Coronado Global Resources Inc.

Thank you for standing by and welcome to the Coronado Global Resources Second Quarter Investor Call. All participants are in a listen-only mode. There will be 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 joining 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 results, coal markets and financial performance. A more detailed outline of our financial position and results will be released to the market on the 8th of August with our Form 10Q and half year earnings release. Today, I'm joined by our Managing Director and CEO, Douglas Thompson, and our Group CFO, Gerhard Zins. 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 for the ASX and SEC. I also remind everyone that Coronado quotes all numbers in US dollars and metric tonnes unless otherwise stated. With that, I hand over to Douglas.

Thanks, Andrew, and thanks to all of you who've made the time to join our call today. The Coronado team performed well in the June quarter. We continue to deliver according to our business plan, and the quarter saw several milestones achieved. These will set the company up well, not only for the remainder of 2023, but also into the future. The business delivered quarter-on-quarter higher production, waste movements, and sales volumes. While we maintained our strong balance sheet and healthy liquidity, and continue to progress our growth initiatives. In addition, the team further improved upon our recordable safety rate year-on-year. We also released our fifth sustainability report that reflects a reduction in emissions year-on-year. We successfully negotiated a new four-year enterprise agreement at Currah, and we continue to invest capital into our organic growth pipeline and emissions reduction projects. And today I'm pleased to report that the Board of Directors officially supported by their approval the Curra North Underground Metco project for development. This project underpins our organic growth strategy. It delivers salable production of 13.5 million tonnes from Curra by 2025. The project also aligns to our diversity strategy, where we're seeking to get coal supply from our open cuts and underground from this complex and thereby reducing risk. Coronado has extensive experience in running underground mines. We've operated long wall and board and pole operations in the US for many years very successfully. I'm also pleased to report that the Buchanan expansion project is on program and budget. And upon full ramp up, the Currah and Buchanan expansion projects are targeting to have the business producing salable production of 20.5 million tons by 2025. In the June quarter, the board also approved a change to our operating model, a change which will ensure we leverage the full potential of this business, notably organizational change to have a global chief operating officer. Gerd will elaborate further on our financial position shortly, but I'd like to draw to your attention that the business generated nearly $1.5 billion of revenue in the first half of 2023. This is the second highest first half revenue performance since the group's inception. Before we focus further on financial and production results, I'd like to turn our attention to safety. Our business is our people. Their safety and well-being is Coronado's number one priority. And I'm pleased to advise the relentless efforts of our people management leadership has shown in our improved results. and the fact that our businesses' recordable rates continue to be well below relevant industry averages. In Australia, the 12-month total recordable injury frequency rate as of June was 2.52 compared to 3.18 at the end of March, reflecting a 21% improvement. This is 38% better than this time last year. And in the U.S., the 12-month total reportable incident rate was 2.05 compared to 2.43 at the end of March, reflecting a 16% improvement quarter on quarter. And if we go to the group level, a total reportable incident rate as at the end of June was 1.09 compared to 1.29 at the same time last year, once again reflecting a 16% improvement. During the quarter, our Logan complex achieved a million man hours lost time free. This is the first time this complex has achieved this milestone since inception. Mining started at the Logan complex in 2005 and is truly a tremendous effort by our team. In the quarter, our current team continued their work on the dragline proximity awareness program. The intent of this is to reduce the risk of personnel and equipment interactions with our drag lines and promote enhanced work safe environment. The rollout of the technology will continue across all the drag lines and we expect this to be completed by the end of the year. We are making our learnings in this regard freely available to the whole industry as we and the industry strive to make our workplaces safer for all. Turning to our operational performance, Coronado completed the second quarter with group run of mine coal production at 7.2 million tonnes. This is more than a 15% improvement on the March quarter. And salable production at 4.5 million tonnes. This is a 22% improvement on the March quarter. The Curragh complex had an excellent quarter, building on a solid month of March production. The mine delivered ROM coal production of 3.8 million tonnes and saleable production of 3 million tonnes. This is a 41 and a 44% improvement respectively. Currah has averaged a saleable production run rate of approximately 1 million tonnes per month for the last four months. And the 3.8 million tonnes ROM production delivered in the June quarter by Currah is the best performance since September 2020. In addition, Currah significantly advanced the waste movement works during the quarter. June quarter waste movement was 25% higher than the March quarter, setting the mine up well for continued coal exposures for the second half of the year. What's significant to note is in the June quarter, prime waste movement was the highest in nearly the 40-year history of the Currah complex. These impressive results are a combination of the team's focus on executing the improvement actions identified in the One Currah Plan and the improved weather conditions compared to prior quarters. On the 6th of July, the company successfully negotiated a new four-year enterprise agreement with the workforce at Currah. The new EA enables workforce stability, but also demonstrates Coronado's commitment to our employees in recognizing their valuable contribution and overall well-being. The U.S. operations continued with their performance and had another very strong quarter. Long coal production was 3.4 million tons, and salable production was 1.6. In the quarter, Buchanan did a successful long-rule move. and only required four days outies to achieve the move. This is substantially shorter than any of our peers in the underground environment, and this is a result of the good capitalization that we have at Buchanan with the two long walls. Also pleasing is the performance at the Logan Complex. Eagle No. 1 once again in this quarter set a new production record in May, and their performance continues to be strong. Rail performance, Also improved during the quarter following some delays that we saw in late March. Sales volumes across our group for the June quarter were 4 million tonnes. This is an 8.3% improvement on the prior quarter. And across Australia and the US, 2.5 million tonnes and 1.5 million tonnes respectively for sales. The strong June production rates and some slippage into July saw Currah finish June with high inventory bulls. This inventory stock will be sold during July and we expect to see returns to average stockpile levels in the September quarter. Coronado anticipates continuing to deliver improved production performance and we maintain our existing production guidance. This obviously reflects on things beyond our control like the weather conditions in September and December. And with this, I'll hand over to Gerhard. We'll take you through our financial position and some market outlook.

