add, in terms of PBSz, this is important information based on what Mr. Sledz said, we see some opportunities in terms of increasing work productivity. PBSz in JSW and the work it's doing, they account for 27%. Next year, they'll be responsible for 50% of the work we're doing. That's 100% sure. Maybe it's not entirely done because certain tender procedures are underway, but that's what the intentions are. So I'm talking about PBSz, they are responsible for some 10%. They have 23% in Tauron and some 24% in KGHM. So if we look at the intensity, work intensity at Bzie-Debina sort of utilizing our people and people from PBSz, so the cost structure will morph next year. So the bolter is also being operated by PBSz. This is one of our strategic decisions, we want PBSz to be the forward leader of the group and actually to talk with and work with other friendly groups. So as I look at Q3, this is a stable level of external costs with the exception of this, that you want to utilize the services of PBSz to a greater extent, and this would lower this cost line item, so when we update the strategy, we're analyzing this quite strongly. With the final offer, so if we do tenders -- so if an external company can do something less expensively than we can, well, even if they win tenders, they're not able to stick to the objectives, and then we have negative decisions. That's why we made the decision 2 years ago to do it with in-house labor.
One additional question about sales. You said that you would sell the entire volume of production. I remember a slide when you talked about the decline, accelerating declines of steel production in Europe. So I want to learn whether or not this downward trend is being propagated further in Q4. But you're thinking now about old contracts that your customers are forced to take receipt of the product, are your customers' better, more resilient or not being affected by this decline?
Our clients operate in the same context, market context as we do. As I said, we have contracts that have to be performed. There is some pressure because we're all in the same value chain, but we also have to be rational and reasonable because we have to survive this difficult period. That's my commentary.
I'm from IPOPEMA, Robert Maj. I wanted to revisit the slide about costs and the cost of labor. We have an additional 314 people. This is probably linked. What is this linked to? And what will be the headcount level at the end of the year? Well, do you maintain this pace of increasing headcount by 300 persons per quarter?
That's a good question, so perhaps I'll respond. Ladies and gentlemen, this is sort of the -- we're updating our strategy. This is sort of subconscious message. We're aware of what we're going to embrace. I'm speaking about this with a smile on my face. We won't have any additional hirings next year, so depending on the situation, we want to stabilize this. You remember 2015, 2016, and I was responsible for restructuring, we were sitting here, what's going to happen, then prices jumped upwards, and then everybody thought, "Why that was happening?" You know our cost structure. So I believe that our employees who we have onboard and the 300 people we've added, we have this company called SiG where we check the competencies of employees who are being onboarded. They go through the training process and to make sure that they do their work as effectively as possible when they come into our various mines. So we try to utilize the current labor force, not increasing it regardless of what's happening in the outside world. So perhaps -- well, probably it's the case that next year, we'll do all of the work with in-house labor. So we want to increase the productivity of our employees. We have people, we have got machinery, we've got work to do, let's go forward. This is the direction we have in mind. Then we'll be able to go through this turbulent period, so we'll be able to sell our products stably with the European demand.
Last year, our external companies didn't even do 10 kilometers of mining pits, so we had to create 50 buying crews. This is something we did. So this year, we'll have 10 additional kilometers. And that's it with hirings. We've got the company PBSz, and so this company will continue to develop, perhaps it'll hire some people, perhaps not. So basically, the headcount will be at, more or less, at the same level, perhaps a little bit lower. This will depend on the situation. So what our CFO said, it's also related to liquidity. We're clean. We don't have any debt. We've got open lines of credit. We've got basically cash reserves, PLN 1.8 billion. So we want to have this additional corridor works done, which can be a back plan for us.
So if we look at the end of Q3, I understand that we have the shutdown of the first by ArcelorMittal, what's going to happen with our inventory if that furnace is shut down? Is it really the case that 1.0 million tons, you're going to be able to retain? So assuming that the market situation won't deteriorate to a greater extent, should we anticipate that you're going to try to produce less to make sure that you don't have coal inventory filling up your coal yards? Can production be optimized?
Ladies and gentlemen, if we look at Mittal and what's happening, well, we have the signals. We're very calm in terms of coke. You have to remember, this is an important buyer, but not a critical buyer of coke. Of course, it's different in terms of coking coal because this is our biggest buyer, but we haven't had any negative signals from Mittal. So we believe that our coking coal supplies aren't under risk. And in coke, it's not going to create a problem for us in our cooperation with Mittal. When we renegotiate the contract with Mittal, the long-term contract, we're in the process of negotiating another contract with Mittal.
