Yancoal Australia Ltd

Thank you, Travis, and thank you to everyone on the call for joining this briefing on Yancol's third quarter production report for 2025. We have several members of Yancol's executive leadership team to recap the quarter and participate in the question and answer session. On the call, we have Sheriff Burra, our chief executive officer, Kevin Su, chief financial officer, Laura Jung, company secretary, Chief Legal Compliance Corporate Affairs Officer, David Bennett, EGM Operations, Mark Salem, EGM Marketing and Logistics, and Mike Wells, EGM Finance. The commentary provided today is based on the quarterly production report published on the Australian Securities Exchange and the Stock Exchange of Hong Kong announcement platforms yesterday, the 20th of October. There is no presentation pack for this conference call. The Yanko website holds past presentations for any participants who require additional information on the company. I'll hand over to our CEO, Sheriff Burra, to provide third quarter highlights.

Thanks, Brendan. I also welcome everyone joining us on today's conference call. This is my first time engaging with you since my appointment as CEO last month. I'd like to acknowledge and thank Mr. Yue, our chair of the executive committee, who took on the additional responsibilities of acting CEO earlier this year and did an excellent job conducting both roles. I look forward to working closely with the board, Mr. Yue, and the Yankol executive team to maximise our operational performance and drive value generation for our shareholders. Speaking of operational performance, The September quarter extended the momentum of the first and second quarters. After nine months, we're 6% to 7% ahead of last year's production levels on a 100% basis and tracking above the midpoint of our production guidance. For the fall year, we're tracking to be in the upper half of the guidance range and potentially into the upper quartile of the 35 to 39 million tonne guidance range. As with past quarterly reports, we don't include cash operating costs per tonne in the quarterly report. At the half year, our cash operating costs were 93 Australian dollars per tonne, the middle of our 89 to 97 dollar per tonne guidance range. During the September quarter and into the fourth quarter, the sector has encountered external and temporary cost pressures through the Port of Newcastle that will impact our second half cash operating costs. However, we are continuing to maintain our controllable cost discipline and expect to deliver unit costs around the middle of the guidance range for the full year. Many of you are likely aware that international coal prices remained under pressure during the September quarter. Our realised prices were effectively the same as the prior quarter. However, our attributable sales were 31% higher than in the June quarter, as we were able to recover the sales volumes that were delayed in the June quarter due to disruptions at the Port of Newcastle. These increased sales volume and realised prices enabled us to finish the quarter with a cash balance of $1.8 billion. I'll hand over to other members of the executive team to share further details, starting with David Bennett, our Executive General Manager of Operations.

Thanks, Sheriff. Our total recordable injury frequency rate reduced through the quarter and was 5.71 at the end of September. We have achieved a downward trend in this statistic over the last 12 months. And although the rate is below the industry weighted average of 7.93, we aim to further improve our performance through targeted safety intervention activities. During the quarter, we produced 15.8 million tonnes of ROM coal, which was aligned with our forecast. The ROM coal produced translated to 12.3 million tonnes of saleable coal. Our attributable share was 9.3 million tonnes. These figures were also in line with our forecasts. We delivered these operational outcomes despite most of our mines encountering an above average number of days impacted by wet weather. The benefit of past investment in pumping and water storage capacity along with the site team's ability to respond to heavy wet weather events has been clearly demonstrated in our production performance this year. Fortunately, wet weather impacts to rail and port activity in the Hunter region were limited. And as Sheriff mentioned, our mine site and logistic teams were able to deliver most of the delayed second quarter 2025 sales volumes. At Mullarbin, The Longwall resumed operation early in the quarter after a scheduled move. Commissioning was completed on schedule and the Longwall operated the plan for the quarter. Although wet weather delays impacted open cut mining throughout the quarter, the team achieved a site record for monthly saleable coal production in August, assisted by a favourable mix of quality feed material and high yields in the wash plant. saleable coal production was close to planned for the quarter. The two Hunter Valley open cut mines both performed well with saleable coal production the same or better than the prior quarter. At MTW, ROM coal volumes ran ahead of plan due to overburden blasting performing well and being ahead of the schedule at the start of the quarter. This allowed the mine to deliver to plan when impacted by wet weather and other minor operational delays which affected the mine later in that period. At HVO, wrong coal volumes were ahead of plan due to strong truck productivity and a redesigned ramp system amongst other productivity improvements. Despite the wet weather disruptions in August and lower yields in September, the site delivered a 14% increase in attributable saleable coal over the June quarter. In Queensland, Yarrabee delivered operational performance consistent with the June quarter. At Middlemount, the mine was adjusted ahead of rainfall events to prioritise ROM coal over overburden removal, an adaption of the recovery plan developed earlier in the year. As mentioned in the past, Middlemount is equity accounted, so its volumes sit outside the production guidance that we provide. Our attributable coal production volume of 9.3 million tonnes was similar to the June quarter. This figure does not include any tonnes related to the acquisition of an additional 3.75% interest in the Mullarban Joint Venture, which we announced on the 3rd of October. I will now hand over to Mark Salem, our Executive General Manager of Marketing and Logistics, to provide commentary on the coal markets.

