Yancoal Australia Ltd

Good day and thank you for standing by. Welcome to Yanko's second quarter 2026 production report. At this time, all participants are in a 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 1 and 1 on your telephone. You'll then hear an automated message advising your hand is raised. You may also submit your questions at any time via the webcast. Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Mr. Brendan Fitzpatrick. Thank you. Please go ahead.

Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yan Cole's second quarterly production report for 2026. We have several members of Yan Cole's executive leadership team to recap the quarter and participate in the question and answer session. 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 on the 20th of July. There is no presentation pack for this conference call. The YANCO website holds past presentations for any participants who require additional information on the company.

I'll hand over to our Chief Executive Officer, Sharif Burra, to provide second quarter highlights.

Thank you Brendan. I also welcome everyone joining us on today's conference call. There are several positive messages in our second quarter report but before I touch on those it's important to acknowledge our total recordable injury frequency rate increased over the past quarter. I'm a firm believer that safety, productivity and cost efficiency are closely linked. We've already taken steps to counter the recent trend through targeted safety intervention activities. Fortunately, the safety performance did not impact production in the second quarter. In fact, we delivered a quarterly production record of 10.8 million tonnes of attributable saleable coal. As anticipated, the operational focus shifted from overburden removal to coal recovery during the quarter and production was up 20%. The quarterly performance carried us to a first half production record. 19.8 million tonnes of attributable saleable coal production, which was 5% ahead of the first half last year, putting us on target to exceed last year's production record and delivering the upper half of the 2026 guidance range. In April, we announced the Kestrel transaction and have since made good progress on the required approvals. Several conditions precedent have already been satisfied including the Foreign Investment Review Board approval The target date for completion is towards the end of September quarter 2026 but could occur earlier if everything falls into place While it is pleasing to report production records and delivering growth initiatives at times we need to make difficult but necessary decisions about our assets In late June, Yanko made the decision to cease operations at Ashton from early 2028. The decision was made necessary due to a combination of technical, geotechnical and economic challenges. Our immediate focus is on supporting our workforce and their families through this period. This includes exploring redeployment opportunities where possible, along with providing career transition support and wellbeing assistance. I'll now hand over to other members of the executive team to share further details from the second quarter, starting with David Bennett, our Executive General Manager of Operations.

Thank you, Sharif. Three months ago, we discussed the outlook and potential implications if diesel supply was constrained. So far, this scenario has not developed and our operations and procurement teams continue to work closely with our diesel suppliers regarding continuity of delivery. We have a rolling two month commitment for diesel supply, and as can be seen in the second quarter performance, our mines continue to operate to plan. The outlook for our cash operating costs has improved since we released the first quarter report in April. We are still incurring higher diesel prices, but the overall outlook for impact on our 2026 operating costs has eased slightly. As Sharif mentioned, we delivered a quarterly production record and a first half production record. These records were made possible by producing 17.5 million tonnes of ROM coal, a 17% uplift compared to the first quarter. From the ROM coal, we produced 13.8 million tonnes of saleable coal, also 17% more than the first quarter. Our attributable share was the 10.8 million tonnes Sharif referenced. Malabon and MTW were strong contributors to the performance. Malabon's open cut and underground mines both operated at or above target levels for most of the quarter. This supported elevated feed rates into the coal handling and preparation plant. The 23% increase in saleable coal production was better than we had targeted. MTW had favourable operating conditions throughout most of the quarter and improved equipment reliability. The overall operational performance was just ahead of target, delivering a 34% uplift in saleable coal production from the prior quarter. Ashton, however, encountered challenging mining conditions caused by the presence of hard strata in the coal seam. Its production dropped by 20% and needs to improve in the second half to avoid putting upward pressure on the group operating cash costs. I will now hand over to Brendan Fitzpatrick to provide commentary on the coal markets on behalf of Mark Salem, our Executive General Manager, Marketing and Logistics.

