Coronado Global Resources Inc.

Thank you for standing by and welcome to the Coronado Global Resources Third Quarter Investor Call. All participants are in a 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 in your telephone keypad. I would now like to hand the conference over to Mr. Andrew Mooney, Vice President, Investor Relations and Communications. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining Coronado's third 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 results, coal markets, and financial performance. A more detailed outline of our financial position and results will be released to the market on the 9th of November with our Form 10Q 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 the SEC. I also remind everyone that Coronado quotes all numbers in US dollars and metric tons unless otherwise stated. With that, I'll hand over to Jerry.

Thank you, Andrew, and thank you everyone for joining our call today. Before Gerhard and I elaborate on our quarterly performance, I would like to confirm that currently there is nothing further to report in relation to any potential combination transaction with Peabody Energy. At this time, confidential discussions are continuing, but no transaction has been agreed and there is no guarantee that discussions will lead to a transaction. Therefore, today we will not be in a position to answer any questions in relation to any potential deal with Peabody and will respond only to questions related to our September quarterly performance. During the September quarter, Coronado continued to deliver on its capital management strategy. We continued to manage a strong balance sheet with improved liquidity. We delivered further shareholder returns via dividends. We delivered improved production and sales volumes over the prior June quarter, and also continued to pursue our capital investment plans in both the US and Australia to underpin our strategic growth objectives. Here today, Coronado has delivered record revenues record price realizations, and distributed U.S. $470 million in cash dividends to shareholders, all while maintaining a strong balance sheet, high liquidity levels, and retaining a net cash position. Coronado is an ASX 200 index business who has outperformed the market and generated share price growth. excluding dividends of approximately 65% year-to-date, compared to negative returns from the ASX 200 Index and the S&P 500 Index. We do not release our year-to-date audited financial results until the 9th of November. However, I am pleased to report that Coronado's year-to-date EBITDA results exceed $1 billion U.S. dollars. and easily eclipsed the highest full-year EBITDA results generated in the history of the company as public. Therefore, today I am pleased to announce that Coronado declares a third quarter unfranked special dividend to shareholders of U.S. 13.4 cents for CDI, totaling U.S. $225 million. This special dividend will have a record date of 21 November 2022 and will be paid on 12 December 2022. In conjunction with this special dividend, Coronado also makes a senior secured notes purchase offer up to the value of $200 million. This purchase offer is made at a purchase price of 104% of the aggregate principal amount of the notes plus accrued interest. The offer expires on 1 December 2022 and will be paid to note holders who accept on 5 December 2022. Today's announced dividend and notes purchase offer align with our existing policy of distributing between 60% and 100% of free cash flow and we do so while expecting to remain in a net cash position post payment. The entire Coronado team are extremely proud of our strong financial results and distributions year to date. However, due to forces outside of our control, our operations have been impacted by unseasonal wet weather and global economic circumstances that are driving higher inflation rates across the globe. These events have contributed to our lower production levels and higher mining costs here to date. While we accept that the La Nina weather patterns in Queensland and global inflationary impacts will dissipate in time, today we revise our full year 2022 production and cost guidance. As we enter the fourth quarter, I remain extremely confident in our ability to address these challenges due to our strong balance sheet, our exceptional management and associates, and capital investment plans, which have us well positioned to continue to enhance value for our organization. Before we elaborate on our results, firstly, I would like to provide an overview of our year-to-date safety results. The 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 US continue to remain below the relevant industry averages. In Australia, the 12-month rolling average total reportable injury frequency rate at 30 September was 4.15. And in the United States, the total reportable incident rate was 2.08. On a consolidated basis, the group's global total reportable incident rate stands at 1.31 compared to a rate of 1.47 as of 30 September 2023, reflecting an 11% year-on-year improvement. New and revised health and safety initiatives continue to be implemented across Coronado operations quarterly. In Australia, CARA has rolled out our Lifesaving Rules Program, implemented upgrades to its safety health management