Coronado Global Resources Inc. (CRN) Earnings Call Transcript

Thank you for standing by. Welcome to the Coronado Global Resources September Quarter 2026 Investor Call. [Operator Instructions] I would now like to hand the conference over to Chief Executive Officer and Managing Director, Barrie Van Der Merwe. Please go ahead.

Thank you, Travis, and good morning, everyone. Thanks for joining us today. Nothing is more important than ensuring our people return home safely every day. While we continue to work through initiatives to improve both our TRIR and Severity Rate, we recognize there's much more to do. Through our leadership development program, continued focus on critical controls and management verification thereof, risk assessment and management as well as frontline engagement, we are committed to building a strong safety culture. As at 30 September, the group TRIR was 1.42, up 6% from 1.34 for the June quarter, and we continue working to drive this trend down. When we spoke in July, I outlined our reset plan. We discussed changing the mine plan to improve productivity and cost, reducing execution risk, establishing appropriate inventory buffers, improving operational stability while prioritizing margin over volume. During the September quarter, we started to see some benefits of that work. Curragh ROM production reached its highest quarterly level in 6 years. Strip ratios reduced, mining costs reduced, inventory levels increased, product quality and mix improved, and earnings rose. These are all leading indicators that the reset is working. If you look at the business today, Curragh ROM production is no longer the primary issue. We produced 4.2 million tonnes during the quarter, the highest since September 2020. The opportunity and work now is to convert that into saleable, high-margin Met Coal tonnes through improved CHPP throughput, recovery and operating consistency. The revised Curragh mine plan is delivering the outcomes we expected. Open cut mining performance improved, strip ratios reduced and lower waste movement in the South translated directly into lower costs. Mining cash costs also reduced by approximately USD 18 million Q-on-Q as lower strip ratio coal in the South, reduced overburden movement and improved productivity. This will help us to invest in waste mining in the North next year and continue setting it up for increased productivity. We also built inventory during the quarter. Curragh ROM inventory increased by 600,000 tonnes to approximately 830,000 tonnes at the end of September. As part of the reset strategy, these inventories improve system stability, provide continuity and flexibility ahead of the wet season and create future saleable production as CHPP performance continues to improve. We are starting to see improving reliability and run time of the CHPPs and some benefits are flowing through into higher-value metallurgical coal production as is evidenced by the 200,000 tonnes more HCC production Q-on-Q. There's still good opportunity remaining in the CHPPs with targeted improvement of about 10% in uptime and rate as well as a yield uptick to be achieved over the coming months. This work is focusing on automation of ROM coal reclaimers to achieve improved feed rates, updating the plant control logic to optimize the sequence, performing key critical equipment repairs, improving maintenance workflows and updating operating guidelines and trigger action response plans. We are adopting a programmatic approach to plant improvement. Our open cut mining is delivering close to the required level and the CHPPs are catching up to unlock the inherent value. On Mammoth, progress remains slower than what we had hoped. The mine continues to be impacted by extensive faulting in 2 panels and as a relatively new underground operation, we continue to build our understanding of the geology. While this has affected development rates and production outcomes during the year, we remain hopeful in the long-term potential of this asset. The operator, Eclipse has implemented the detailed improvement program with our support and their significant focus on improving productivity, development rates and operational consistency, together with associated management changes to drive the plan. While further improvements required, Mammoth remains an important source of potential future upside for our business. Turning now to Buchanan. The most significant factor affecting group performance during this quarter was the geological fault encountered in the South longwall, 1 of the 2 panels operated at this mine. The resulting roof conditions reduced ROM production by approximately 700,000 tonnes relative to the June quarter and materially affected production of premium low-vol Met Coal products. The disruption also increased operating costs through additional support requirements and void fill activities while reducing the operation's ability to recover fixed costs across the production base. This issue has now been successfully worked through and learnings embedded for the future. This should be viewed as an isolated event that is not expected to recur at the same scale. The operation has progressed through the faulted area. Longwall advance rates have returned to normal, and we do not view the quarter's performance as representative of the asset's underlying quality, capability or long-term economics. Despite these challenges at Buchanan and Mammoth and with more opportunity remaining in the Curragh CHPPs, the group generated approximately USD 44 million of EBITDA earnings during the quarter. This was our strongest quarterly earnings performance since the June quarter of 2024 and a substantial improvement on the USD 7 million delivered in the previous quarter. The improvement was driven by 3 -- by 4 key factors. Firstly, realized pricing improved as benchmark metallurgical coal pricing strengthened and our product mix continued to improve. The PLV index was up about $10 per tonne quarter-on-quarter. It's currently up a further $20 a tonne, boding well for the December quarter. Secondly, the Curragh resets delivering lower costs, lower strip ratio mining and improved mine plan execution, reduced waste movement and improved productivity. Mine cash costs were down about $18 million quarter-on-quarter. Thirdly, there are early benefits from improved plant uptime and operating stability, resulting in greater production of high-value Met Coal and reduced reliance on lower-value thermal coal sales with 200,000 tonnes more HCC produced quarter-on-quarter, contributing to a 2% improvement in the group's realized price relativity to the index. Lastly, we built a further 600,000 tonnes of ROM stock at Curragh to improve system stability and set us up for the wet season. These outcomes provide further evidence that the reset strategy is moving the business in the right direction. As we are in the final quarter of the year and the reset program is starting to embed, we are updating our FY '26 guidance. We expect saleable production of between 14 million and 14.5 million tonnes and mining cash costs of between $105 and $110 per tonne for the full year. This revision does not reflect a deterioration in the underlying quality of our assets. Open cut mining system at Curragh is performing better than it was 6 months ago, and Buchanan had an isolated geological issue. Overall, ROM production is stronger and more resilient. Inventory levels are appropriately higher. The product mix is improving and the mine plan execution is also improving with costs reducing. Rather, this revision reflects the impact of a slower ramp-up at Mammoth, predominantly driven by geological conditions referred to earlier. The ROM impact at Buchanan during the September quarter and the time required for the reset plan, in particular, CHPP performance to fully translate into saleable Met Coal production as well as our deliberate decision to not bypass coal that can later be washed to yield higher margins. Also, a stronger AUD and higher diesel costs, which is outside our control, drove costs up materially, and Sandeep will unpack this later. We focus on margin, not total product tonnes. And as I said before, we are not chasing a total tonnage number at the expense of mix. In September quarter, we produced 3.4 million tonnes of saleable production, down 700,000 tonnes quarter-on-quarter, yet EBITDA improved materially. By year-end, we expect to have more than 1.5 million tonnes of ROM inventory at Curragh, setting us up well for the wet season as well as overall system stability into the New Year. Before I hand over to Sandeep, a quick word on markets. The Met Coal market remained constructive throughout the September quarter. The Australian PLV HCC benchmark averaged approximately $248 per tonne during the quarter compared with approximately $238 in the June quarter. Pricing has strengthened further since the quarter end, and we expect good flow-through of higher prices into December. While near-term market volatility will undoubtedly remain, the medium-term outlook continues to be supported by steel demand growth in India, constrained global supply growth and the lack of significant new Met Coal developments globally. We continue to believe the outlook for high-quality Met Coal remains attractive. I'll now hand you over to Sandeep to discuss the financial performance, liquidity and balance sheet.