Thank you, David. Our attributable sales were 11.6 million tonnes, an increase from the prior quarter, reflecting both the highest saleable production and the timing of shipments relative to the reporting period. During the quarter, the Argus McCloskey API 5 indexed averaged US$96 per tonne, up 19% from the prior quarter. And the GC Newcastle index averaged US$135 per tonne, up 14%. By contrast, the metallurgical coal indices we referenced were both similar to the first quarter. The Platts Low Gold PCI index averaged US$161 per tonne, and the Platte Semisoft Index averaged US$143 per tonne. Our overall realised coal price for the quarter increased 9% to AU$160 per tonne. While this included an 11% higher average price for our thermal coal, most of the positive impact from the second quarter uplift in the thermal coal indices should flow through to subsequent quarters. Energy markets were volatile over the past three months. End users, traders and speculators had to weigh geopolitical risk factors against supply and demand fundamentals, with many governments taking proactive action to secure energy supply. By the end of the quarter, speculative trading activity was abating on expectations that oil and gas supply recovery was underway. Despite liquefied natural gas, Asian spot prices having increased more than 75% since the US-Iran conflict commenced. Thermal coal imports into most of the regions we supply have increased over the first five months of 2026 compared to 2025. There were several common thematics driving the uplift. LNG pricing, availability, or conservation was a primary factor. Also, higher power demand and lower hydropower generation associated with the El Nino weather cycle developing this year was a factor. At the same time, international seaborne supply from most major exporting countries has fallen year on year. Australia is an exception, but elsewhere various regulatory or logistics constraints have hindered supply. Turning to the metallurgical coal markets, we observed a strengthening steel market and stable demand for metallurgical coal. while China required additional metallurgical coal imports to counter reduced domestic output following the Shaanxi mine accident, which led to the temporary suspension of production at 135 mines. I will now hand over to Kevin Su, our Chief Financial Officer, to address the financial position.

Thanks, Brandon. Sharif, just a nice chance, there is a possibility the testing procession might complete earlier that initially expected, while ensuring that long and working capital facilities required will be ready should this scenario occur. We ended the quarter with over 2 billion Australian dollars in the bank. In the cash flow announcements, we said between 650 and 850 million US dollars of the upfront payments would be funded with cash. The final amounts will be determined by the cash accumulation from now and completion late in the third quarter. Sharif also described the expectation for our production to reach the upper half of the guidance range and Brendan just indicated the higher realized prices we are likely to achieve in the third quarter. We will determine the optimal cash funding components for the transaction based on these factors. as the completion date approaches. The third element of our guidance for 2026 is the capital expenditure. We now project the expenditure will likely be at the low ends of the range as some expenditures slips to 2027. We look forward to providing more detailed commentary on this and other aspects of financial performance in our first half results next month on the 19th of August. I will now hand back to Brendan to coordinate a Q&A session.

Thank you, Kevin, David, Sharif, for highlighting the drivers of our second quarter performance.

We will now move on to the question and answer session, starting with questions from the phone, then moving to questions submitted via the webcast. Desmond, could I please ask you to initiate the process of questions via the phone, and I'll keep an eye on webcast questions as they accumulate.

Certainly. As a reminder, to ask questions on the phone, please press star 1 1 and wait for a name to be announced. To cancel your request, you can press star 1 and 1 again.

There are no questions from the phone line.

Please continue.

Thank you, Desmond. I'll come back to you to check. if there are questions coming through on the phone line. In the meantime, looking at the webcast questions. First question for you, Kevin, on the financial aspects of the quarterly. The cash balance was steady at just over $2 billion Australian, consistent with the March quarter. Can you please share with us the various movements, such as net mining cash flow, capital expenditure, and any other major items of cash flow that led to this steady outcome?

Thanks, Brendan. That's very good observation. Yes, we do have the three markets assigned cash balance for Q2. A few things I would like to highlight and share with investors. One is we have paid our final dividends for $161 billion in April. We also have paid a deposit for Project, Kestrel, which cost us about $56, $57 million. That's about $40 million US dollar. In addition to these two special payments, I would like to also highlight some mismatch or temporary volatility of our cash flow. For example, on 30th of June, there's a payment batch of $133 million, and then the next day, 1st of July, there's a receipt of $100 million. That's roughly about $68 million. So for that reason, you can see this temporary volatility may cause our cash balance fluctuate quite a lot. But yeah, long story short, I think there's still very strong operating cash flow.

Thanks.

Thank you, Kevin. Do see some advice coming through that the volume might not have been picking up particularly well. We'll just get the microphone proximity a little closer for you for this next question. A few people on the webcast have asked what comments we can make about dividend and the dividend outlook as we head into the half year results coming out in a month's time.