system, increased training initiatives, including felt leadership, and continued to focus on hazard identification and mitigation plans. In the U.S., we continue to focus on training our existing workforce and developing new miners. This has resulted in more than 58,000 man-hours of discretionary training that has helped set solid expectations for new hires and articulate Coronado's safety culture and focus. Turning to our operational performance, Coronado completed the third quarter with improvements in production and sales volumes compared to the prior June quarter. Group run-of-mine coal production was 6.4 million tons, up 16%. Group saleable production was 4.1 million tons, up 26%. And group sales volumes were 4.1 million tons, up 5%, compared to the June quarter. Saleable production in the September quarter from our U.S. operations was 1.7 million tons, up 20%, compared to the prior June quarter, and reflects the U.S. operations best production quarter this year. The production impacts from the rock intrusion experienced at the Buchanan Mine in April are now behind us. And as a result, the mine has achieved improved production and yield rates. During the quarter, Coronado also commenced mining at the new Winifred Mett Coal Underground Mine, which is part of the Logan Mine Complex. Continued capital works at its Buchanan Mine to expand its raw coal storage space and commence construction of a second set of skips. Growth plans at our U.S. operations to produce 6.9 million tons by 2025 remain on target. Consultation and engagement with local communities and state and local governments in our U.S. expansion plans is proceeding well. Coronado has recently worked with local counties and the governor of Virginia, Mr. Glenn Youngkin, to secure grants and incentives to progress our Buchanan expansion plans. Furthermore, as I mentioned in our half-year presentation, during the quarter, we officially commissioned the Buchanan Ventilation Air Methane Abatement Project. This project utilizes the latest technology to convert fugitive methane gas emissions to carbon dioxide from our Buchanan operation. It is envisaged that this project will reduce the Buchanan mine's emissions intensity by 22 times and reduce total emissions from the mine by 61% by 2030. The initial performance from the BAM unit is encouraging. with the project achieving 94% emission destruction efficiency in its first few months of operation. While Coronado is also investigating other projects to reduce its carbon footprint, if the VAM projections are achieved, this project alone will meet the group's 30% emissions reduction target by 2030. The focus for the U.S. operations entering the fourth quarter is to continue to optimize production levels to meet the demands for U.S. source coal, particularly in China and Europe. Compared to other met coal producers, Coronado maintains a competitive advantage given its geographic diversification and ability to access the Chinese market from the U.S. plus the unique ability to take advantage of existing met and thermal coal price disparity and switch tons into the thermal export market to generate higher margins when it makes sense to do so. Turning to Australia, saleable production from the Australian operations of 2.5 million tons was 31% higher compared to the June quarter. This significant increase reflects the return on investment made in the first half of the year. The transition of four fleets at Cura North to a Coronado operator model is now complete. Sustained performance improvements from these fleets were a major contributor to the quarter's improved production result. Despite the impacts of the Bowen Basin rain events, Year-to-date CURRA has executed its capital investments in the mine plan, specifically investments targeting dragline performance and waste movement, which have translated to improved performance for the expectations of the one CURRA plan. Year-to-date waste movement is broadly aligned with the same period in the prior year, despite the above-average rainfall. Furthermore, in the September quarter, the planned high-wall mining operations commenced at Curra North to liberate restricted coal under the overland conveyor. While production improvements at Curra quarter on quarter are evident, the rain events in the Bowen Basin continued in the September quarter, which did further hinder coal production levels. The town of Blackwater, the nearest town to Curra, received 178 millimeters of rain in the quarter, representing rainfall nearly three times the 10-year average for the area. The consistent rain this year has been a key contributor to the lower production volumes and the higher mining costs per ton. However, despite the weather, quarter on quarter, Cura achieved 29% higher ROM coal production, 31% higher saleable production, 4% higher sales volumes, 14% higher closing coal stockpiles, 12% higher CHPP feed rates and availability, 13% higher dragline utilization, and 8% higher operating time from the recently converted four contractor fleets. Capital growth plans at Kura Mine continue in accordance with existing expansion plans to reach 13.5 million tons per annum by 2025. During the quarter, we completed activities on the Kura North underground pre-feasibility study and the ZPIT expansion study.

