Coronado Global Resources Inc.

Thank you all for standing by, and welcome to the Coronado Global Resources second quarter investor call. All participants are in listen-only mode. There will be a discussion of results from the CEO and CFO, followed by a question and answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Andrew Mooney, Vice President, Investor Relations and Communications. Please go ahead.

Thank you operator and thank you everyone for Julian Coronado's second quarter investor call. Today we released our quarterly report to the ASX and SEC in which we outline our production and sales volumes as well as other key information related to our safety and financial performance. A more detailed outline of our financial position and results will be released to the market on the 9th of August with our Form 10Q and half-year earnings release. Today, I am joined by our Managing Director and CEO, Jerry Spindler, and our Group CFO, Gerhard Ziems. Within our report, you will see our notice regarding forward-looking statements and reconciliations of certain non-US GAAP financial measures. We encourage you to review these statements in conjunction with our other filings with the ASX and SEC. We also remind everyone that Coronado quotes all numbers in US dollars and metric tonnes unless otherwise stated. With that, I'll hand over to Jerry.

Thank you, Andrew. Coronado ended the first half of 2022 in a materially stronger financial position than 12 months ago. And with a series of new records and significant achievements to our name. That reinforces our position as the world's leading pure play metallurgical coal company. Our business has enjoyed record year-to-date revenues and record Metco price realizations. Coronado has distributed 351 million U.S. dollars or half a billion Australian dollars in cash dividends to shareholders in the first half of 2022, all while maintaining a strong balance sheet, healthy liquidity levels, and retaining a prudent net cash position. We did not release our half-year audited financial results until the 9th of August. However, our first half EBITDA results are anticipated to eclipse the highest full-year EBITDA generated in the history of Coronado. In addition, our strong first half financial results, Coronado has also improved its reportable safety rates year on year. released its fourth sustainability report, including emission reduction plans and targets, and completed critical plan maintenance activities, as well as improving performance of CURA from our drag lines and newly transitioned fleets under Coronado management, as well as entering the S&P ASX 200 Index for the first time. and continued to reinvest capital into its existing high-quality MET operations. All of these initiatives underpin improved second-half performance and for years to come. These considerable achievements were produced despite headwinds in the form of significant wet weather events in Queensland and growing inflationary cost pressures. These unforeseen events have contributed to higher mining costs in our business, similar to our peers. While we anticipate reducing unit costs in the second half, in line with increased production, today we revise our full-year mining costs per ton guidance upwards to between $79 and $81 a ton. We also guide to the lower end of our previously announced production guidance of 18 to 19 million tons and maintain our CapEx guidance of between $170 and $190 million. Despite the unplanned factors, I remain extremely confident in our ability to continue providing enhanced value and returns to all shareholders as the year progresses. Before we elaborate further on our production and financial results, I'll provide an overview of our first half safety results. Safety and well-being of our workforce continues to be Coronado's number one priority. To that end, I am again pleased to advise that reportable rates in both Australia and the U.S. reflect improvements year on year and continue to remain below the relevant industry averages. In Australia, the 12-month rolling average total reportable injury frequency rate at 30 June was 4.04, or excuse me, 4.08 compared to a rate of 5.63 at the end of June 2021, reflecting a 28% year-on-year improvement. In the U.S., the 12-month rolling average total reportable incident rate was 2.01 compared to a rate of 3.04 in the prior year. reflecting a 34% year-on-year improvement. New and revised health and safety initiatives across all Coronado operations continue to be implemented quarterly. Safety results have improved year-on-year due to several factors, including hazard identification and critical control verification programs, effectiveness audits, and enhanced training programs. In Australia, CRA continued to reinforce the importance of safety during the June quarter by developing and communicating to the workforce our life-saving rules. These rules apply to all employees and contractors on site and reinforce to everyone that safety is our priority and our key accountability. In the U.S., we continue to focus on training programs for our existing workforce and developing new miners. This has resulted in more than 9,000 hours of discretionary training that has helped set solid expectations for new hires and articulate Coronado's safety culture and focus. Turning to production, Coronado completed the second quarter with run of mine coal production of 5.5 million tons, saleable production of 3.3 million tons and sales volumes of 3.9 million tons. Production and sales were lower than the March quarter due to significant wet weather. Planned downtime for key maintenance activities and certain geotechnical issues on which I will go into more detail. The Curramine along with most of the Bowen Basin was significantly impacted by wet weather during the June quarter. Blackwater, the nearest town to Kura, received 213 millimeters of rain in the quarter, representing nearly a 300% increase on the 10-year average rainfall for the area. At the height of the rain event, the mine was evacuated due to road closures and flooding in the surrounding areas to ensure the safety of our people traveling to and from site. The consistent rain from late April through May was a key contributor to the lower production volumes. However, despite the impacts of the Bowen Basin rain events, CURA successfully executed the first half plan transformational activities within the one CURA plan. These included the transition of three former contractor fleets to Coronado management. the investment in box cuts to improve dragline strike length and reduce in-pit congestion. The introduction of a high wall minor to liberate resources constrained by infrastructure and completed major plan maintenance activities on the CHPP and two draglines in the June quarter. Completion of the maintenance works within our budgeted plans and aligns with the mine second half production goals. The one current plan utilizing our new management structure is producing positive results. The continuing focus on our program of improving dragline productivity has resulted in 10 to 11% improvements in two of the draglines with focus swaying to the remaining two draglines in the remainder of the year. The newly transitioned excavator fleets which replaced contractor units operated with 27% lower costs and 30% more operating time beginning in the second quarter compared with contractors in Curran North. And we expect to see these changes deliver continually improving results in the remainder of the year. I might add that we will be adding an additional transition fleet during the third quarter. The mine's focus on waste movement in the first half of the year is also evident, with waste movement year-to-date broadly aligned with the same period in prior years despite the heavy rain, as mine management focuses on prescript and boxcut works to ensure higher sustainable production levels in the second half of 2022. Cura's focus for the remainder of 2022 is to deliver strong second half production by continuing to drive operational performance to the mine plan. Following the completion of the transformational and crucial maintenance activities and wet weather, the month of June was Cura's best production month to date. The new focus for all employees and contractors is to replicate these rates in the second half. The conversion of the fourth contractor fleet to a core and auto operating model at Cura North is nearly complete, and once complete, will drive greater efficiencies, as will the continued provision of mining services by Golding at Cura Main to the end of 2026. At our U.S. operations, run of mine production mirrored the prior March quarter, but saleable production was lowered. This was primarily due to lower yields from the Buchanan mine as the long wall progressed through a rock intrusion in April. That intrusion is now safely behind us. At Logan, production numbers were higher quarter on quarter as workforce availability rates continued to improve. Despite the lower saleable production tonnages in the quarter, Sales volumes mirrored the prior quarter as we utilized existing stockpiles to meet required shipments. The focus for the U.S. operations in the second half of the year is to continue to optimize production levels to meet demand for U.S.-sourced coal, particularly in China and Europe. Compared to other met coal producers, Corradano maintains a competitive advantage given its geographical diversification and ability to access the Chinese market, plus the ability to take advantage of existing met pricing arbitrage, which sees the U.S. and Chinese benchmark prices trading at a premium to the Australian index. I'll now hand over to Gerhard to talk to our financial position and market outlook.