Thanks Brendan. I think from Yankov's perspective the dividend position has been pretty consistent. We have have been making the same position we will be paying from a general guidance perspective, I would say the 50% MPIT or 50% free cash flow, whichever is higher and subject to the board final decision. We are pretty much still following the same indication to the market for now. Thanks.

Thanks, Kevin. Desmond, I believe we have a question coming through on the phone line. Could I go to you for that question, please?

Certainly. We have a question from the line of Glen Lawcock from Baron Joey. Please ask your question.

Thanks for your time. I just had a question on closing of the Kestrel acquisition which you said hopefully will complete before the end of September quarter. I know you've got the Australian Foreign Investment Review Board approval. What are the key regulatory outstandings now then to Kestrel? to get it to complete by the end of the September quarter. And what's the sort of, if they fixed in time or could they slip?

Thanks very much. Yeah, thanks for the question.

At this point in time, we're reasonably confident that the further clearances and waivers that we need are in hand. There is obviously always the chance they could come forward or slip but at this point in time we're reasonably confident that they will complete as we planned.

So sorry, is there a particular one? Is it like one of the Chinese authorities that needs to sign off? I mean obviously Foreign Investment Review Board was a big one to get from the Australian side. Is there one particular one that is most important to get signed off?

Hi, Glenn. Brendan here. Appreciate the question. You're quite right. The Foreign Investment Review Board was one of the most critical steps for us. The majority of the ones remaining relate to international regulatory competition from various nations. We're working through those processes, supplying the information that's required that allows the various bodies to reach a level of understanding and comfort with the proposed transaction. And as Sharif suggested, they are proceeding. We think they'll All right, thanks very much Thank you, Glen. Desmond, any further questions from you before I go back to the webcast?

I'd like to ask a question. Please dial star 1 and 1 and wait for your name to be announced. There are currently no questions from the phone. Please continue.

OK, looking at some of the webcast questions, a question coming through on I suspect this is related to some of the recent media commentary coming through. Do we think coke and coal indices and pricing structures are working well? Do we think any reform is needed?

Yeah, thanks Brendan. Look, we're certainly aware of the recent editorial from a POSCO executive on coke and coal price mechanisms. Yan Cole's got a very respectful and productive relationship with Posco which is a valued customer and partner of ours and at this point in time we won't be speaking publicly on this issue.

Thanks Sharif.

Earlier David mentioned the diesel cost impact on the company and one of the questions coming through is what is the current portion of diesel cost impact on the company and how does the company manage the diesel costs? What I can say on that one is we've previously disclosed that last year direct diesel costs comprised $7 a tonne of the $92 per tonne cash operating costs we reported for 2025. We started the year with a forecast for a similar level of diesel price within the $90 to $98 cash operating costs per tonne we'd guided for this calendar year. First quarter production report, we talked about the high diesel prices and the forward curves we were contemplating and we allowed for primarily the high diesel price lifting the cash operating costs towards the upper end of the guidance range. There is some easing of that diesel cost pressure and outlook. and we've said we'll still be in the top half of the cash operating cost guidance range but perhaps no longer at the top end of the guidance range but there are other elements we need to be mindful of as we work through this second half for 2026. Hopefully that's provided some context for the diesel price impact. A question from Hannah Young at Morgan Stanley. Hannah asks about the Ashton mine which is in other words, been suspended this year. I note that the closure actually takes place in 2028, Hannah. We were operating through into that period of time. But Hannah was asking the question, do we expect any impairments this year in relation to the actions taken at Ashton?

Thanks, Brendan. I might provide some clarity here. There will be several phases to ending Ashton's mining operations. The initial reduction of planning and development activities, which we've undertaken. Then the completion of development mining in the Pite Scully Seam in early 2027 and completion of longwall mining in the Pite Scully Seam in early 2028. So it is a staged approach. The longwall will keep operating through until 2028. It's more the immediate impact of development activity. I hand the impairment question over to you, Kevin.