These results are currently under review and are promising. During the quarter, significant progress was also made on our rehabilitation plans at Cura.

We can report today that Cura has successfully rehabilitated 143 hectares of land in the quarter, with plans for further work scheduled as the year progresses. In addition, a project at Cura targeting the capture and use of coal seam methane as a diesel substitute commenced in the quarter. Drill contractors are mobilizing the site to commence a drilling program in the fourth quarter. This project forms part of Coronado's strategy to reduce emissions from open cut mining operations. CURR's focus for the fourth quarter is to drive operational performance to the mine plan and execute higher production levels, subject to weather. The conversion of the four contractor fleets will continue to generate operating efficiencies as the year progresses, as will the investments in box cuts to enable higher drag line utilization and improved strike length. Box cut investments in new mining areas is progressing well and will ultimately decrease congestion in existing pits, allowing improved productivities to flow and underpin higher CHPP utilization. Turning to our guidance, today I am pleased to report Coronado's North American annual contract negotiations for fiscal year 2023 are largely complete. Coronado anticipates a volume-weighted average price across all grades of met coal, inclusive of thermal switching, of approximately $201 per metric ton FOR, reflecting a price that is $14 per metric ton higher than prices contracted in fiscal year 2022. These fixed price met and thermal tonnages are expected to cover approximately 40% of U.S. production and approximately 90% of anticipated U.S. mine costs and royalties for the year 2023. As I mentioned earlier, Coronado today also revises its production and cost guidance. Today we announced that saleable production guidance for fiscal year 2022 is revised to between 16.9 and 17.1 million tons due to the year-to-date impacts of wet weather at our Cura operation. Rainfall totals between April and September for the town of Blackwater just for this quarter have totaled 391 millimeters, which is 3.3 times higher than the 10-year average for the town over that period. The revised guidance has been determined based on the impacts of wet weather year to date and our production plans for the fourth quarter and is subject to change based on rainfall levels between October and December. The revised guidance incorporates fourth quarter production estimates for the group of between 5.3 and 5.5 million tons. Average mining cost guidance for fiscal year 2022 is also revised to between $81 and $83 per ton due to persistently high global inflationary pressures. Year-to-date wet weather impacts and geologic issues impacting production. Inflation levels in both the U.S. and Australia remained elevated at 8.2%, and 7.3% respectively. Coronado anticipates that these impacts will be partially mitigated by lower effects and incremental productivity improvements as the year progresses. The revised guidance estimate average mining costs for the fourth quarter to be between 68 and $70 subject to the achievement of the production plan. Inflation rates remaining stable and the fourth quarter FX assumption of 65 cents Australian per US dollar. Today, I can confirm no changes to our capital expenditure guidance of 170 to 190 million. I now hand over to Gerhard to talk to our financial position and market outlook.

