Yancoal Australia Ltd

Welcome to Yanko Australia first quarter 2024 report conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. You may also submit written questions via the ask questions column on the webcast portal. Please be advised that today's conference is being recorded. I'll now like to hand the call over to Mr. David Malt, Chief Executive Officer. Thank you. Please go ahead.

Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yancol's first quarter production report for 2024. I'm joined on the call by several members of the Yancol executive team, including our Chief Financial Officer, Kevin Su, Executive General Manager, Marketing, Mark Salem, and our Executive General Manager, Environment and External Affairs, Mark Jacobson. I will give a summary of the first quarter activities, then open the call to a question and answer session. My comments are based on the quarterly production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong yesterday, the 18th of April. There is no presentation packed for this conference call. The ANCOR website holds past presentations for any participants who require additional information on the company. We have started the year well and will look to build on the first quarter performance. I'd like to acknowledge the dedicated people at all of our mine sites who have driven our performance this quarter. The total recordable injury frequency rate, which is 5.9 at the end of March, remains well below the industry average of 8.4. Continued support from everyone for our safety initiatives is a key factor in the overall success of the company. In the first quarter, our cash balance increased to 260 million Australian dollars, increased by 260 million Australian dollars. This increase in cash is after payment of all our operating capital and corporate costs, including our monthly tax payments. At the end of the quarter, we held almost 1.7 billion Australian dollars. We will pay the fully franked 2023 final dividend of 429 million Australian dollars at the end of April from that cash balance. After the dividend payment, we will still hold more than 1.2 billion Australian dollars, the equivalent of over 15% of our current market capitalization. The cash accumulation was driven by a realized coal price of 180 Australian dollars per ton. The realized price was roughly double the cash operating costs we are targeting this year. And as such, we continue to generate a strong operating margin. Coal markets, particularly thermal coal markets, face declining conditions in recent months. Demand was soft due to the warm northern hemisphere winter and a soft global economy. And at the same time, supply was elevated by export recovery from Australia, Indonesia and other regions. In the context of these factors, we view the modest decline in coal indices over recent months as a positive outcome. It suggests to us coal markets are relatively balanced and remain subject to short-term drivers and trader sentiment. 8.8 million tonnes of attributable saleable production represents an increase of almost 50% from the same period last year. Effective execution of our mine recovery funds through 2023 has re-established our production profile over the past 12 months. As we anticipated, first quarter production was lower than the preceding quarter. The holiday period and seasonal rainfall typically impact the operations at this time of year. 8.3 million tonnes of attributable sales lagged our attributable production by half a million tonnes. The timing of shipments and reduced trade into China during the Lunar New Year period influenced the sales. Production and sales tend to swing quarter by quarter, but we expect them to balance out over the course of the year. As indicated previously, we project our 2024 production profile will be weighted towards the second half. The 2024 production guidance issued in February is unchanged. We are targeting 35 to 39 million tons of attributable saleable production at a cash operating cost of $89 to $97 per ton. Our large scale low cost coal production profile is well suited to the current coal market conditions. Having no interest bearing loans, a large net cash position and robust operating margins gives us the capacity to act should suitable expansion or acquisition opportunities arrive. If such an event materializes, we will inform the market. In the meantime, we're focused on consolidating the production recovery delivered last year, closely managing our controllable cost element and maintaining our position as the leading large-scale, low-cost producer of export quality coal. That concludes the summary of Yancor's first quarter performance. We'll now move to the question and answer session, starting with questions from the phone and moving on to questions submitted by the webcasts. I'll now hand back to Desmond, who will initiate the process for the question and answer session in the first instance of the phone. Thank you. Thank you.

As a reminder, to ask questions on the phone, please press star 11. Currently, no questions from the phone line. Please continue.

Thank you, Desmond. This is Brendan Fitzpatrick from the investor relations team speaking. We've got several questions coming through on the webcast platform. There are some overlapping topics amongst the questions already submitted, so I'll moderate or combine the questions to give a flow to the dialogue. I'll start with the questions coming through on the topics of productions and costs. Perhaps if we could recap that expectation for 2022, in terms of our production guidance and costs?

Yeah, thanks, Brendan. Just to remind everybody on the call, investors, our production guidance is unchanged, and that is 35 to 39 million tonnes attributable saleable production, and our operating cash costs are in the guidance unchanged at $89 to $97 per tonne.

And there's a specific question if we had any comment on the operating cash costs for the first quarter period.

We don't normally issue guidance quarter by quarter on costs. The guidance we're sticking with at the moment is that we're still on track as we plan to be this year to be within our guidance ratings of $80, $90, $97 per tonne.

Thanks, David. And as per normal, we'll provide the cash operating costs for the half at the end of the first half period. Looking at the concept of capital management, there's several topics related to this theme. One of the questions coming through, is there any expectation at this point for the dividend for the first half?

Thanks David, thanks Brandon. Yanko's public guidance, we have been consistently distributing our dividend every half year. We have no intention to change the current guidance, which is 50% free cash flow and 50% NPAT, whichever is higher, and then finally subject to both decisions. Thanks.