Thanks, David. Our attributable sales volume of 10.7 million tonnes was a typical mix of thermal and metallurgical coal products, and as mentioned, 31% higher than the June quarter. When we last spoke, we informed you of the weather delays causing rail network outages and closures at the Port of Newcastle as being the cause of sales below production. It was our goal that this position would be recovered in the September quarter, and I'm pleased to advise this goal was achieved. During the quarter, conditions in the international coal markets, both for thermal and metallurgical coal, remain challenging. The average prices for the indices against which we primarily sell improved marginally, but the ongoing availability of supply options is still keeping prices at relatively low levels. While the warm summer conditions in Northeast Asia resulted in Japan, South Korea and Taiwan largely drawing down inventories during the quarter, imports by most of the countries we sell to are down year-to-date compared to last year. We have seen Japan and Vietnam being exceptions with increased imports so far this year. Although there appears to be some supply curtailment from Indonesia and Colombia, exports from Australia, Russia, the US and South Africa are all comparable to last year. In the metallurgical coal markets, we have observed weak demand and a slow supply side response. Total global sea borne trade is down 11% so far this year. There has been some supply response from Australia with exports down 9% this year due to some mines not producing due to poor geological conditions and mines struggling to remain profitable. Exports from Canada are also down 5%. However, this is due to reduced coal handling capacity following the shipload of fire at an export terminal. Overall, international coal market conditions remain challenged and uncertainty over international tariffs persist. In order for prices to recover, either a significant uplift in demand or a meaningful supply-side response is required. The former seems unlikely. and the latter is occurring slowly as some mines that have entered into administration continue to produce. Although market conditions were challenged, the main indices we sell against showed some improvement over the quarter, with average prices during the September quarter up between 1 and 12%. The API 5 indexed averaged $69 per tonne, and the Global Coal Newcastle Index averaged $109 per tonne. The Platts Low Vol PCI Index averaged $144 per tonne, and the Platts Semisoft Index averaged $117 per tonne. Our average realised prices, which capture foreign exchange and lag contract structures, were $130 per tonne for thermal coal, and $195 Australian dollars per tonne for metallurgical coal. The overall average realised sales price was $140 Australian dollars per tonne compared to $142 Australian per tonne for the prior quarter. Having made all these comments, there is some optimism amongst the industry participants where prices seem to have plateaued, implying they may have reached their cyclical lows. I will now hand over to Kevin Su, our CFO, to touch on the financial position given the sales volume and realized prices.