Yeah, thank you, Jerry, and good day, everybody. As Jerry mentioned earlier, year-to-date, Coronado has delivered strong financial results and continues to execute its capital management strategy. Year-to-date, group revenues were at a record level of US$2.8 billion, and a double those achieved over the same period in 2021 last year of US$1.4 billion. September quarter revenue was US$875 million down, 15% compared to the prior record June quarter, as Metcor prices fell during the quarter. The group realized price per ton of Metcor sold for the September quarter, which is a mixture of FOB, FOR, and domestic pricing, was $253 US dollars per ton, a decrease of 21% from the June quarter, given that prices have come down. Overall, a pretty good price realization in percentage terms. particularly in Australia, driven by the lag from very high Q2 prices and product mix. Australia's realized MEDCOL price was $313 per ton for the September quarter, a decrease of 12% compared to the previous record June quarter. Similarly, the U.S. operations achieved the realized MEDCOL price of $192 per ton. That was 33% lower than the prior record June quarter. Realized price decreases across a range of Coronado products were directly related to the fall in the Australian and U.S. medical indices during the quarter. We will officially release our full suite of financial results, including EBITDA and net profit positions to the market on the 9th of November. However, as Jerry mentioned, I'll reiterate that our year-to-date results are a record for our company. And our EBITDA position for the nine months ended 30 September exceeds one billion US dollars. During the September quarter, Coronado completed the payment to shareholders of the half-year ordinary dividend. Today, we declare a further special dividend to shareholders totaling 225 million US dollars and the senior secured notes purchase of totaling 200 million US dollars. And given our strong year-to-date results, We are in a position to make these payments to shareholders and note holders from available cash and expect to remain in a net cash position post payment in December. Total declared and paid distributions year to date are in accordance with our distribution policy of distributing between 60 to 100% of free cash flow. And after payment of today's declared dividend, Conado will have returned 699 million US dollars in cash dividends to shareholders in 2022. a strong cash flow generation in the september quarter saw the coronado maintain a strong balance sheet and healthy liquidity as of 30 september 2022 the company's net cash position was 386 million us dollars after the payment of all year to date dividends and we maintain available liquidity of 798 million us dollars returning to capital expenditure year-to-date capex for the group was $140 million, double the level from the same period in 2021. As previously guided, FY 2022 capital expenditure is higher as the group invests in capital growth while pricing remains elevated to increase future production rates from the Australian and U.S. operating segments. In relation to our costs, Year-to-date average mining costs for the group were 87.6 US dollars per ton. The higher mining costs are a result of continued inflationary pressures with weather events resulting in lost production at cover and the completion of planned major maintenance activities at the cannon and cover in the first half of the year. Global inflationary pressures are a key component behind the higher cost profile. Inflation levels in the US and Australia remain very high and in some cases certain materials and supplies used in our mining operations exceed current official inflation rates. As Gary outlined before, today we have revised our cost guidance up due to the impacts of inflation and the lost production in the year due to wet weather. However, Coronado anticipates that these pressures will be partially mitigated by lower effects and incremental productivity improvements as the year progresses. But looking at coal markets, the benchmark Australian premium global HCC FOB average index price for the September quarter was $250 per tonne, down from an average of $445 per tonne in the June quarter. The US East Coast lower HCC average index price for the September quarter was $259 per tonne, down from an average of $431 per tonne in the June quarter. Global economic environment and steel demand outlook demands are due to the conflict in Ukraine, the resulting energy crisis in Europe, and high inflation rates. However, these factors are being offset by a combination of low spot met coal supply availability and met coal crossover trades into the thermal market, which has seen price support and stability return to the benchmark Australian met coal index, which was trading at, you know, $300 dollars per ton in late October. I think today it's close to $312 per ton. As Jerry mentioned earlier, the annual contracting arrangements for customers in North America is nearly complete. These arrangements reflect an increase in realized prices in 2023 compared to 2022, and they effectively act as a hedge for our business. The revenue earned from these fixed contract arrangements cover approximately 90% of our anticipated US segment mined cash costs and royalties for the 2023 financial year. Coronado Metco 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. We have the capacity to move some US production from China to Europe as appropriate depending on the market. We can also market high volatile caulking coals from the US as thermal coals as required to take advantage of the current unique market fundamentals created by the trade restriction on Russian coal. Met coal prices have recently stabilized above $300 per ton, supported by recent supply concerns from Australia and Canada and record high thermal coal prices continuing to support the movement of METCOIL crossover tons into the thermal market. Coronado has continued to take advantage of this price arbitrage with planned sales of approximately 410,000 tons into the thermal market in Q4 2022. For the remainder of 2022 and into 2023, Coronado expects METCOIL prices to remain elevated and well above historical evidence. Pricing will remain higher for longer as we see more metco tons being switched into the thermal market, given the high demand for energy as winter approaches in the northern hemisphere. Continued supply from disruption from Australia due to weather and the ongoing trade flow impacts from Russian sanctions. Now I'll hand back over to the operator to take questions. Thank you.

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 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Lachlan Shaw from UBS. Please go ahead.

Good morning, or good evening, Jerry. Good morning, Gerhard. Thanks. So a couple from me. Just can you, in terms of the results at Currah and the wet weather, Can you just talk to how preparations are ahead of the wet season in Queensland? How would you describe the mine plan readiness for the upcoming wet season?

We are in good shape at Currah. And frankly, Currah is somewhat blessed by having a very good drainage right through the middle of the property. So none of the problems we have involve excessive pit flooding that might result in, you know, the nightmares of the booms from a drag line sticking out above the water. What has happened this year that is unusual, though, is that the ground is now saturated. And at the beginning of most rainy seasons, it does not have as much retained water as it currently does. So we've got fairly good drainage pits in the coal benches, in fact, drainage on all the benches, to continuously manage water and keep it off the bench, keep it off of the work area. By and large, though, the biggest issue with rain at Kura, as with most mines, is the conditions on the haul road. And we simply cannot run the haul truss on the Red Dog shale mine roads that tend to be slick when wet. Those are the only particular circumstances this year. There's more retained water in the alluvial material and in the high wall, but that's being handled well in the feds. And the issue with the with the roadways is an ongoing issue.

Okay, great, thanks. And then next question.

So just around the cost guidance for December quarter, 68 to $70 with stable inflation and Aussie USD at 65 cents. Can you just talk to, I mean, do you think that the worst of this inflationary cycle might be behind us? Are we peaking at current levels? Are we going to see perhaps some good news on the cost front heading into 2023?