Thank you, Jerry, and today everybody. As Jerry stated in his remarks earlier, we delivered record revenues for both the June quarter and for the half year. June quarter revenue was about $1 billion up, 9% compared to the March quarter. And half year revenues were just short of $2 billion, reflecting 150% increase over the 800 million of revenues generated in the first half of 2021. The revenue growth year on year reflects the significant improvement in the MEDCOL markets compared to early 2021. MEDCOL sales in the June quarter made up 97% of total coal revenues, reinforcing our position as the world's leading pure-play MEDCOL company. Coronado also achieved record group-realized MEDCOL pricing in the June quarter, The average realized met coal price was $321 per ton, up 20% compared to the March quarter. The average realized price reflects a mixture of all FOB, FOR, and fixed price US domestic sales in the quarter and across all grades of met coal sold. The strong price environment experienced in the first half of the year saw Coronado distribute $351 million in dividends to shareholders in the June quarter and finished the quarter retaining a net cash balance of 171 million in available liquidity of 586 million U.S. dollars. Coronado has now returned approximately $1.2 billion in dividends to shareholders since listing on the ASX in 2018. We will release our full suite of financial results to the market on the 9th of August, at which time we will provide the market with further details on our EBITDA and net profit positions, as well as details in respect of any potential dividend distributions. During the June quarter, Coronado also achieved another significant milestone and entered the S&P ASX 200 index for the first time. Inclusion in the index demonstrates a significant growth that we have delivered over the past 12 months and reflect our strong financial position. Turning to capital expenditure, half-year capex for the group was 92 million. Full year 2022, capex is expected to be within guidance as we invest in capital works. Reinvesting in our sales makes sense and will underpin increased production rates in the second half of 2022 and future years from the Australian and US operations. In relation to our costs, first half year mining costs per ton sold for the group were $85 per ton. The higher mining costs per ton are because of higher than expected inflation, wet weather events resulting in lost production at Currah, and the completion of planned major maintenance activities at Buchanan and Currah. The company expects second half mining costs per ton to be lower as production plans are weighted to the second half of the year. However, As Sherry said, today we do revise our cost guidance upwards to between $79 and $81 per tonne. Global inflationary pressure exceeding original budget estimates are a key component of the increase. Official inflation levels in the US recently reached a 40-year high of 9.1%, and Australia are currently at 5.1%. In some cases, materials and supplies used in our mining operations exceed these average inflation percentages. Oil market analysts expect inflation to remain at elevated levels for the remainder of 2022. Coronado anticipates that these inflationary impacts and the impacts from the wet weather year to date will be partially mitigated by lower FX and incremental productivity improvements in the second half of 2022. Today, we also have provided some commentary on the anticipated financial impacts of the Queensland royalty regime recently implemented by the Queensland state government effective from 1st July this year. Unlike some of our peers, I need to highlight here, Coronado is a geographically diverse met coal producer with operations in Queensland and the US. Our high quality Buchanan and Logan met coal mines in the US will not be impacted by this royalty increase, only our Australian operations. Coronado continues to be a significant employer of choice in Queensland and already makes substantial economic contributions to both federal and state government and the community. We continue to pay our share of royalties, corporate tax, payroll tax, land tax, tenement rentals, and financial provisioning scheme deposits. Queensland royalties are determined on a tiered structure linked to price. If we assume a total realized coal price of $250 per ton, Under the new royalty structure, that's US dollars per ton, Coronado estimates the implied royalty rate for the Kara mine to be approximately 20%. Under the legacy royalty structure, the implied rate at this price level was approximately 12%. Coronado estimates the second half of 2022 impacts on earnings from the policy change could be roughly 50 million U.S. dollars post-tax based on current spot prices. Let me look at coal markets. The average Australian premium low-bore hard-coking coal FOB index for the June quarter was $449 per ton and decreased about 8% over the prior quarter. Seaborne met coal prices corrected during the quarter, finishing at $302 per ton FOB after reaching a record price of $670 per ton fob in march pricing as of today is lower medical prices are currently being impacted negatively due to improving medical supply the global growth outlook impacting demand expectations of continued higher inflation and the continuation of the covet 19 lockdowns in china that have led to disruptions to logistics along the steel value chain including supply of steel to end users and raw materials to steel mills, lowering domestic steel and met coal demand in the short term. Despite the recent price decreases, met coal prices and revenues for shipments from our U.S. and Australian operations reached record levels during the quarter due to our contracts generally being on a three-month lag basis. Given that FOB index prices remained about $300 per tonne in the June quarter, and the discounts for lower quality products are currently smaller, Coronado expects strong price realisation in the September quarter. Coronado Medcol remains in high demand. Our high quality products and unique geographical diversification allows us to switch products into different geographical markets or market segments that provide the highest return. For example, moving US production from China to Europe or high volatile coking coal marketed as thermal coals to take advantage of the current unique market fundamentals created by the trade restrictions on Russian coal. For the remainder of 2022, Coronado expects met coal demand to be balanced between downward pressure on steel demand due to the current global growth outlook and upward pressure from the seaborne coal trade restrictions on Russian coal. And despite the uncertainties, met coal prices are expected to remain above historical averages supported by the global automotive sector improving, other parts improving. And high-end trust benefits thermal coal prices providing support to met coal prices in the mid-term and long-term. I'll now hand over back to the operator to take any questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone. and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Paul Young of Goldman Sachs. Please go.