I'm from Trigon. I have a question. I understand that Arcelor is going to take receipt of this -- of the same amount of coking coal. So your Szczyglowice plant is producing coke primarily for Arcelor, so we're just going to have to look for third-party clients, is that the correct?
As I said, the changes in our ship mean that the structure of supplies changes. Doors close, other doors open. We try to utilize every situation to ensure that we don't lose the volumes of production we're selling.
I don't think I really understood what you said. Does that mean coke production will fall in Q4?
Because it's too early to say what the forecast for production would be in Q4. We're following the market context. And we don't want to lose out on any changes in ownership, including Mittal.
What are coke prices looking like in Europe in Q4? Are they falling?
As I said, the signals we have are positive in terms of steel production, that the declines we had talked about have bottomed out and that we should anticipate prices to rebound. And that has an impact on the coking coal market and the coke market.
I'm [indiscernible] I want to ask about Prairie Mining. I think this is to Mr. Dyczko. You said that we should look at the press release of 15 November, that you're talking with Prarie Mining. Prairie Mining, on the 31st of October, said that it's not engaged in any talks with you and hasn't had any checks with you since Mr. Ozon was dismissed.
I'm surprised, but I'm prepared. Once again, I don't want to react to the press release that was published by Prairie Mining. We published our press release, and we wrote to the Polish regulator, KNF, so the Polish FSA. And the only thing I can say, the NDA has expired, we all know that. But that communication, we have a law firm that's responsible for this topic. I don't want to define the level of communication. I can only tell you, please read the press release because that contains everything. We'll inform you if anything changes. Let me tell you one thing, though, and perhaps this has escaped our attention. The documents we analyzed, we continue to analyze those documents. Now we have to verify them, having in mind the changes in the marketplace. You're posing questions because you see what's happening. I tried to convey to you information that since we have PBSz, and we've got very good experts in terms of building mines and designing things, we ask them to look at this. Would it be possible to build a mine? We have an exploratory permit in [ home ] or perhaps in Debiensko. In terms of how our Szczyglowice could operate, work is underway, and I hope that in the near future, we'll see the results of this work. So before we complete the working up of our strategy, we'll have the first conclusions. But in terms of our strategic objectives, we're building the Bzie-Debina mine. We have the concession. It's been awarded to us, this concession, PBSz. It's there. We're doing the works and you'll see the outcome. Once again, I want to send you -- draw your attention to that press release because we've written everything down. It contains everything.
One more question. Who on your behalf is running those stocks? And what are you talking about, since the NDA has expired as of the 29th of September?
Please draw attention to what's actually been written in that press release. That's a very precise press release. It tells you what the status is of our talks. And we told you, we've written -- that we would inform you when something changes.
What are you talking about? Because it just says that you're talking without an NDA.
This is price-sensitive. As we've said, we're analyzing our strategy. When we're ready, we'll convey information to you through our current reports. If negotiations are underway, well, certain things, I believe, should be accessible only to the parties and we don't want to affect the flow of events.
Are you actually involved in talks? Or was this an untrue press release?
The press release is true. Please read it.
Who's running those talks on your behalf?
Please read the press release.
Okay. I don't think this is a secret in terms of who's speaking on your behalf with Prairie. As the President said, the CFO, everything is of importance. So I would ask that we would say as much as we said since you published this press release on the 15th. The investors have the right to know who, on your behalf, I assume that it's a member of the management board, who's talking with Prairie?
That's your opinion, that the investors have the right to know, that we believe that on -- that we don't have to disclose that information.
So you have talks underway without an NDA?
This is a hot topic. Please read the message -- the press release once again. If you look at Page 5 and Page 18 of the management board report, you can find information. Perhaps some other questions?
I have a question to Mr. Pasieka. Please tell us, is it true that in November 2019, the combined mine had a shutdown because there was so much coal on this coal stocking yard that you couldn't produce anymore?
I don't know anything about that.
So the mine was operating totally, so there is no downtime?
No.
Mr. Sledz gave us information that we haven't seen any change in the coal stockyards from the end of Q3 because we have a little bit more than 1.5 million tons of coal. Please tell us what have you done as the person responsible for sales between the end of Q3 and now to sell that surplus?