I'm sitting here on the eve of midterm elections in the U.S. I can pick up a prediction either way any minute. So I couldn't even begin to tell you, and I'm not sure who can. The Democrats predict waning inflation and improved growth, and the Republicans don't. And you can get an economist on either side to say something at any given day.

Point taken. Thank you.

And then, look, just one quick one, hopefully, and then I'll pass it on. Just for realized pricing on Metco sales from Cara, can you just remind us on the typical lag that you see in the sales book across the portfolio? Thank you.

Cara, do you want to?

Yeah. Yeah, look, I mean, you can see that particularly in Australia, you can see the price realization in percentage terms to the benchmark sitting at 105%. That shows you exactly the price lag. You know, a lot of these high prices we have seen in quarter two have migrated into the September results in price realization. Although prices came down from 357 in the Australian segment to 313, our price realization was sitting at 125%. So by and large, it's what we said before, the price lag for different reasons is about three months in the US and in Australia. And, of course, the U.S. is impacted by the fixed price that we agreed in October 2021 for the financial year 2022. So that's always a little bit lower than the Australian price realization. But what I just said, you know, that's also in the price realization of 101% for quarter three for the combined group, which is a pretty good outcome.

Great. Thanks, Jerry. I'll pass it on. Thank you, guys.

Thank you. Your next question comes from Caleb Heiner from Goldman Sachs. Please go ahead.

Yeah, good morning, Gerhard and Jerry. It's actually Paul Young here. Can I ask a question around consolidation in the industry? I know that you've got nothing specific to say on the discussion of the Peabody at the moment, but clearly, you know, there's a desire to... consolidate here you were in discussions with arch i think six months ago um you're in discussions with peabody now um i'm just curious around the rationale um for the consolidation um considering that you look at peabody's assets um there's no obvious synergies from my perspective um you know operationally or blending etc um arch there was a little bit um jerry through you know, through Logan and the ports set up in the East Coast of the US there. So I'm just curious around what is actually driving these discussions? Is it the fact that, is it the cost of debt argument? Is it future consolidation? Is it you just need to get larger to have relevance? So I'm just curious around, you know, your high-level thoughts on the discussions.

The only thing I can say is that in an industry where debt is restricted significantly, And an industry that's as volatile as ours, consolidation is an attractive vehicle for everyone, even absent operating synergies. Having said that, that's about all I can say. That's a general answer.

That's fine. General is good at this point, so I appreciate that.

And then moving on to the U.S. domestic contracts. you know, good outcome, getting a little bit of a bump, or a decent bump, I should say, on 2023 contracts with domestic steel mills. I thought, though, that, you know, just based on the setup with Metco switching to thermal, particularly out of the US, and just how tight the Queensland or Aussie coal suppliers, that maybe the outcome could have been a little bit better. Is it the fact that, you know, US domestic steel mills, they're struggling a little bit now on a profitability basis, And, you know, obviously Europe steel mills are struggling a little bit. Is that the reason why that maybe, you know, that number wasn't high?

I think from the standpoint of the steel mills, we did pretty well. The steel mills in the U.S. aren't expanding, but I think the competitive pressures from Europe and the thermal sector forced a fairly good result. The one thing we didn't get, the one thing that our numbers won't reflect, is the presence of much switching, because what we're reporting here is contracts, and much of the switching does not happen under a contract. It becomes, you know, it's a short-term shipment, either international or domestic, and not with a contract. And that puts it outside the realm of the numbers we reported.

Yeah, understood. Thanks, Jerry. Last one, maybe for Gerhard, just around the dividend. Gerhard, I might have missed it previously about the official switch to quarterly declared dividends, but I just want to confirm, is that the case, that that's a permanent switch now? And then secondly, I know you haven't released your results with financials that come out of the 9th of November, but just broadly, what is the $200 million odd divvy and then the notes purchased, what does that actually represent as free cash flow for the quarter? Yeah.

So, first of all, it's not a switching to quarterly dividend. It's a special dividend. And if we assume that all note holders will take up the, you know, $200 million redemption offer, which is unlikely to be quite honest, but let's assume that we would be sitting below 100%. I think it's about 96%.

Yeah, okay, that's really helpful. All right, that's it for me. Thank you. Thanks.

Thank you. Your next question comes from Glenn Lowcock from Baron Joey. Please go ahead.