Thanks, Mark. The key observation is the same. It's the same one we made last quarter, that we remain in a strong financial position. We ended the quarter with $1.8 billion in the bank, following the payment of an interim dividend of approximately $82 million. and the remaining three of intraday index. About a half year, we reported cash operating costs of 93 Australian dollars per ton. This was the middle of our guidance range and reflected a much more consistent production profile we have had this year. Since the first half, the sector has encountered external and temporary cost pressure through the port of Newcastle. We aim to deliver incrementally more treatable set-able costs in the fourth quarter, which should help mitigate against these cost pressures. We're also continuing to look at where we can reduce our controllable costs to balance the uncontrollable and the temporary cost factors so that our full-year costs fall close to the midpoint of our $89,000 to $97,000 per time guidance range. I'll now hand back to Brandon to coordinate the question and answer session.

Thanks, Kevin, Mark, David and Sheriff for highlighting the drivers of our third quarter performance. We will now move on to the question and answer session, starting with questions from the phone line, then moving to questions submitted via the webcast. Travis, could I please ask you to initiate the process for questions via the phone?

Thank you. To ask your questions via the phone, 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 then 2. If you're using a speakerphone, please pick up the handset to ask your question. The first phone question today comes from Davins U from Morgan Stanley. Please go ahead.

Hello, Brandon. Hi. I got a question for Kevin. So I understand the cash cost range still remains at $89 to $97. But how is the breakdown looking like right now? So specifically, how are we projecting the transportation cost given the wet weather, the port closure, and all these disrupting factors? Thank you.

That's a very good question. We just reported for the first half of 1993, which is very much consistent with the previous years. So from the volume perspective, which is the most significant factor driving all this cost movement, and when we look at everything, it's pretty consistent. We definitely see some savings from diesel. For example, there's a favorable item, but in our view, it's not a material. But at the same time, I think the healthy production profile, definitely the supporting, maintaining the cost at a very comparable level.

Sure, sure.

If I may, how about the transportation cost? What's that looking like right now? Because it's been declining for the past two years at a per ton basis, can we expect the same in 2025?

When you refer to the transportation cost, I think we were talking about the transportation is largely related to the rail and the port usage. And as you know, most of the costs are largely take or pay. So from the dollar value perspective, it's largely fixed and will be helped by the increased production profile. But we did mention in our um presentation that we do have a temporary increased cost from the through the port of newcastle which is largely driven by the weather as you just mentioned and the rain issues um mark do you want to add a bit more about it sure of course yeah no problem um gavin very simply um

The queue at the Port of Newcastle has continued through most of Q3 at very high levels. So there is a cost when you have a queue. And our priority has naturally been sales. And sales is our number one priority to achieve the sales. And any distribution costs are a function of achieving sales. And the sales remains a high priority for us.

No worries. Thanks for that. Thanks, Kevin.

Thanks.

Thank you. Once again, to ask a question via the phones, please press star 1. At this time, we're showing no further questions from the phones.

Thanks, Travis. I'll move on to some webcast questions. I'll check in with you later should any further questions come through. There's a few questions on the webcast. Let's start with some questions to do with coal markets and our sales and marketing. One of the questions coming through, how much inventory remains unsold as at the end of the September quarter? And are we now moving at a more normal range? Mark, could you perhaps provide some context for what we're able to do in terms of recovering that delayed sales volume we reported at the end of the second quarter and our outlook heading into the fourth quarter?

Yeah, look, in essence, following from Q2, the tons were actually sold and it was just the delays at the Newcastle port that inhibited those sales from being achieved in the first half of the year. So the sale position in Q3, due to that carryover, as well as maintaining a very close watch on when those vessels arrive and making sure that they're delivered within the quarter, there is a high logistic focus to achieve what we achieved in Q3. That focus is continuing in Q4. And in that sense, and I can't be explicit in terms of what we have unsold at the moment, we always like to keep a little bit up our sleeve to take advantage of spot opportunities. But we're in a very comfortable, low-risk scenario from a sales point of view, and I can say that quite confidently.