Maybe a couple words of commentary. We have 13.5 million tons of coal inventory, 6 million tons is in Polish coal mines in external, and then the rest is held by CHP plants and power plants. If we look at the airport, it's roughly 7.5 million tons of inventory there. So some of the steam coal we have, which is roughly 1 million tons, perhaps a little bit more than 1 million tons, this is result -- it's not a very positive result, but it's not something that's unnatural. That's what the market looks at. What are we doing? We're doing organic work, we're meeting with our customers, we're looking for nonstandard solutions.
In terms of restructuring, the contracts they have for imported coal, they have those type of contracts, so we're looking for ways to solve the problem, working together as partners. Well, this is a problem that's been given to us because the power sector contracted too much. And I won't give any commentary on the import contracts. So we're just doing organic work, that's what we're doing.
You said you're talking with your buyers, are you looking for new sales markets?
Outside of Europe, in terms of coking coal, yes. And we're looking at Eastern markets, if you're interested. Yes, we're looking for new sales markets.
Please tell us, my clients, foreign investors, are upset with the decline in the share price. We've analyzed your work over the last 10 years in terms of doing your professional duties, and it turned out that for the last 8 years you're working for -- in a social insurance company and in the Institute of National Memory, Heritage. Is this something that gives you the capacity to work as a sales director?
Well, thank you for this question. I understand that you've looked at selectively at my history. That's true, I started my work in foreign sales, and I worked for several years in foreign sales in some of the biggest corporations not only in Poland but outside of Poland. I was also in Daewoo in Poland and elsewhere. And I was involved in the import of goods into Poland. I was also a management board member in [indiscernible] for 1.5 years before the ownership change to [indiscernible]
When did the placement...
That was from 2007 to 2008. Then later, I was responsible for sales at PKN Orlen SA, I was responsible for major contracts in Poland. Later, I was responsible for marketing, once again, in PKN Orlen, which is Poland's largest company-owned by the State Treasury. So if you can ask me, I don't feel -- I'm not sure what sort of effect you wanted to gain. I don't feel that a handicapped or a shortage of competencies, even more so, I'm aware of the added value that I'm able to deliver to this company.
I have a question now to Mr. Zalozinski. When do you anticipate that the stabilization fund will be used? Is this something that you anticipate could be possible in the near future?
So I'll respond to that question. Of course, we analyze a variety of scenarios in terms of the market context. So what's happening on the commodities market has an impact. We don't have an impact on the margins because we utilize market prices. This has an indirect impact on our liquidity. If we look at the closed investment fund, there are certain rules where we can use the money and why. And so it's linked to the safety of the company. Safety is an important factor in a mining company, and we would analyze any usage of that funds. The company has a large amount of opportunities to manage its cash position.
As was said twice today, we have access to loans, and I would suggest that we would utilize those funds first. There are other opportunities for us to improve our cash without having to utilize that fund, but we would also analyze that fund.
The question is, when do you anticipate that this would be possible in the near future?
So this depends on scenario analysis. So if coal prices rebound from current levels, this won't be necessary. If the adverse trend we've presented continues, perhaps one of the negative scenarios, which we'd also have to take into consideration, that we would also have to utilize the funds.
The last question. Well, I've been banned from posing questions. She told me that she was going to take the microphone.
We want to give the opportunity to others.
I've been limited. I'm not sure if there's time limitation at this conference.
Well, we have other conferences. Well, this is not a public conference.
I'm trying to pose the questions. I was threatened with losing the microphone, and so I have to pose the final question.
If you're representing stakeholders, you can -- we'll happily respond to your questions outside of the public domain.
I wanted to ask those questions here. I wanted to ask you, in your information folder, I've read that 5 of you will be here and that the CEO will be here. I don't see the CEO. I didn't see him. Is it true that he's on vacation when the management is supposed to submit its report on the results for Q3?
This is an earnings report. We're not going to check the CV of every single -- if somebody's on vacation and what the CEO is doing. Please pose us a question about the earnings of the first 3 quarters of the year and the Q3.
We assume we're going to talk about my CV, Mr. Dyczko CV and some other references? This is the earnings conference.
That's why I was asking the question. Where is the CEO?
Ladies and gentlemen, so he had very important duties that were previously planned. I think we are ample representative. We would ask to give the floor to other people.
Are they professional duties or nonprofessional duties?
They're previously planned [in Vermin]. And so you can ask the CEO and text him so he'll be present.