There's an extension to that question. Is there any scenario where the distribution could be higher than the 50% given that at times in the past it has happened on occasion?

It did happen in the past when Yankov believed just compare different priorities in our capital management. We believe rewarding shareholders is more important thing to do, which means we need you know, dispute more than the 50% guidance as I just mentioned. But as I said, it's very much about the capital management priority at the board level. And from management perspective, we will propose what we believe is the right and reasonable thing to the board. Thanks.

I think just to add to the end of Kevin's comment there, I mean, we deal with that each time, at the time that we're setting dividends to the course. recommendations are put to the board, depending on what is happening, both within the company and outside of it, and the board will make that decision on a six-month basis.

Thank you, Kevin. Thank you, David. Another aspect to that concept of capital management and allocation of the cash resources, has on-market buyback or alternatively a share split been considered, or are they possible at some future point?

At the current stage, from management perspective, we feel on market share buyback probably is not the time yet. I think everyone, as you would appreciate the fact, Yanko is a part of Hongsheng Index, but we're still not a part of the ASX 200 or 300, which require free flow at about 30%, which currently we have about 28.4%. So it's quite important for us to make sure Yang called to improve our free flow ratio. From that perspective, on-market buyback probably is contrary to our such intention. Thanks.

Thank you, Kevin. Desmond, could I come back to you and check if we have any questions standing by on the phone line, please?

Yes, we do. We have a question from the line of Angus McGill from Barron Joy. Please go ahead.

Thank you and morning guys and congratulations on your quarterly and I think particularly impressive the uplift from a year-on-year perspective. Obviously despite maybe the start of the year as per your softer plans and ramping up into year-end. So just a couple of observations and hoping to get your comments. Your production is annualising at around 35 million tonnes so that seems nicely in line with the lower end of guidance. Just some quick comments around how we should think about the sequencing over the next three quarters and just the confidence into year end that ongoing ramp up in output is in line with expectations. I guess secondly, how that translates to the cost outlook, just doing some basic numbers on cost of sales. it seems like there's a fair bit of room to move lower just for your cost profile. So just making sure that that's all still in line with expectations, that you're going to see those volumes ramp and costs come off at the same time. And just any further thoughts you might have, I see that they've adjusted the weather outlook back in Australia again, and it seems like they're expecting wetter conditions again this year. Should that play out? How do you feel with respect to all the work that you've done in recent times in reconditioning the mines? Should you get a bit of wet weather? Is that set to impact your guidance expectations?

Thanks, Angus. Thanks for those questions. Good to hear from you this morning. We have said on a couple of occasions now that we're back-end loaded, but we're actually tracking to plan. We don't see anything at the moment that indicates we're not achieving what we want to achieve. And I think what you'll see is you'll see each quarter on quarter as we're going through the year, we'll be picking up those tons and getting ourselves into a good position within our guidance position. So I have no concerns at the moment. Yeah, we... And I'll sort of jump off cost a minute and just talk about weather, because we've had a little bit of rain recently. But the good thing is that all that work we put into last year, the extra investment in pumping capacity, the extra investment in storage capacity on all our sites, has put us in a very good place. So we're in a position now where, yes, we still get some impact when it's raining. We'll never get away from that just by the nature of the big trucks and the big open cuts. However, our recovery has been extremely quick and I would expect if we get rain later this year, again, we will be able to manage that water in a way which will reduce any impact on the operations. We're still not expecting it to be a wet year. I mean, we're expecting it to be a more normal year, I suppose is the best way to put it. But you know, weather like everything else, I mean, the forecast has changed the mind month by month. But we're not expecting any major issues with water. And we've certainly got the mines in a state now where they can deal with water a lot better than they could prior to the last issues. On the costs, we're still confident. We're well in our guidance range. And I think on the back of what I said about production you'll see costs as we release them at the half year sort of reflecting how our production profile is growing as we go through the year. So no major concerns from me at the moment. A lot of focus from our management teams on cost reduction, a lot of focus on making sure that we are as cost efficient as we can across all our operations and it's always nice to be able to sit here and say that we want to be the lowest cost producer in Australia and that's always our aim, and it's not changed in the recent times. So fairly confident at the moment that we're on track with everything, Angus.

It's great to hear, David. And sorry, just one last question just around current stockpiles. I see Maladon stockpiles are up, but I might be looking in the wrong place. I can't see current stockpiles across the group. Are you pretty happy with where stockpiles are right now, or how do they fit from an historical perspective?

OK, our site stockpiles are a bit higher than they normally would be. Most of it sits at Mullarban. Mullarban, if you remember, when we gave our last summary, we had an issue in the last quarter with the rail line, which is the one that services the three big mines that sit in Mudgee, or in the Mudgee area. There was a major derailment there. It wasn't one of our trains, but it impacted us the same as it did the other two operations. We've been, and as a result of that, of course, we ended up the year with very, very large stockpiles at Malarvan. We've done a lot with both with our above and rail providers. We've done a lot on site to move coal around. We've altered maintenance periods for coal preparation plants, and we're managing those stocks very well. And we're actually hitting some record performances now on that railway line. So, I mean, if you look at last month's performance, it was running well above what we anticipated if you put it on an annualized basis. So we're not concerned, but we've had a very, very, very tight focus on that area during the last few months. And it all goes back to that period in December when that rail line was quite badly impacted.