Thank you, Mark. Let's extend on that concept of looking at opportunities in the international markets. What can we see in terms of supply side effects coming through from the recent anti-involution efforts announced in China? There's an observation coming through from the person asking the question that They believe a reasonable amount of Chinese domestic production might be uneconomic at current prices. What can we say about the opportunities we're seeing for our products?

Yeah, look, it's interesting talking to our Chinese customers, our Chinese colleagues. The anti-involution policy really hasn't been fully implemented throughout most of China as yet. And it's only touched on a few regions. And we did see some supply curtailment as a result, but nothing really substantial in the whole scheme of the situation. What's really been significant coming out of Q3 going into Q4 is the warm summer. And we've seen a significant drawdown in inventories at the power utilities. And we have seen a little bit more of a market recovery in the last week or two. And that's quite encouraging coming into the winter buying season.

Thank you, Mark. Let's move on to the topic of the capital expenditure and we'll lead into some questions about the cash balance. Starting with the topic of capital expenditure, the question is what capital expenditure was incurred in the third quarter in context of the guidance range being $750 to $900 million in Australian for our equity share for the full year and what remains over the fourth quarter. Now, I'm mindful that as I pose this question, there's only so much we can say in a forward-looking sense, but if I could turn to Kevin for an initial comment on the capital expenditure profile.

Sure. Refer back to the capital expenditure, if you refer back to Yanko's presentation, or the financial year end 2024, when we refer to the guidance, there's a statement about, you know, what kind of CapEx were covered, largely due to our, you know, fleet upgrade and heavy equipment. And all those equipment still, you know, basically being spent and invested based on our normal practice. And as what we just disclosed, it's largely due consistent with what we have been planning. So basically still driven by those big equipment just spent. Yeah, thanks.

Thanks, Kevin. And that's obviously in the context of the just over $400 million we reported for the first half and the comment that we're on track for guidance this year to sit within the range. Looking at the follow-up question on a related topic, One of our participants wants to understand the total cash outflow. There was the interim dividend was paid, $82 million. We maintained the cash balance of $1.8 billion, approximately the same as at the end of the second quarter. What context can we provide for the cash outflow at this point in time?

Okay, this is Kevin. I will answer this question. It's a very good one. Yes, I think that's a very good point about a Q3 cash balance. Q2 cash balance are largely similar. One thing we want to highlight, the good weather actually come into the light Q3, which means we've been catching up very quickly for our logistics and the shipment, which is something Mark already mentioned. From collection perspective, it Obviously, it takes time for all the shipment to be realized in cash, and that's the reason why the cash hasn't been fully realized yet. Thanks.

Thanks, Kevin. And could I confirm from Kevin and or Mark, the sales that were catching up from the second quarter delays, some of those were still priced from earlier in the year. So we often talk about a lag effect on our realized prices. That's somewhat extended price. in the current circumstance, we're getting prices from earlier in the year and in the context of prices improving second quarter to third quarter, we may not have yet seen all that benefit coming through?

Yeah, correct. You know, in terms of second quarter to third quarter, we did have a substantial amount of carryover due to the vessels in the queue. A lot of those vessels were, if they were index linked orientated, they would have already matured. based on their price being of the previous period. And therefore, that carryover will continue whilst we still have a vessel queue.

Thank you, Mark. Travis, can I come back to you to see if any questions are coming through on the phone line?

Absolutely. Once again, to ask a question via the phones, please press star one. But confirming at this time, we're showing no further questions.

Thank you, Travis. We've got a question coming through on the webcast. It relates to Yan coal and external expectations on mergers and acquisitions and or dividend payments. It essentially goes to the concept of capital returns and capital management. participant makes the observation that understandably information is limited, but what could be said at this point in time about capital allocations and priorities and how the company might proceed in the forward periods given the context of where we appear to be in the cold price cycle?