I don't think he'll have other duties. Well, is he on vacation or not?
We'd like to give other opportunities, the opportunity...
Is this a secret?
Please take into realization that nobody has the duty to report on the reason why he's absent. We said he had urgent matters. And we're not going to speak about whether he's in a vacation or somewhere else. So at the next conference -- we can respond to the next conference where he was, when he comes back from vacation or wherever he is. So he has urgent duties not enabling him to participate today and he authorized us to give information to stakeholders. Thank you very much for your penetrating questions.
I have 2 questions. The first one is about power compensation prices. You were thinking that there would be [ 35 million ], and now we have [ 25 million ]. Why is there a difference? That's one question.
And the second question, I wanted to talk about Prairie Mining. I understand that now, any discussion about this project is not of a strategic nature because you're focusing on Knurów because this somehow disappeared from the presentation. And if I understand your statements correct, that it's not a strategic project.
In terms of the compensation for electricity, we did state that figure. That was about JSW. Now we're giving data for the full group. I'm sorry, for not having given the data for the full group, and that's the reason for this difference. But we've booked the money. We received the money. And I can respond to the question about Prairie Mining. So once again, referencing the press release, we treat the update of our strategy very seriously, certain things haven't changed. The company will do everything, precisely everything, to ensure that its resource base of coking coal. And we want to talk about metallurgical coal, met coal. So met coal, this is a very serious topic, and we have to preach here in Poland and abroad. We're talking about met coal as a result, and this is something that's in our strategy. We would like for our resource base to be complete. All of our resources are being analyzed, so please allow us to update our strategy. You can see yourselves, this is not such an easy thing in terms of what's happening in our marketplace and all of the plans that we'd like to complete all the way up to a period of 2030. We're doing calculations of all of our plans, and we'll look at a variety of scenarios. As the CFO has said, we're considering a crash test as well. We have a good memory, and we remember what happened in 2015 and 2016. This is one of the most difficult periods in its history. And we also knew and understood the level of costs and the headcount. Of course, we're not able to recreate everything because 3 years is a long amount of time, and the materials, third-party external clients costs are up by some 47%. So we're in a totally different place. But if we look at the mining segment of the business, what we knew -- know very well and what we're capable of doing. So we purchased PBSz, and this is a key factor. So our strategy will be complete and will secure us for tough times and will give us the opportunity to start well when the market smooths.
I'm from [indiscernible] At the end, perhaps, I'd like to congratulate you, that you have very interesting results, good, decent results in a period of a downturn. In Q4, you have 27 longwalls, is that achievable? And what do you think might happen in 2020 if we were to look at quarters or the first half or the second half? How many longwalls we have up and up running?
In December, we will have 27 because we'll open up 1 in Pniówek and Knurów-Szczyglowice. So on average, we would have 25. And that's the plan we have for next year, is to have 25 longwalls operating on average.
If we look at the coking coal percentage, it was up to 70% in Q3. Will it continue to grow?
So the coal preparation plants we talked about in Budryk and the KS, Knurów-Szczyglowice mine, those coal preparation plants are being completed. And so we'll continue to increase the percentage of our coking coal.
This is important for your models if you don't check something in real life. So we have to look at the coal assets produced. It's difficult to talk about these percentages, but we can confirm some of them. If we look at Knurów, so 80% of the coal we produce will be hard coking coal and 20% will be soft coking coal.
Budryk, the parameters that we're observing right now, this 40% is something that's achievable in terms of type 35 hard coking coal, and we believe that we'll be able to achieve a higher watermark.
And looking at 2021, we want to get to nearly 70% in Budryk. And of course, this is something -- if you have quality, that means you'll have an impact on volumes, on quantities. And so we're posing the question, and we have this in the model, and this is something we're talking about with our sales team, to optimize and not maximize. So optimizing production. We have the ability, having our survey information of the longwalls, we could have better quality production with lower quantities of production. There's no problem with coking coal right now.
I see that you're nodding your heads. This is not a problem that we need to worry about right now too strongly. The problem is with steam coal, but we'll have less steam coal, what you've noted. So this is something we're scrutinizing, and our production plans are being written to have in mind quality. That means that we'll select the best longwalls from amongst the 27. And the key thing that we will say to the key message is stability. Our coking plants want to have stable production. And that's the name of the game. And this is something that we're working on.
And my last question, in terms of preparatory works, 11% in the first 3 quarters. In Q4, will this be more or less the same level? So is this achievable, 72%, something like that? What is the outlook for next year?