Thank you, Douglas, and good day, everybody. As Douglas mentioned earlier, Coronado ended the half year with a strong balance sheet and healthy liquidity levels. June quarter revenue were $728 million, and half-year revenues were just short of $1.5 billion. Half-year revenues are lower than this time versus last year due to a 37% decrease in in the premium global benchmark FOB index. But we still achieved the second highest first half revenue result for the group since we founded the company. The group realized the met coal price year to date was 229 US dollars per ton. It's a mixture of FOB and FOR and domestic pricing contracts. And it creates to a 78% realization on the average Australia hard cooking coal index price for the six months to June. which averaged $294 per ton. And as of 30 June, the company's net cash position was $192 million, and we maintained available liquidity of $534 million. Our net cash position consisted of a closing cash balance of $434 million and outstanding bonds in the order of $242 million. And during the quarter, We successfully executed an agreement to refinance our ABL facility. As part of the refinancing, we have increased the facility limit from 100 million U.S. dollars to 150 million U.S. dollars and extended the maturity date until July 2026. We expect the agreement to complete in July. Year-to-date average mining costs per tonne sold for the group were 97 U.S. dollars per tonne. Higher mining costs per ton are driven by inflation, and the impacts from lower production in the March quarter defer to following quarters, following the above-average wet weather in January and train derailment on the Blackwater line at the time. The company expects second-half average mining costs per ton to be lower as production plans are weighted to the second half of the year. In year-to-date CapEx, Of $89 million, it was down 3% compared to the same period in prior year, with some works deferred to the second half given wet weather and maintenance programs in the first quarter. As previously guided, FY23 CapEx is expected to be higher in 2023 as a group invests capital into organic growth projects, including Buchanan's expansion works and the cover underground and gas pilot projects. And today we reaffirm previously announced market guidance subject to any wet weather and extraordinary events that may occur in the second half of the year. The focus for the remainder of the year is to deliver second half weighted production plans to meet guidance. We also continue to remain watchful of the continued inflationary pressure in the industry. On coal markets, the benchmark Australian premium low oil hardcooking, called FOB, average index price for the June quarter was $243 per ton, down 30% compared to average March quarter benchmark price of $344 per ton. In the June quarter, we also saw a 25% reduction quarter on quarter for the U.S. East Coast low oil average price, with the average index price for the June quarter being 233 US dollars per ton. The fall in June quarter prices is primarily due to improved supply from Australia due to drier conditions and an absence of strong restocking demand from steel makers in Japan, Korea, Europe, and India. The global economic environment and weak steel demand outlook continues to put pressure on steel margins, with steelmakers continuing to lower steel prices and delay raw material procurement. Chinese steel production remains high, however, weak domestic demand conditions continue to put pressure on steel margins in China, forcing steel mills to divert volumes to the export market. Expectations of further stimulus measures and incentives to improve China real estate and infrastructure market are expected to improve demand and price sentiment in late quarter three, could be quarter four, as Indian restocking demand forecast return following the country's monsoon season and continued growth for planned infrastructure projects. And we anticipate the short-term bearish steel sentiment will continue to dampen demand and pricing for metallurgical coals in July and August. Before then, restocking demand improves market dynamics from then on. And having said that, you know, it appears that the current price level is, you know, it looks like it's a new floor for the Metco benchmark price, and that is still a very, very good, it's an exceptionally good price where we are today. So despite the mentioned short-term headwinds, we expect pricing to remain above the long-term average price of 192 US dollars per tonne, with the SGX forward curve projecting prices greater than $225 per tonne for the remainder of 2023, even going up to above $250 later on in the year. So I will hand back over to Douglas to discuss our growth projects. Douglas?