Good morning. Thank you. Morning, Gerry, Gerhard and Andrew. Can I ask a question first on the new production guidance and the implied, I guess, performance of Currah? for the second half. First of all, I guess the first point is that you've got some maintenance done during the weather and it sounds as though the drag line is performing well, Gerry, and record June, as you point out. But if you look at the new guidance, the group level probably implies that Currah has to continue to set records and produce it probably above 14 million tonnes per annum on a saleable basis in the second half. I guess the observation from my perspective is that things are heading in the right direction. But is the guidance, the new guidance even, is it a bit of a stretch target?

We don't believe so. We considered it carefully. The mining plan always waited to the second half of the year. And we don't really stretch that plan that much in our own predictions. And we have more confidence. and the quality of those predictions simply because of the gratifying performance we're getting from the current transitioned fleets and the fact that, you know, rain could always be an issue, but the fleets themselves are running better and can produce what we are projecting. We'll just have to wait and see what the weather does.

okay thanks jerry and and uh while we're on cara and just queensland versus the us and you know the new royalty regime um and uh you've quantified some impact there so that that's helpful um for at least cross-checking numbers um but uh just from a strategic perspective you know and the investment in the car expansion of 13 and a half does this you know somewhat change your view on the speed of that investment um obviously it's a high fixed cost operation so more Times down the rail is important. But, you know, how do you think about allocating capital to Curran now and the pace of that versus, say, investing in the U.S.?