Jerry Gerhard, good morning. Jerry, I look at October's rainfall and it was 160 millimetres up at Blackwater for the month. That's almost as much as what you suffered in the entire third quarter. Can you help me understand how you've weathered through the month? How much volume have you lost with all that rain in the month of October? Because your guidance, as you say, implies 5.3 million tonnes at the bottom end. You haven't done that sort of volume since 2019. And with what is the second wettest month this year, May was 164 mils, I'm surprised you've got such an ambitious target for the quarter. So I'm not fond to understand how you think you can do it. Thanks.

First, let me say that we've got Doug Thompson available. I'll ask him to add his observations. But for the fourth quarter, we don't attempt to try and predict the level of rainfall. We have a standard amount of days that we apportion throughout the year that we know will lose terrain, and we've maintained that for the fourth quarter. But we haven't. you know, it's still subject to additional, you know, we're still subject and at risk for additional well above average rain. But there's no way we can predict that. Doug, what else would you like to add?

Yeah, Jerry, I think that's fundamental. My plan is based on long-term average, and it is subject to whether it's beyond our ability to forecast or be brave if I attempted to. But more importantly, as demonstrated in the results in the last quarter, the investment we made in the first half of the year where we have structurally changed the mine and the way in which the mine plan is executed has weathered us well in the last quarter. We've finished the transition of the four contractors' fleets and that's performing well and continues to show improved performance. Our drag lines have Quarter on quarter continue to show improved performance and well in this quarter as well by the investment made into the mine plan. And then likewise into the prep plant, the downtime that we had in that, the reliability and the uptime hours gives us more flexibility and choice in the last quarter to manage around the wet weather. But I think reflected in everybody's results is the challenges of last quarter and seeing the weather of this quarter.

Jerry and Team Elk, I understand that, but I mean, you budget a certain number. You've just had 160 mils in the month. So, I mean, have you lost all your days for this quarter now as a result of the rainfall in October?

Not all of them, no. And we've accounted for the ones we have lost. But keep in mind, this is always the fourth quarter, particularly December, was always going to be the biggest month of coal movement that we had all year. That was the plan in all cases.

We'll see how you go Jerry. Another question for you. You've repeatedly said on these calls you're not interested in thermal coal. You've said it many times. Is your view changing now? How do I reconcile your previous comments with what's happening? Thanks.

I think it has to change. simply because it evidently is not in any way, shape, or form in the interest of our shareholders to simply take the view that we're not going to participate in the thermal coal market. Right now, from the standpoint of pricing of product, thermal coal is priced above met coal, something we haven't seen for this length of time in as long as I can remember, and something which seems to have persistent legs. There continues to be an arbitrage between the thermal coal and the met coal. It's shrinking, but it hasn't disappeared. And you get a double benefit, because if you are going across the border with met coal into the thermal coal markets, you don't wash it as hard, you don't try to maintain the metallurgical characteristics, and your recoveries are generally better. So there's a lot of argument to go for improved margins with thermal coal in any case. The second thing is, is from the standpoint of EBITDA multiples or share price, I can't determine that the market rewards the purity of intent that you start with by hoping to adhere to a met coal profile. Right now, there are thermal coal companies with higher multiples than we've got, higher multiples than other met coal companies have got, and they are and significantly higher. So it would be, frankly, I'd like to find a reason to do it, but I cannot find a reason to persistently stay away from the thermal coal market for those coals that you can, in fact, transfer into a thermal coal market simply because you said you wouldn't and you're ignoring the higher margins. I can't find that to be in our shareholders' interest.

No, I appreciate that, Jerry. I mean, the switching bit I get, you know, that can be short in nature. Once you do a transaction, you're locking it in for a long period of time. So, you know, today is a very different market to what I think we've seen historically. So I don't know. I'll wait and see what sort of deal you may or may not come up with. Thanks for your time. I appreciate it. Okay.

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

Good morning, Gerrie and Gerhard. Thanks for taking my questions. A few follow-up from me, please. Just on your cash cost, year-to-date cash cost, you have $87.6 per tonne. While in fourth quarter, based on your revised guidance, you are expecting $68 to $70 per tonne. I'm just wondering what contribute or drive what 21% decline in cash cost in three months time? And I have a few after that, thanks.

Well, let me, this is very simple. The main driver is volume in quarter four.

Right, okay, so it's mainly volume driven.

I guess the inflation and the... Apart from this, we have, as I mentioned probably on previous calls, we have undertaking some transformation activity that is quite successful. And that will yield also in pure dollar cost savings. But the main driver here is really volume.