Thanks, Mike. I'll draw attention first to our underground project. As I mentioned in my opening remarks, we have gained board support in late June for the project. The development of this project underpins our strategy to deliver sellable production of 13.5 from the complex by 2025. And our program has us delivering first coal late 2024. And the project will be delivering similar quality of coal that are highly sought after from our Cairo North open cut presently. So similar products will come from the underground project. The project will utilize the final high wall and by virtue will give us direct access to the coal seams. not only significantly reduces the capital expenditure, but also reduces the start-up cost. Phase 1 of the project will utilise three continuous miners via a board and pillar mining method, and we're looking to produce between 1.5 to 2 million tonnes of sellable production once in full production. The resource estimate is approximately 48 million warm tonnes. Future phases will also exploit coal reserves that are under the present open-cut waste dumps. During the June quarter, we continued our drilling program, and the results of this is favorable. We've done 34 holes and almost 8 kilometers of drilling, and this will continue into the third quarter as we mature the project. Now turning to our gas project. The gas pilot project intends to capture waste coal mine gas and use it as a diesel substitute in our operating fleets. We intend to have a fleet of five to six trucks utilizing this gas, and our planning at this stage and program progression has this been delivered in the first half of 2024, as the wells come online and produce sufficient gas to run these trucks. During the quarter, we successfully commissioned our first dual fuel truck, so a truck that will run on diesel and gas, and this trial will run for about eight to 12 weeks. To date, this project has been successful, or this part of the trial has been successful. In the quarter, we also finished drilling the primary wells, so a rope of one and a rope of two is complete, and we've also drilled the inseam wells that have intersected with these, and in quarter three, we'll be commissioning the gas gathering equipment. Once fully commissioned, the project will release and reduce our emissions from Currah, but also reduce our costs by changing the diesel usage to gas usage for these fleets. Turning to our projects in the United States, the capital works at Buchanan continues to progress well. And the construction of our new surface raw storage stockpile is on program as time, as I communicated earlier, This not only increases our operating capacity, but also reduces the risk of being stock bound if we have any potential logistic chain delays down the line. Construction on the second set of skips is also progressing to plan, and this will increase our hoisting capacity from underground. This together will grow the US operations to produce seven million tons by 2025. And before we move to Q&A, I'd like to draw your attention to our announcements last week where we appointed Jeff Bitzer as our group chief operating officer. Over the past two years, Jeff has demonstrated exceptional leadership and experience in the role as chief operating officer of our U.S. operations. His career is a target to the great results that he will deliver for us in this new group role. and I'm delighted by him accepting it, and I know the rest of the team are delighted by him accepting the role. I'll now turn over to the operator who will take any of our 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 2. If you're on a speakerphone, please pick up the headset and ask your question. Your first question comes from Paul Young from Goldman Sachs. Please go ahead.

Thanks, yeah. Good morning, Doug and Gerhard. Hope you're both well. First, just to focus on Cara. Really good to see that performance coming through on production and also that, I think you called out, Doug, the record waste movements. Just on that, I'm just curious about the outlook for the second half of Cara, just on waste movements. Have you caught up on all your waste movements or are you looking at higher waste movements again in the second half.

Hi, Paul, and thanks very much for recognising the performance. We've got a mine plan that, as we've been communicating over probably the last 18 months, we've been investing in to get a sustained coal flow to fit our long-term stripping ratios. We're not quite there yet, but we're close to being there at this stage that we will have the mine plan stabilised to be at long-term stripping ratios. So we should continue to see higher waste movements, but particularly focusing on that prime waste movement because that's what drives the coal exposures.

Okay, thanks. That's great. And then just on the coal inventory, just looking at production versus sales over the last three or four quarters, you might have built up an inventory of half a million tonnes or so if I just do rough calculations. Is that about right, what you're sitting on as far as finished product inventory at Currah? That's about right. Okay, great. And then just continuing on a few short, sharp questions. Just on the CapEx, I mean, it's been difficult to spend, you know, money in the Bowen with all the wet, you know, the rain, et cetera, in the first half. You're looking at a US $200 million sort of spend or thereabouts at the top end of God, it's the second half. Is that mostly going in sustaining or is that mostly going into Buchanan and early works on the underground at Currah?