We're still considering the impact. As of today, I wouldn't advise any changes. We haven't detected any flaws in the economic analysis. And you probably would confirm that. But it is a matter of continued evaluation. It goes without saying the royalty did not help.

Yep, I'd agree with that. And then last question from me is just on the market and maybe one for all of you, but interesting comments around the fact that you think supply is improving because I guess I'm not seeing that from Queensland and Canada, maybe out of the East Coast US, that's where you're referring to. And then we've got obviously the 10th of August deadline and the interesting dynamic at the moment where the China price is above the Queensland price, even on adjusting for freight, despite... you know, China's steel volume is being on the weakest side. So I'm just fascinated in that dynamic, more so around, you know, what happens post 10th of August and, you know, how much rebalancing you think actually has occurred, i.e. have European mills turned away from Russian PCI and, you know, the little met coal they were exporting, more so PCI yet, or is that still to come?

Yeah, let me respond to that. So, look, it's probably more a demand story at the moment. The demand fundamentals are weak. Let's be honest about it. Blast furnace slowdowns are imminent or have happened. And therefore, we see decline in import demand at least, I would say, in quarter three. I can see a little bit of improvement in quarter four simply because of the end of the monsoon season at the end of September and China still skill demand going up at the same time. The second one is the sanctions on Russian export from August on will support met coal prices. There's a market consensus that it still supports it. I think the switching happened or boycott of Russian coal happened to some extent. Self-imposed sanctions in Europe have happened, but there's probably still 25-30% left of what used to be imported off Russia. So we do believe, the market believes, there's still a positive impact from the Russian boycott. But look, overall, at the moment, we see negative steel margins. That has impacted the price fall. Price dropped $30 per tonne right now. We are spot on. The China CFR, although falling, is still sitting at $342 per tonne. I think support will come in quarter four, particularly from Japan and Korea and the European Union. Price support, as we do see, that there is this boycott coming in Japan and Korea, indicated they will join the European Union on the price boycott. PCI, you mean? yeah i mean that covers it you know so there's of course one thing on pci is that europe sorry russia owns about 30 percent of pci um so that's about yeah global global seabourn export it's about 20 million tons russia is about 15 million 15 percent of global c1 met met coal i think high level when you look at tons russia exports about 55 million tons of met coal, 10 million used to go into Ukraine, so forget this. So the 45 million remaining tons, there's about 11 million tons going away from Europe and another 11 million tons are going away from Japan and Korea that have to find their way into, let's face it, India and China. India and China is trying hard to take these tons, but they simply, and I said that before, simply don't fit the blend. So it's probably just 5% to 10% of that coal, 5% to 8% of that coal that can go into Indian and Chinese blends. So it will be difficult for Russia to place all these tons. And then at the same time, it will be difficult, very difficult for Europeans to replace the 11 million tons they miss out of Russia. So that will give us some price support in what my feeling is. September quarter four at that stage.

Yeah, thanks Gerhard. Those really interesting comments and dynamics. So that's it for me, gents. I'll pass it on.

Thank you. Your next question comes from Lachlan Shaw of UBS. Please go ahead.

Hey, good morning, Andrew Gerhard. Just wanted to... So just in terms of the revised guidance on costs, you've singled out some geological impacts and productivity improvements. Can you just give us a bit more color around what's going on there, please?

Well, a combination of a variety of impacts in the U.S. The reduced yield on Buchanan should modestly improve for the remainder of the year, although we are unlikely to see, you know, historical highs until we move to newer panels. The biggest issue, the biggest positive issue is that since we report costs in US dollars, In Australia, the falling Australian dollar provides us some benefit that offsets some of the inflation. That and the productivity improvements, there is nothing as powerful as the incremental ton. The productivity improvements will deliver what we believe deliver the cost reductions that we anticipate. And Gerhard, do you have any other additional comments?

No, that's it. I mean, what we will see in the second half, really, I mean, the question is really how do we maintain the guidance, the revised guidance, and it's simply coming from less rain in the second half, hopefully, and higher productivity based on the transformation we have kicked off, plus also the highway mining equipment we deployed. So there's a credible path towards the production guidance and therefore lower costs in the second half because the unit cost is a combination of Well, denominator and denominator. The denominator is affected by inflation. The denominator is just a function of production. So higher production will help us to achieve the guidance in the second half.

Great. Great. Thanks, Gerry and Gerhard.

Just a second question. So firstly, just quickly, can you talk to inventory levels particularly in Queensland at the mine and at the port. And then the second part of that, just stepping back, looking at the balance sheet, how are you thinking about capital management, net debt balance sheet targets and metrics going forward? Thank you.