Thanks. This is a very good question. I think I will leave a part to our CEO, Sharif. I will talk about capital allocation. Without any interest-bearing debt, as mentioned earlier, it's largely between the growth, how to balance the growth and the dividends. We've been consistently following our guideline for the dividends. And from growth perspective, in addition to the organic capital allocation, investment, which is quite a sizable investment already, as mentioned earlier, we're still looking for all different sort of opportunities. But all those opportunities clearly is not just as expected, always there. And we are currently working pretty hard to assess. But I will leave this to our CEO, Sheriff, for the comments. Yeah, thanks, Kevin.

We obviously don't comment on specific scenarios. What we have said in the quarterly report is a strong financial position does enable us to explore opportunities, particularly those that might arise during the cyclical downturn. We are continually evaluating any opportunities in the context of the current market condition, and we will continue to do so.

Thanks, Shara.

I believe there's one further question coming through on the phone line from Peter at CICC. Travis, could you confirm we have a question available?

That's correct. Peter, if you'd like to ask your question.

Yes, I was just wondering if there has been any marginal change in your view on the proton basis production cost because in the interim results, you stated that the full year actual proton production cost is going to land at the midpoint of the guidance range with the potential to come in below the midpoint. But in yesterday's results, the downside potential wasn't reiterated. Just wondering, has there been any shift in the original expectation?

Thanks, Peter. Your observations are correct. At the half-year result, we talked about our reported costs $93 per tonne and potentially moving lower for the full year. In the most recent report, we've talked about expecting to be around the midpoint of the guidance range for the full year. The context there is, as we've touched on through the call, there are some of those external and temporary pressures that are affecting not just Yan coal, but miners through New South Wales more broadly. But I think you can gauge the materiality in terms of we were hoping to move below the midpoint. We're now going to be around the midpoint. So whilst we are facing some incremental cost pressures in the short term, we're still comfortably within our guidance range and, as mentioned, looking at the midpoint for the full year as we sit right now.

I see. Thank you, Brandon. Just to follow up on this, looking forward, is it possible for these factors to, say, diminish?

Peter, could you please repeat the question? It was a little... disrupted coming through? Yes.

Is it possible for these factors you were just talking about to diminish in the future?

Yes. As I did use the reference temporary, we had comments earlier from our team about the ship queue at Newcastle and some of the delayed effects there. As the ship queue unwinds at Newcastle, we are optimistic that these factors will prove temporary and they will abate through the remainder of this year. We'll wait and see where we end up, but ideally we'll be back closer to normal operating conditions come the start of next year.

Thank you, Brendan, just on that question.

Thank you, Peter. Travis, any further questions on the phone line before I go back to the webcast?

At this time, we're showing no further questions via the phones.

Okay. I see several questions coming through on the webcast. One of them asks, what is our expected profit for the upcoming quarter? Quite simply, we don't forecast profit. We do provide the guidance on our production range, cost range and capital expenditure range, but we don't provide a profit forecast either on a quarterly or a financial year basis. Looking back to the coal markets, the international coal markets still remain challenged. How do we explain the price up in Q3 and what's our outlook for Q4, Mark? That question comes from Joyce, one of the analysts covering the stock. Perhaps we could get some context for our views that there are challenges in the sector, but the average prices did move up on a relative basis compared to the prior quarter.

Yeah, thanks, Joyce. The prices moved up and the overall realised price in US dollars was better as well because we did have that carryover, as was previously explained. In terms of the market movements throughout the quarter in Q3 and We have experienced a very hot Asian summer, and that's prompted a lot of spot demand, and that's initiated some price appreciation. In China, when the anti-involution concept was first spoken about, we did see a movement throughout the Q3 quarter and the API 5 prop up. It then propped back down again when that was realized it wasn't just a formal policy as yet. But as I explained, we are seeing a drawdown in inventories, which should promote prices coming back up again in the API5 market. In the GC new market, we saw a little bit of an increase on the back of the threat of gas supply, in particular due to the Middle East crisis. However, that was a very short timeframe, and then we've seen API 5 has dropped down. API, sorry, GC nuke prices dropped back down again. So that was a little bit of the reasons behind the reasons why the average prices are up quarter on quarter. Going into Q4, we are seeing the API 5 Five on the back of the rebuilding of stock inventories and in particular coming into the winter buying season. We should see that continue to appreciate a little bit. We're not expecting any dramatic price increases and the GC nuke will remain relatively flat, in my opinion, while supply is very strong still.