Thanks, Sharif. Yes, just what Chef just mentioned, unfortunately, we will have to shorten the amount of action as a result from accounting perspective. There will be corresponding accounting treatments. And then it's not necessarily to be impairments, but it's somehow going to be reflected in our financial accounts through different recognition. but one thing I think worth to be mentioned, as I just mentioned about our dividend position, the end cost dividend is between 50% free cash flow or 50% NPAT and then for such accounting treatment, it's going to be non-cash. It will not impact our free cash flow as such. We're not expecting this will have any impact on our

Thank you, Kevin. I'll stay with you for another financial question. It relates to the Kestrel acquisition. And the question is, is there any project level debt to be taken on with the Kestrel acquisition?

Thanks, Brendan. This is a very good question. Probably I will split this question into two. One is we will be getting that, but not at a project level. So the current cash flow level debt will be repaid and then we will replace it with a yen called corporate level debt. We have announced it in the previous cash flow announcement, which is US$1.2 billion that we are intending to take out. We also prepared another US$250 million Thanks Kevin.

Desmond, I'll just check it doesn't appear to be the case. Are there any further questions coming through on the phone lines? I'm getting towards the end of the webcast questions.

As a reminder to ask questions you can press star 1 and 1 and wait for your name to be announced.

At this time, there are no further questions. I beg your pardon. One moment for our next question.

You have a question from the line of Mark Charles Patterson from Bell Porter Securities. Please go ahead.

Good morning, guys.

Good morning, Mark. How are you?

I'm very well. Congratulations on a good quarter. Just a quick question on Drivers of profitability. Obviously in Australia, I think Yank Holder are unique because they've got exposures to API 5, which obviously the other New Hopes and White Havens are exposed to the nukes. Obviously there's a big jump in API 5. Can you just give a brief on profitability of the company and what is actually the major driver? Because obviously at $96 for the quarter, I look back to FY24, was really, you know, you did 6.8 billion rev 2.6 EBITDA and your API fives are 93, 89, 87, 88. Now you're at 96. How does that increase API overlay on profitability, operating margin and sort of direction of the profit of the company?

Thanks, Mark. Appreciate the interest in the components contributing towards Yankol's Revenue, Cashflow and Profitability. When we look at the production profile, it's worth keeping in mind that we've got a mix of thermal coal products. It is skewed slightly towards better than 50% API5 product, but we do have a good component of the GC Newcastle style product as well and some products that sit in between the two indices. We typically suggest that most of the coal coming out of the The Hunter Valley proper, which is MTW and HVO, is predominantly the GC Nuke style coal with some lesser components being a semi-soft product. It depends which seams we're operating in and the coal qualities that we're getting in any period of time. By contrast, the Malarban mine sits further west in a different coal basin and we predominantly get the API 5 style product out of Malarban. if we look at the quarterly production report on the second page we can see the volumes coming out from each mine on a 100% basis and we can see that the equity stake or the interest we have in each of the mines so that allows people to gain an insight into the production components coming through from each of the operations and the equity stake we take from those mines so we've got a good spread of coal products. And yes, we do have a greater exposure to the 5,500 kilocalorie or the API5 product than most of the Australian exporting peers. So the rising API5 price in US dollar terms is certainly constructive. And whilst we don't talk about mines individually when it comes to cash costs, we've generally acknowledged that the Malarvan mine particularly the underground component is one of the lowest cost operations within our portfolio. So that combination of a strengthening API5 price with low cost production out of Malarban certainly contributes to the company's overall profitability. And we look forward to being able to provide some more detailed comments around the financial performance achieved through the first half when we report the results on the 19th of August.

And Brendan, just one final one. Just on Indonesia, obviously that is a big exporter in that API5 market into China. Is there any updates? Obviously, you know, start of the year we're talking about sort of cutbacks and lower seaborne trade there. And obviously it's got, I think it's got a bit confused in the last couple of months or so. Have you seen any updates on their export levels or their centralized of shipments out of that country?

There's certainly indications and the market's behaving as if there'll be some impact on exports out of Indonesia. We're looking for more definitive information on that topic. I might just check, I believe one of our colleagues Mark Salem, PGM for Marketing and Logistics might have been able to join us late on the call and his comments on his behalf earlier. Mark, are you online and are you able to comment on what we see and are hearing as to thermal coal exports out of Indonesia?