All right. Okay. Thanks for that, Gihang. Maybe another one just on production you mentioned. I'm wondering if you can comment or not, Caros production run really like in the month of October, given you have two months left. I'm wondering if you have good run rate last month, is that fair to say that the downside risk to your FY22 production guidance will be limited?

At least that one last for Jerry.

No, I don't think we can comment on, we cannot comment on monthly results. So we haven't yet. So we'll have to wait and see how the, the end of the quarter works out. Doug, do you have anything to add?

No, Jerry, I agree that this is exactly right. We don't comment on month to month. It'll make it nearly impossible to report on and manage the business accordingly.

Yeah, I understand. I fully understand. Sure, sure. Just another question on the pricing. Just on the lagging, I'm just wondering proportionally, you know, Congrats to, you know, you have a great quarter or price realization above the average index of the hard cooking coal. I'm just wondering proportionally, is that mainly due to the lagging, the timing, or do you think that's because the PCI coal, you know, the PCI coal price now trade close to the hard cooking coal? Are we expecting, you know, I'm just trying to figure out those two. One is the time lagging and another is the PCI code now. 30% discount to hard coding code.

Yeah. Thanks. It's an excellent question. Also, I think the main driver is really lag, but you have another element in here where you see, as an example, you see PCI trading now at 100% to the benchmark or close to the 100%. So that definitely has an impact as well. So it's a little bit of a combination.

It's a, I guess, yeah, thanks for that. So a combination of both. So which means are we expecting to stay, you know, price realization because the PCI co-trading close to hard cooking coal, are we expecting to stay your price realization close to the corresponding quarter hard cooking coal price in the fourth quarter or at least in the next few quarters as long as the PCI is trading close to the hard cooking coal? Is that fair to say?

I don't want to give an outlook on this, but as long as PCI prices are trading at benchmark prices, you see definitely higher price realization than in the past. So it's a positive impact. But that also depends on many other factors as well.

Right, right. OK, thanks. May I have the last question, please? Just on your MET and thermal cold split, I've noticed the MEC code split have reduced from 83% to 79%. I guess that's because you are doing switching from MEC code to thermal. I'm just wondering if there's still room for you to switch from MEC code to thermal, given one-third of your MEC code from USA is contracted.

Yeah. Let me respond at a very high level because we all don't want to give away our marketing strategy either. But yes, as long as there is an arbitrage between the medical and thermal coal price, there's always an incentive to switch and we are able to do so. And I think I mentioned that we are planning to switch 410,000 tons in quarter four this year. So as long as you see the arbitrage between um there there's an incentive and we are able to switch well we can switch the the product out of australia but you know we can also particularly switch the products the high world products out of the us um i'll leave it there even i guess even some of your metco are contracted so you so you think you still have the room to switch yeah Absolutely. Not all of the met coal is contracted. As we said, out of the U.S., only 40% is contracted for 2023. So that leaves a little bit of room to switch. Now, one thing you've got to remember, and it gets into details, but the arbitrage has shrunk now between the thermal coal and the met coal price. So it becomes, as met coal keeps going up, as a function of lack of supply, of which switching is one element, As met coal goes up and thermal coal goes down, it becomes also less and less attractive to switch. But at the moment, that incentive is still there.

All right. Thanks for that, Diha. Thanks, Jerry. I'll pass it on. Thank you.

Thank you. Your next question comes from Tim Ellis from Regal. Please go ahead.

Thanks. Look, I just wanted to pick up on Glenn's interesting questions before about rain. The question is, when you re-forecast guidance, I presume you did that in the last week or so, and I presume you did that knowing any effects of rain in October on the business. Is that right?

Well, probably not all of the full effects in October, but then you never do. The change in guidance was considered immediately after the end of the quarter. But we stick with it for the rest of the quarter. And one month doesn't make a quarter. So we have allocated days in every month. If we've had 160 mil of rain in October, then theoretically if the average is hold, then this signals for less rain in November and December. And we have the opportunity to make it up. But we cannot predict the rain. We did our fourth quarter projection on what we thought was the allowed number of days remaining and the rainfall we'd had month to date when we made the projection.

Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Jerry for closing remarks.

Thank you. And thank you, everyone, for your interest and attention to the call. Should you have any follow-up questions, please reach out to our investor relations team. Thank you.

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