Thank you, Mark. Back to the topic of potential mergers and acquisitions or transactions, there's an observation coming through from a participant on the line that they read in the press, speculation of a potential transaction with Glencore assets. If it's true and eventuates, there's the potential that Yanko will need to come to the market for capital. Sheriff, can I turn to you in the first instance to reiterate our available comments on potential M&A and then I'll move on to Kevin for a comment about our capacity for funding scenarios should they appear at some point.

Thanks Brendan. Again just to reiterate we don't comment on specific scenarios. I think I'll leave it at that.

Thank you. We've talked in the past Kevin about our financial capacity and our preparedness to look at opportunities, what can we say about our ability to fund scenarios going forwards without looking at specific examples?

Without referring to any specific examples, but generally we can say Yanko still maintains a very strong balance sheet with ability to access the debt markets. We also talk about any potential opportunities for ENCODE to raise share capital, which we made the point in the past. We will prefer to raise that if possible.

Thanks.

Thank you, Kevin. There's a question coming through, changing topics. Queensland royalties, I suspect prompted by various media commentary in recent times. Do we have any outlook on Queensland royalties, any anticipated change or sector views on what might unfold?

Yeah, thanks, Brendan. Look, at this point in time, we don't have any further information and we're not anticipating changes at this point in time.

Thank you. There's another question. It's again on the topic of CapEx. Possibly the person missed the discussion earlier asking if there's any comments on CapEx in the past year quarter and whether it will increase or decrease towards the end of the year. The comments we made earlier on the call at the half year, we were sitting comfortably within our guidance range for CapEx being $750 to $900 million and that observation has been retained, we'll be sitting within the range. CAPEX profile is somewhat lumpy in nature insofar as there are specific allocations, but we generally make the observation quarter to quarter. It roughly balances out, but we'll report the final CAPEX profile in the financial results at the end of the year. That's all the questions I have on the webcast. I'll come back to Travis for one last opportunity for any questions on the phone line. And then if nothing comes through on the webcast, we'll move to final comments.

Thank you. Once again, to ask a question via the phones, please press star one. And Brendan confirming we're not showing any questions via the phones at this time.

Thank you, Travis. It appears we've addressed all the questions for the third quarter production report. Sheriff, could you provide some closing remarks before we end the call?

Thanks, Brendan. And thanks once again to everyone who joined us on the call. Look forward to engaging with you regularly and sharing updates on Yankol's progress. While we've been frank about the coal market conditions, it's worth noting that the industry has been through price cycles in the past. Given our Tier 1 assets operate in the bottom quartile of the cost curve, our company is robust and is well positioned for an upswing in coal prices. There are three things to keep front of mind. First, we continue to deliver a strong operational performance. We're on track to deliver production in the upper half, if not the top quartile, of our guidance range for the year. This would be our best performance in many years. Second, we are highly disciplined on cost control. In our view, keeping unit costs flat compared to last year and hitting the midpoint of our cash cost guidance range is a great outcome in the current industry setting. Our ability to operate the mines with comparably low cash costs is a distinct competitive advantage. And thirdly, we hold about $1.8 billion in cash and have good access to debt markets. This places Yankol in a strong financial position relative to peers and allows us to continually evaluate opportunities to create value for shareholders. We look forward to speaking with you all again in January after we release our fourth quarter report. Have a great day and thank you.