Yeah, sure. Sure, Brendan. Sorry I've joined late. I've just had a prior meeting. Very simply, The Indonesian approach in terms of having a central selling unit won't really come into place until September. Up until that time, we really haven't seen any significant changes in China's imports of Indonesian coal. There has been a little bit of a decline, nothing substantial, and we're watching that quite closely. and we do feel that that's having a little bit of an impact on the API5 market as the buyers are trying to secure probably a little bit more Australian coal but we haven't seen any dramatic moves in that area yet. So it's something we're watching post-September. We'll be watching it very closely as part of our Q3, Q4 sales profile as well.

Thank you, Mark. And back to Mark from Bill Potter. Was that sufficient for your needs?

That's lovely. Thank you, guys.

Thanks for joining us. I don't see any other phone questions coming through. I've got one last webcast questions that I'll ask. So if anyone wants to participate, this is almost your last opportunity. Turning to Mark Jacobs. I'll ask for an observation on the extension for the mining licence at Hunter Valley Operations. There's been some activity in regards to that process in recent times. Thanks Brendan.

As you would have seen from the quarterly production report, HVO is currently going through a public hearing process in front of the Independent Planning Commission. So the project was referred to the Independent Planning Commission to conduct a public hearing and to make a determination, the first two days of the public hearing occurred last Thursday and Friday in Brangston. There is a further session scheduled for tomorrow which is an online session. There have been speakers both in favour of and opposing the mine as we would have expected. We're confident that the impact assessment has been robustly conducted. There is a very comprehensive assessment report by the Department of Planning and in particular the Environmental Protection Agency has confirmed that the emissions profile of the mine is consistent with New South Wales' net zero emissions trajectory and so without wanting to pre-empt the process, the IPC will complete its process and it's been directed to hand down this decision in early September. Thank you, Mark.

We've had one extra question come through in the last minute. I'll stick with you on this topic. It relates to the Malabon Open Cut 3 or OC3 extension approval process. What can we say on that matter?

Thank you again. That project had been referred to the Independent Planning Commission, but we have updated and amended the project application to include some additional biodiversity areas, our biodiversity enhancement areas, which was a recommendation of one of the independent expert advisory panels who were advising the government. That process is not yet completed. There are a couple of additional questions that have been put to us by one of the regulators, and we expect that we will complete our process and hand it back to the government within the next month. After that, they will complete their revised assessment and then we expect the project to be referred back to the Independent Planning Commission later this year for determination.

Thanks, Mark. Another question has since come through from Eunice at Millennium, recognises the strong performance in the second quarter and asks how we should think about the lowering of the cost guidance. Is it primarily due to the increased production to offset the fixed costs and how is diesel price factored in? and into the percentage of costs in the second quarter. I'll go to Sharif for the first comment.

Yeah, thanks, Eunice.

Obviously a mixture of a few things. Higher production obviously has a positive impact on our costs. Having said that, we are taking a very disciplined approach to our productivity and costs across the group. That's also contributing in terms of productivity and cost discipline. With regards to diesel, we don't provide detail to that specifics in nature but if you reflect on the comments Brendan made previously and that we've made in the second quarter, given that diesel prices haven't materially increased to the extent that we had thought it would, we have backed down those forecasts slightly which is also contributing to a better outlook in the second half.

Thanks, Sharif.

One more question has come through on the webcast. Kevin, looks like this one will be for you. It relates to the financial outlook and asks the question, what is the probability of Yan coal coming to the market for capital?

Thanks. I would assume this question relates to come to the market for equity capital, the capital equity raising. I think so far there's no immediate plan to go to the market for FTE raising and that's the short answer.

Thank you Kevin.

All right we've addressed all the questions on the webcast I do not see any further questions coming through on the phone line so I'll hand over to Sharif if you could provide some closing remarks before we end the call.

Thanks Brendan. At the halfway point in the year, we're looking forward to a great second half. We're on track to exceed the production record we set last year. The operating cost outlook has improved modestly from what we anticipated three months ago and our realised price has yet to fully capture the benefit of second quarter thermal coal prices. The kestrel transition work is progressing well and securing the FERB approval was a notable step towards the potential early completion. Realised Price and Operating Costs are the primary drivers of our financial performance. We look forward to speaking with you again in just over a month's time when we release our first half results for 2026. Thank you for joining us.

Have a great day. Thank you, Desmond. Could you please conclude the call?

That does conclude today's conference call. Thank you for your participation. You may now disconnect your line.