Let me respond to both. We don't comment really on inventory levels. So on the second part, balance sheet, I'll just say what I said before. Number one for us is really maintain a strong balance sheet. Number two is, you know, distributions to shareholders are very important to us. And of course, for you guys, for shareholders. Number three is organic growth. And number four is inorganic growth. So that hasn't really changed. And we stick to that. That means also that we want to maintain a healthy net cash position, or at least have what I always said is like, ideally, we remain net cash. But what I need in terms of liquidity is $200 million.

Right, okay. Thanks very much. I'll pass it on.

Yep.

Thank you. Your next question comes from Glyn Lawlock of Baron Joey. Please go ahead.

Morning, Gerry. I trust you're well. Gerry, just on Curra, could you actually quantify how many tonnes you actually did in the month of June? You talk about it as a good month. Just if it'll give me some comfort that you can make the new guidance.

I'd rather not give production guidance, but for the month of June, I will say it was a record.

A record just for this year, though, I thought you said, or a record for the life of the mine?

No, actually, I think it was very nearly a record for the life of the mine. If I recall correctly, and I think Doug is on the line, so he can correct me. It was the fifth best month the mine ever had.

Okay, but you're not prepared to tell me the number to give me comfort on the back half.

I don't want to begin releasing tonnage information on a month-by-month basis. Once done, it would become a habit.

I mean, it's just to give us comfort, that's all. The second question is around the rock intrusion at Buchanan. And I think you just said on the previous answer to a question, not till we're in new panels. Does that mean this rock intrusion is quite problematic for a number of panels and so the recoveries remain low? So when do you envisage us getting into these new panels such that this current issue of rock intrusions, lower recoveries will be behind us?

It is, I will say that we went through the rock intrusion this time. As you're aware, at Buchanan, we have two long wall, two sets of long wall equipment, and we operate only one face at a time, except in rare circumstances. So we have the ability to flip back and forth between faces. One phase is mining where we have no rock intrusions. The other one is mining where we anticipate we will again. And the mine plan calls for, in fact, a jump phase later on, which can be ameliorated through the methods that I just indicated. But you will have that impact on the rock fault in the next panel. Whether you'll see it in the production, Since we're going to a jump phase, depends on how well we do that and how much support we get from the alternative phase while we do it.

So, Jerry, what are we talking? This is going to be a sort of a back and forward issue when you alternate panels for what, the next little while until that other long wall is clear?

The next three panels and after that it remains to be seen. But this is not a continuing issue. impact for i mean the rock the rock fault itself is not a continuing impact for the next five years or any or five panels anything like that yeah but was this expected or is this just you know you can't drill it out completely so you or you knew that you were heading into it it was expected and then just finally just on the costs

If I look at the chart you've provided in the, I guess, the waterfall chart and your cost breakdown, it would appear about $10 increases from inflationary impacts, just eyeballing the waterfall chart. Just wondering if you could talk to and break down that inflationary impact, how much of that is sticky? Obviously, inflation is running high, but wages are sticky. But how much of that maybe is fuel and energy that could come back in time. So if you could sort of help me understand percent sticky versus maybe percent that's just transitory in that inflationary part. Thanks.

In the U.S., the wages are sticky. We don't have much of an impact from fuel, but the steel increases have increased, and I really can't guess at how sticky those may be. In Australia, I would imagine that we will get relief over time from the oil price. But the other issues and the lower inflationary rate, inflation rate will continue to impact the Australian cost. Gerard, do you have any other comments?

Yeah. Yeah, no, that's spot on. But I would say it's in line with others. I just saw that Woodmeck had the number out there that Australian costs increased by actually 25%. So it's really a story of energy. I separate fuel as well because energy prices went up way higher than fuel. But it's a story of energy prices globally went up like crazy levels. Fuel went up and labor costs. And some of that is sticky and some of that is reversible. But not reversible, I can't see that to be reversed this year at this stage.

Yeah, no, I appreciate that, Gerhard. I guess, yeah, sorry, Jerry, go on.

No, I will add to Gerhard's comment. The full impact of how well we're doing here will be revealed as others reveal their costs, both in the U.S. and in Australia. And frankly, I'm confident that it will not do badly in that comparison. because we have enjoyed the productivity increases which offset the impacts that everybody suffers from inflation.

Yeah, no, I think you're spot on there. Would it be fair to say, though, of that inflationary impacts, which, as I said, looks like highball $10 a ton, 50% of that is sticky? Would that be too high?

I don't know.