If we look at corridor works quarter-on-quarter, we're improving things. We're getting better and better. So we said 10 kilometers more, so you could easily arrive at, how much was it? It was like 65 last year, plus 10, we've got 75 -- 75,000 meters. We don't plan to do less. We plan to do more. Thank you very much.
So 75 kilometers, this would give us a safe future. Of course, we don't want to do an optimum number. Well, this is money that in these mining pits, this is well-invested money. So 10 kilometers, it gives us 2 million, 2.5 million tons of resources. And so you could add this to the narration when we talk about quality. So now we can select. This is what we have in mind. We want to steer this process, control this process. We don't want to be forced to take whatever happens to be there.
We have to make sure that the ratio is at the right level. So a ratio of 5:1 is a very good ratio. But if you drop by 4, it's very bad. So we need to have a certain number of corridor works. In terms of meters, we have a special program which is called To Efficiency, and we pay a lot of attention to all of these elements. We don't want to have to do too much rebuilding. And that's why we're willing to learn it. So thank you for your nice words. We believe that the results aren't too bad. So we'd like to thank you.
Pawel, I have one question. In terms of volumes, I'm starting to be intrigued by this topic. You're saying that 25 is the average number of roadworks.
I think he means longwalls. You're talking about longwalls?
Yes. Sorry, I meant to say longwalls not road galleries. That's the first part of my question. So when I hear that we're focusing on quality at the expense of volume, I don't sure -- I'm not sure if I understand this very well. This is like a forecast for 2020, 2021 that we'll have a total coal output that was falling in '20 and 2021. Please correct me if I'm wrong.
And the last thing, a moment ago, a draft was issued PEP 140, which is Poland's Energy Policy. And one of the tables is about coking coal, and it says that the highest volume is in 2020 and then it will fall delicately in subsequent years. Maybe this was consulted with you, or as I understand it, you've correct it.
We've seen that document as well. In terms of longwalls, we had 22 at the beginning of the year. And we've done more corridor works, and that means we have -- we'll have 27. But 2 longwalls will be completed, exhausted. And so we'll come back down to 25. So we start some longwalls then we end. And we want to make sure that our company is capable of doing 20 -- working on 25 longwalls, and that means we can produce 15 million to 16 million tons a year. We were disturbed by this table. We're going to clarify that. We're not sure if the main figure is 80 million tons. We'll talk about this when we publish our strategy. We believe that there's going to be much more coking coal produced here in Poland than is in that table. We'll talk with the people who authored that report.
In terms of the volumes you mentioned, the strategy has been written in such a way that controlling the longwalls will be done to ensure that quality is stable. So it's not going to be 1:1 per number of longwalls. Everything has to be well planned, but the plans are moving in such a direction. And that we've got the longwalls, the mother longwalls are prepared to ensure that we have as few risks as possible, geology, and that risk won't disappear. So we treat everything with conscience, with humility. Thank you very much.
I have a question. You mentioned that a review of expenses was done having in mind the tough market circumstances. Have you looked at OpEx in terms of what could be reduced in 2020? Do you intend to cut costs in 2020? Could you give us some guidance about CapEx for next year?
Thank you for the question. This is linked to our scenario analysis. In terms of OpEx, we know that the closed investment fund is sort of an iron clad reserve for us. And we're analyzing the optimum usage in terms of what the market offers us, so we want to combine those elements.
In terms of CapEx, I would say, we're speaking about this all the time. Our investments ensue from our strategy and long-term needs, and they should enable us to run our business well over the long run. Of course, we're driving this process, and that's quite important. So we're looking at what we have and within the confines of our capabilities because most of these tenders come from public procurement line, so we organize investments slightly differently. This means that we have this process well defined. We've captured it by the reins. And so of course, CapEx will depend on the external world. We won't lead to a situation in which key investments aren't done, but at the same time, we can't allow ourselves to submerge or submit our liquidity to excess stress. So we understand that you have your models as well and that underlying thought is there. What we're doing, however, is that we're building the Bzie-Debina mine. This is a key factor, and it has to be accentuated, emphasized here, and it has to be done with consistency because this will define the safety of our future.
Now I'd ask for the final questions, we'll be here after the conference at your disposal. If there are no more questions, thank you very much, and we'll invite you to come and talk with us. Thank you very much, ladies and gentlemen.