Yeah, hi, Paul. Look, probably 50-50 on capex, but we expect you're spot on. The first half was a little bit difficult. The $90 million we have spent. Second half, we will see a lot more capex, also because of drier condition in the bone basin. And I wouldn't say another $200 million. I would probably point to the lower end of guidance.

Yeah, okay. Thank you. That's great.

There's a lot of maintenance work that we pushed into the second half or was even actually scheduled for the second half.

Okay, got it. Thanks. And just last in operations, good to see the underground approved at Currah. And I think that, you know, you've given us a bit more detail around the production there and you've outlined a resource. And you said it will lower your costs there, but I think that was more around the gas, diesel, I guess, nuance there on the fleet there. But one question I had is just around what is the capital budget for this project? And from an operating cost perspective, if your costs at CARA have been running at, you know, Aussie, you know, 130, 140 a tonne FOB, what can the underground actually do to your weighted average cost at CARA? And what is the capital budget for this project?

I don't think we disclosed the capital budget specifically for this one. What I can say is, Paul, You know, if I look at the – let's put it this way. It's probably quite cheap. Let's put it this way.

I'll leave it there. Right. So in that case, you know, the continuous miners, you've got three or four of those. It's really just development. Is development going to be, you know, go ahead and capitalise? Are we expensive as we go? I think we capitalise anyway.

When you look at the average cost, I don't want to quote that necessarily, but you can say in the range in Australia, the average development cost per capacity ton sits about between $300 and $400 per ton. We can do that for a lot less. And I'm talking a lot less. It's simply because it's also the way we enter the underground through the high wall makes it a lot cheaper. Others have to build expensive boxcars and all this. I don't want to establish a new guidance for that project, but it will be a lot cheaper to establish. And then what does it do to the long-term cost? Again, here I don't want to give guidance, but it will definitely reduce the overall cost of CARA and therefore also Coronado. Probably single digits, not double digits, single digits for CARA.

Yeah, okay.

Thanks, guys. Sarah, I'll pass it on soon, but just one last question. Why the sensitivity over the capital costs on this project? Say again? Why aren't you disclosing the capex on this project?

At this stage, I don't want to provide new guidance, but we can refer to the previous announcement we have made on this. So we got it towards roughly $105 million.

You have given that number. Yeah. We have made a previous announcement.

Previous guidance on it at 105.

Okay. Sorry, I did miss that. Thank you for that. Thanks, Jess. Thanks, Tim.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. The next question comes from Glyne Lowcock from Baron Joey. Please go ahead.

Good morning, gents. Maybe just a little bit more on Curra Underground, if I could. Could you maybe just talk me through what's required on the permitting side and have you left enough time in the timeline to get it done? You know, it just seems like you've approved the project, you're going to start spending buying all the equipment you need. Just what are the risks around the permitting? Thanks.

All right, Glenn. Yes, we have in the project identified, and that's one of the critical path items. Procurement of equipment and approvals is what is on our critical path. We've assembled a team of the best in my view, including our US expertise, but from an Australian perspective, some of the best to support us in understanding our timelines. The approval we're seeking is a change in mining method approval. The areas are proved to be mined. We can mine that area from an open cut perspective. It makes more sense that we mine it from an underground perspective. And using the mining method that we're looking to deploy, being board and pillar, there'll be no surface subsidence in particularly this area that we're going into. So we're on a program for approval. We've already engaged the authorities and explained to them what we're seeking to do. And we will work through that timeline. But we are comfortable with the best information we have at this stage that the timelines we set are realistic. From a procurement perspective of a fleet, we're going through the procurement phase at this stage. We can see that we can secure a fleet well within time. And we're procuring in a manner that totally de-risks ourselves if there are any delays. But we're quite comfortable with what we've got planned at this stage.

Sorry, can I just maybe delve a little bit deeper down the permitting? Does it have to go back for public review or anything like that, or is it just simply the Mines Department makes the decision? How much rigour is involved?

At this stage, we'll be going through the relevant mine departments for approval and the government authorities for approval.

You don't think that goes back out, it doesn't reopen you up to public scrutiny or anything like that?

At this stage, the advice is no, it could, but at this stage, no.

It could, but at this stage, you're being told no. Okay. Maybe just staying on current, just with the underground too, are you planning to bring a workforce out from the US? I mean, I know it's all well and good to say you've got underground experience, but they're all sitting on the other side of the world. So is that the intention or how do you actually cross-pollinate to get that experience from the U.S. to Australia's current underground?