I would say it's hard to say. It really comes down to fuel and energy. It's the biggest part of this, fuel and energy. And that's, of course, volatile goals for the market. So it's definitely sticky this year. Some of the labor costs might be sticky, as Sherry said, in the U.S., simply because you need to be in line with the competition. What you have seen in Australia, and I don't just want to make a comment on Coronado, but That's public knowledge that in Australia, people have paid sign-on bonuses, and these costs are not sticky. So they are a one-off. So we kind of managed that here as an industry quite well. Where that goes has yet to be seen, because interestingly, globally, we see a labor shortage in all sorts of sectors. So I can see that over the long run, all kinds of labor costs will go up. not only in mining.

So if the US wages were, say, sticky, what would that be of that $10 a tonne? One or two bucks?

A little more than that, but it's not half. It would not be half.

Yeah, so energy cyclical, come and go. The bonuses in Australia, one-off, don't pay them again until the next cycle and then... two or three bucks a ton for US. Okay, that makes sense. Thanks a lot.

Thank you.

Your next question comes from Chen Jiang of Bank of America. Please go ahead.

Good morning, Gerry and Gerhard. Thank you. Just a follow-up question on the cost. So the cost year-to-date is US $85. By taking the guidance of $80 per ton, that implies second half, the cost needs to be $75 per ton. So that's $10 difference from the year-to-date. But you just mentioned that the inflationary impacts, that's the key. Do you think your cost guidance, revised cost guidance, is too conservative, given you have to reduce the cost by $10 per ton in the second half? Thank you. I have one more after this.

We do not. And, you know, I cannot emphasize the significance of the productivity reductions in the first half of the year. because of rain, and we've had rain, unusual rain events in the U.S., as you have recently seen, as well as what we've outlined in Australia. So, and I cannot overemphasize the impact of that on productivity and the following impact on costs. So, we do not believe that we are overly optimistic outside the guidance. We are, in fact, planning on some additional rain for the rest of the year, but nothing like we've seen. And that is by far the biggest variable we've got to deal with.

Thanks, Gary, for that. Can I please ask a question for your co-mix in hot cooking cold PCI, semi, and thermal? I know you are pure play make-co-producer, but I'm wondering Given the spread between thermal and MECO, from operation perspective, how flexible CRN can sell thermal code to the market and the capacity? And how about PCI and MECO? Any plans to change the mix of producing PCI and MECO? Thank you.

Let me just clarify. Are you asking how fast we can switch

To into the cellar Yeah, yeah, yeah, yeah, yeah, that's right Because because the price is kind of you know, there's a massive price distortion between Thermal and met and and as well as the PCI spread Used to be 30% PCI to to make hope and out since the Russia and Ukraine conflicts and since March and the spread has narrowed to an average of 5%. Just wondering if you are going to change your plan or producing PCI to maximize your price realization in the second half. Thank you.

It's a good point. So look, let me be also general here because I can't disclose our contracts. But what I said before was that, of course, the industry would be incentivized to switch. So at the moment, We see met coal sitting at 230 and thermal at above $400 per ton. So a switch would be very attractive. There are a few hurdles the industry has to take. Number one is really, and everybody's impacted from that, is contracts. We usually sit on one-year or even three-year contracts. Let's call it one-year contracts. In the U.S., it's definitely a one-year contract for the domestics. But when we look at Australia, where we do have some semi-products that would easily be, that we could easily, in PCI, that we could easily sell into thermal, we have usually the Japanese contracts from April to March. So first, the industry has to really meet their obligations under these contracts. And because of the bad weather situation, not a lot of spot in the market. The second hurdle is really in order to be able to switch, and this is where we sit quite well, you need to look at the combination of fuel ratio and the swelling number of coal. And, you know, the best coal to convert into thermal is really, as you said, you know, definitely semi-products and the PCIs. Globally, you see about, you know, probably 20 to 30 million tons are able to switch. What I can tell you is that our U.S. coal is well-placed to the high worlds, particularly high world B is well-placed for the thermal coal market, and there's a big demand for it, and we already participated in this.

So that's probably all I can say.

Okay, thanks for that. So just to clarify, the MEC coal from your U.S. operations can be switched to thermal coal and sell to the state market?

So we are very positioned. We can switch a lot of our coal out of Australia into thermal and the U.S. The U.S. is already participating in this. In Australia, we do sit on these contracts. We do need to see that we meet the contract requirements contractual obligations, but our coal that we do have, particularly semi-products and PCR products, can be switched into thermal if we wanted to.

All right, thanks for that. Can I ask the last question? I know you cannot comment on the upcoming dividends next month. I'm just wondering for the declared dividends in February of US $151 million, Is that included in last year's dividends calculation or going to be included in this year's dividends calculation of that 60% to 100% of your free cash flow?