Got it. Great. Thanks, David. Appreciate it.

Thanks, Angus.

Desmond, are there any further questions on the phone line, please?

As a reminder, you can press star 11 if you'd like to ask questions on the phone.

Sticking on that topic of production, there's a specific question coming through with regards to the Mount Thorley-Walkworth operation. The observation made that the production in the first quarter was... Notice below of the forward quarter of the three-season period.

This is basically just a comment related to the action that we're going to do now before we walk away, please.

Basically, this is just a comment related to the action that we're going to do now before we walk away. We had a lot of coal and got it out as quick as we could. We're working through, the mine is working very well. It's operating to its expectations and we'd expect as we go through the year, as we release more coal, you'll start to see those tiny figures coming back. and lifting quarter on quarter to go through.

Thank you. A quick reminder to everyone, questions via the webcast, I'll continue to read those out on your behalf. Returning to the topic of capital management, there's the observation that we're now carrying a significant cash balance at this point. Is M&A an active consideration for the company at this point in time?

We're always looking. We're always active in that space. We're always looking for opportunities. I think being in a position where we have cash available puts us in a very strong position if those opportunities arise. But like we always say when it comes to M&A, there are no discussions at the moment on anything that is out there. However, we are looking and we are active. And I'm very keen to keep ourselves in a very strong position if those opportunities arise.

An extension to that concept of mergers and acquisitions, Yancol was reported in the media as being a participant in the asset sale by BHP last year. Is there any comment on the role of FERB and Yancol's capacity to act in the M&A space?

Yeah, we did look at the BHP assets and we took a decision not to proceed. However, that was not because of any issues with FIRB. We'd had preliminary discussions with FIRB early in the process and they'd all been very positive. So we don't see any issues within the Australian approval system. And I think it's fair to say there's a lot happening now between... China and Australia, and I think that's very, very good for Yancon, put Yancon in a very strong position, especially with some of the visits that have been happening recently. So I think, if anything, we're in a very, very good position at the moment, and certainly we were getting very positive soundings coming out of FURB in the discussions we've been having.

Thank you. We've covered most of the topics coming through on the webcast again. Please continue to submit questions if there's anything you'd like to discuss. Typically we have several questions on the topic of coal markets. There's nothing specific coming through at this time but perhaps we'll take the opportunity just to get a few comments on what we've experienced in the coal markets over the past quarter and whether we see any significant trends that could emerge through the remainder of the year.

Yeah, thanks, Brendan. Mark Salem speaking here. Look, I suppose during the quarter, we entered the quarter again experiencing what was a mild northern hemisphere winter. Coupled with that, a few of our major markets, in particular Japan, You know, they had the earthquake in the Hokkuku area, as well as some plant maintenance issues on some power utilities. And that caused a bit of a subdued demand period, with supply coming strongly, as David mentioned, from Australia, as well as Indonesia and some other markets. So we did see the prices decline over the quarter. In terms of moving forward, The feedback that we're getting is that Japan demand should be coming back, especially in the second half of the year, quite strongly. And if we maintain a relatively good supply position, that will set us well for the quality of coal that we sell into that market. China is also one of our biggest markets. And naturally, with the lifting of the band, we've increased our sales into that Chinese market. Our term position there in China is quite strong, as you would expect. China is still providing us with better returns for that quality of coal that we supply in comparison to other markets in Southeast Asia and India. Our focus is definitely on that Asian market. The Chinese market is relatively stable in terms of year-on-year imports and our position in that regard. As David said, I think we're looking to a balanced market for the balance for the rest of the year.

Thank you, Mark. I'm not showing any further questions on the webcast at this point in time. Desmond, I'll come back to you for one final check for any questions coming through from the phone line.

There are currently no questions from the phone line as well. Please continue.

Given we've addressed all the questions at this point, David, hand back to you to make some closing remarks.

Thank you, Brendan. And as always, I'd just like to thank everybody for finding time this morning to join us on this first quarter's call. Yankov's looking forward to a good year this year. All the signs and indications we're getting from our operations are good. And we're not expecting, even though we did talk a little bit about weather earlier on, the sort of conditions that we've had in the past. I think we're getting back to more normality. And as Mark's just been explaining, with one of our largest customers, the Chinese market back in our mix, we seem to have a very balanced market at this moment in time. So we're confident this year is going to be a good year. We look forward to your involvement in future at our future briefings. And I wish you all best this morning. And thank you for joining us on this call.

Thank you, David. Desmond, could you please conclude the call for us?

This concludes today's conference call. Thank you for participating. You may now disconnect.