Two things. We've actually got Jeff in the room with us today. So we've already been having parts of our SMEs, our experts in the U.S. working on this project for over a year with us at the moment. So we're tapping into the best skills we have into the business. Yes, some of those people will be moving across to support us in the startup of the project. But we've got a mobilisation team that's fully established, fully manned at the moment with the right skills to start a project of this nature. And there are the skills within Australia for the size that we're starting up. As I said, we're ramping up in the first phase to three continuous miners. So the size of workforce and the skills we're looking for is enlarged. But that's part of our planned ramp-up phase and we can see a pool available.

Okay, that's great. And then just the wage rise you put through, what sort of rate do you have to give, percentage-wise?

It's a four-year agreement, and it's a 4-3-3-3 that we've managed to achieve with our workforce.

Okay. And then, sorry, just safeguard mechanisms, does CARA fall under that?

Yes, we do.

any thoughts on, because I think it's quite a heavy emitter of CO2, what's sort of the cost impost you think you'll end up with from that? Any ideas?

Not clear yet, Glyn. It's not clear yet, but there are some positive signs. Probably more positive than three weeks ago. But at the moment, it's not 100% clear. Working on it.

And You know, our U.S. operations already utilize VAM units on our underground mines and delivering great results out of that. So our plan would be for the underground that that technology would come to bear and the learnings that we've proven within the business. From an open-cut perspective, we've got the gas pilot program where we're drilling into the coal seams that will be mined by open-cut mining methods and tapping that gas in advance of the mining and using it as a valuable resource. So we've not been idle while this has been worked through the government systems. We've been progressing projects that will help mitigate the impact and well-progressed.

So just listening to Gerhard's response, it sounds like it will be an impasse, but perhaps given what the government's doing and some changes maybe coming down the pipe, the impasse won't be as great as originally thought.

It looks like That's why it looks like they're not splitting underground and open cuts. So the undergrounds are now at the same level as open cuts and therefore it could look a lot better. But again, at this point, too early to give guidance on this. Okay.

And just one final question. Just the BMA sales process, I know you can't say too much, but are you still in the tent looking at the BMA assets?

I can't respond to that. Unfortunately, we can't comment.

Okay. Thanks a lot.

Thank you, Glenn.

Your next question comes from Paul Young from Goldman Sachs. Please go ahead.

Yeah, morning again, gents. I had a few questions on... the coal market, more specifically on realized pricing and coal mix. I know you sold a little bit of MEC coal into the thermal market from when we had that arbitrage between the two. What price did you actually achieve for that MEC coal sales into the thermal market, and how much more volume is there to go, or is that done?

No, no, listen, we're not switching anymore. That's finished. I mean, there's no switching happening this year. So I think that's finished end of last year. Certainly nothing, no switching at all in quarter two. If you look at the price realization, it was in quarter one exceptionally well. In quarter two, it's impacted a little bit by, if you look at the details, it's impacted a little bit, well, it's impacted by more FOR sales and domestic sales in the U.S.,

Yeah, okay, let's do it. And then just on the US, it might be a little bit too early to talk about, you know, initial discussions with US steel mills. I mean, the US steel market seems to be still pretty tight, but, you know, production's stepping up a little bit, steel prices down. You know, profitability for US steel mills is still pretty good. You know, US met coal market's still pretty tight. Where do you think we're at? When do you start actually discussions with US steel mills in for negotiations for next year, or is it just too early for that yet?

A little bit too early. I think the U.S. deal mills, they try to knock at the door a little bit, but it's too early. Usually these discussions start in September. I think they're a little bit, a few, one month, maybe a little bit more off, but some people are knocking at the door, but nothing concrete yet.

Yeah, okay, thanks, Gerd. And just last question, just on costs. You mentioned there just before about the labor issue. know labor costs and trajectory there and we just touched on strip ratios but just on uh on on the uh transportation piece um first of all you know how's the how's sort of rail um availability and productivity been in the bone with the horizon and then also what are rates for for looking like in the second half on both rail and port yeah don't have the rates handy but look i think the uh the blackwater line has profoundly improved you know

in the second quarter so we had issues in the first quarter absolutely dragged into probably april as well but that performance has improved so we are not we are not too impacted by or not at all impacted by any transportation issues at the moment i got it that's good to hear all right thank you thank you again that's it for me yeah there are no further questions at this time

I'll now hand back to Douglas for any closing remarks.

I'd just like to thank everybody for participating today. And if you've got any follow-up questions, please don't hesitate to contact our Best Relations team.

Thank you to everyone for participating in the call today. That does conclude our conference for today. Thank you for participating. You may now disconnect.