So let me unpack this. So the $351 million dividends we have paid in the June quarter, that is $100 million relates to last year as we put it basically on the shelf from the unresponsive bond buybacks. The balance isn't just cash flow from this year. And what we are, I mean, it's up to the board on the 9th of August to declare a dividend. If you declare a dividend, then it will be in line with our policy that we distribute 60% to 100% of our cash flow as distributions to shareholders.

Thanks, Gerhard. I'll pass it on. Thanks.

Thank you. Your next question comes from Nate Martin of The Benchmark Company. Please go ahead.

Thanks. Good evening, Jerry. Good morning, Gerhard and Andrew. I appreciate you taking my questions. Maybe just to drill down a little bit more on that last question regarding the spread currently between that and thermal crisis with thermal being notably higher. I guess, going back to your point, you have contracts on a lot of your Australian semi-products and PCI. At what point would those maybe roll off so that you could participate in the crossover market, assuming those spreads remain?

Just repeat that for me, please, the question.

Yeah. So, again, just going back to the potential to crossover net funds into the thermal market, given the discrepancy of European prices today, with thermal being higher. You mentioned, Gerhard, some of your contracts in Australia, I think, run maybe from April to March. At what point do you see some of your tons in Australia, some of your products or PCI rolling out of contracts and being available?

I've got it now. As I said, the industry in Australia, the medical industry is sitting on Japanese contracts. You would see Some of that coal is switching over into thermal if there are spot hunts available. The challenge is that spot hunts have been impacted by wet weather, so there's not a lot of spot hunts available, and that's exactly why you don't see a lot of switching happening right now. And then the vast majority, of course, comes off in March. So I think you will see a bigger switch in March, although I think we can start seeing some of that coming through in the fourth quarter as well, simply because of steel demand is slowing down and some customers might want to slow down the offtake and push back on cargos. So I think from here on, we've seen increase in switching, but the biggest increase would come in market. I do believe that thermal coal prices will remain at elevated levels given the situation there in Europe. I have to highlight our U.S. business. The U.S. business is very different to all Australian Metco producers. We have only 30% of our coal is contracted on a fixed price plus annual contract with volume attached to it. The rest is basically on a negotiated basis. And as I said before, we are able to switch. The high oil products are that fit the matrix for thermal core.

And those high-volt products in the U.S. go mainly from the Logan complex?

Yeah, I don't want to go into details, but yes. I mean, the Logan has got the high-volt B. Okay.

Got it. Perfect. And then maybe sticking with the U.S. for a second, just curious if I could get your latest thoughts on transportation and logistics, maybe both on the domestic and export side. especially, you know, as we've seen labor at the rails continue to be a challenge to their network fluidity. Thank you.

Yeah. Let me go ahead with that one, Garrett. In the U.S., we ship to export principally through the NMW. And the NMW, while it pains me to compliment railroads, and I won't go that far, has been relatively reliable in their performance. When we ship on the CSX, we do so domestically. And domestic performance on the CSX has been better than export performance. So relative to others, the rail issues in the U.S. have impacted us less than they have others.

Good to hear, Jerry. Appreciate that. And then maybe just kind of a point of clarification. You guys mentioned in your prepared remarks, you know, expansion that CURRA expected to get to somewhere around 13.5 million tons by 2025. Any color on what that pace of growth could look like?

Not yet. We will be reporting on that later, but I don't want to preempt that now.

Okay, fair enough, Jerry. I guess maybe just one final thing, and Garrett, I know you touched on this in your career remarks as well, but maybe you could walk us through the example in your release where you talk about the second half impact on earnings from the Queensland royalty change. You said it would be about $50 million based on spot prices. Maybe you could just let us know how many tons you're assuming there in that scenario and what spot price you assume.

How many tons? What did you say? How many tons spot price, I assume, in the second half?

Yeah, in the second half, when you noted the second half impact on earnings from the Queensland royalty change would be about $50 million. You said based on spot prices. So what spot prices do you assume, given prices continue to fall? And then how many tons are you assuming in that example?

Yeah, now look, I just gave you an example, and that's just an example, not what I assume. But as an example, I said... I don't have my notes here, but I said U.S. dollars at U.S. dollars, $250 per ton. The royalty would be 20 percent. The new royalty regime would be 20 percent as opposed to 12 percent under the legacy royalty regime. So what I'm assuming in the second half in my in my cash forecast, I don't want to disclose, but I can tell you that it is higher than it is higher than the average medical price achieved. And what we see in the market right now over the last few weeks, you can say that the Metco price has collapsed. The benchmark has collapsed, including the US East Coast. And if you like, even the CFR has collapsed. Let's stick to the benchmark, $230 per ton. What we have seen in the last few weeks is probably no one in the market wanted to catch a falling knife there. So it kept falling and falling. What we do see now is it bottomed out at $230 per ton over the last few days. It feels like now there's appetite in the market at this price level to buy. I'm not saying it cannot fall further, but I think it's probably the level this year is probably the level where you're going to see it for some time. Market consensus, including mine, is that we might see a kicker in mid-August. From mid-August, I think there could be a lag to September where prices go up simply because of the 22 million tons I mentioned before that Russia cannot sell into Europe and Japan and Korea anymore. I think there will be a kicker and that could be $20 for the benchmark, maybe even a little bit more. And just to confirm this, the forward curve is in contango as well. So I think the forward curve season equally strong development and support for medical prices.

Got it. And I appreciate those other thoughts. I mean, I wasn't looking for your internal projections, really, just what you used for that one scenario you hypothesized with in your relationship.

Yeah, that was $20.50 US.

Yeah.

Okay.

Got it. Okay, perfect. That's it for me. I appreciate the thoughts and I got it.

Best of luck in the second half. Thank you. Your next question comes from Lachlan Shaw of UBS.

Please go ahead.

Thanks again, Gerry and Gerhard. I just wanted to kind of pick up on a couple of the previous questions. So you talked about the HyVol B switching in the US particularly. How much of that do you think has happened in the market? Has it all been done? Is there a lot more to go? Just any interest, any insight you can provide around that would be helpful. Thank you.

It's difficult. In the U.S., if we're looking at the U.S., there's a lot more coal in the U.S. that will make thermal than will, you know, will make met. And I can, I've seen the thermal price higher than the met price maybe five times in my career. And it never lasts for very long. If you look at the U.S. sources of thermal coal, you can add production in the Powder River Basin. You can add production in the Midwest far more quickly than you can convert. You can pry away, you know, met coal from the markets it's on and start moving even the higher cost met coal into a thermal market. And what we sell as far as met coal is washed hard. It's low ash. It would be a relatively expensive product on a thermal market. And you'd have some adjustments to make in your gravities and your washing mechanisms to get the best margins out of those coals as a thermal coal anyway. and there's not going to be a lot of people based on past history of the durability of this kind of arbitrage. There's not going to be a lot of people who will be making those kind of investments and making that change, and they wouldn't need to. The whole point here is that the current price, particularly in the U.S., of thermal coal has got to be viewed as temporary and going to come down.

Understood. That'll make sense. And then just one quick one. So obviously a bit of chatter out there about China potentially winding back the embargo on Australian met coal imports around August, September. I guess, you know, what are you hearing? And secondly, how do you view that in terms of your potential sales mix going forward? Thank you.

Well, let me respond to that. Look, first of all, there's a lot of media coverage about this. saying that China is opening the doors and gates to Australian coal. Let's look at the benefits for China. On thermal coal, there's probably no benefit. They can source it internally. I mean, you've got to look at China's production. They produce 3.5 billion tons of coal every year. So we've got to digest that. Just a tiny increase of that number provides them with a lot of thermal coal, there's actually no need for China to import thermal coal. Met coal is a slightly different story. And there could be a need, I mean, when you look at the prices, 342 CFR take $20 off, you know, you said that 320 versus 230 benchmark, there's clearly an arbitrage. If they open the gates to Australian met coal, what you would see is that these arbitrages disappear. You see prices converging, the CEFR comes down, and the benchmark probably goes up a little bit in the short term. But the fact of the matter is, despite all the media coverage, there is actually no substance to it at this stage. So we hear that there is not really any official decision made at all my my logic previously was and i maintain the logic is that the biggest steel producer on the planet uh should deal logically with the biggest metco producer on the planet and will that will happen at some stage i can't see that happening um before quarter four this year at best you know but but at the moment this is all media uh talk and no substance behind it

Great, thank you.

And then in terms of your product mix and your sales mix, how would you sort of respond if that was to happen?

Well, I mean, the positive thing is that we, out of Australia, we never really were, our supply chain was never really exposed to China anyway. So for us, it probably means that we are diverting more coal back into Europe, you know, which we do at the moment anyway. So I don't think it's a massive impact on us. Overall for the industry, I think it will be in the short term a positive impact simply because of price conversion. But then the normal market dynamics come into play and you see prices developing as they would. There's always just a time markets recalibrated. When China walked away from Australia, everyone told me that prices stay at $110 per ton forever. And I said markets would recalibrate and they did. And the same will happen when China comes back. The markets will take time to recalibrate, but it will happen over six months.

Thanks, Gerhard. Jerry, that's great.

Thank you. There are no further questions at this time. I'd now like to hand the phone back to Jerry for any closing remarks.

That does conclude our conference for today. I want to thank you for participating. Operator, you may now disconnect.

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