Thank you, Barrie. The September quarter represented a step forward financially despite lower production and operational disruptions at Buchanan. The most important outcome was a significant improvement in earnings. As Barrie mentioned, the group earnings increased from $7 million in the June quarter to approximately $44 million in the September quarter, our strongest quarterly result in more than 2 years. This improvement was driven by higher pricing, lower mining costs at Curragh, improved product mix outcomes and the build of unsold inventory -- unsold coal into inventory, including our decision not to bypass ROM production as low-value thermal coal. Coal revenues increased to approximately $558 million in the September quarter compared with $506 million in the June quarter. Group realized Met Coal pricing increased to $184 per tonne compared with $171 per tonne in the prior quarter. Australian realized Met Coal pricing improved to 75% of the PLV benchmark, up from 72% in the June quarter, reflecting continued progress in product mix optimization. On costs, total mining cash costs at Curragh were around $18 million lower than the June quarter, reflecting the lower strip ratio under the revised mine plan. On a per tonne basis, group mining cash costs increased to $113 per tonne because our fixed costs were spread over fewer tonnes. Mainly at Buchanan, the unit costs rose to $132 per tonne on lower volumes. The revised full year cost guidance of $105 to $110 per tonne reflects around $5 per tonne from lower volumes and around $7 per tonne from the stronger Australian dollar and higher diesel fuel prices. While earnings improved significantly, cash flow continued to be affected by several timing-related and one-off factors in the quarter. Port congestion at Curragh resulted in vessel loading delays of between 10 and 14 days. At quarter end, approximately 600,000 tonnes of coal was held at port awaiting shipment. Those delayed vessels represented approximately $50 million of revenue with most vessels already having sailed now in October. We also continued to invest heavily in inventory. Curragh's ROM inventory increased by approximately 600,000 tonnes to around 800,000 tonnes at the end of September. We also carried the semiannual interest payment on our senior secured notes and paid our annual insurance premiums in the quarter. And lastly, the geological disruptions at Buchanan impacted production volumes and consequently, revenue and cash generation. As Barrie outlined, much of the inventory build was deliberate, although CHPP constraints and port congestions also contributed. Having these levels of inventory support system stability, improves operating flexibility and positions the business to benefit from future improvements in plant performance while providing an inventory buffer ahead of the wet season. Adjusting for these items and excluding the prepayment arrangements, the underlying business would actually be cash flow positive in the quarter. So the underlying financial performance was stronger than the cash flow results may initially suggest. Liquidity strengthened materially in the September quarter. Available liquidity increased by $57 million in the quarter to approximately $155 million at the end of September. This was supported by the $75 million Glencore prepayment arrangement completed in August and reflects management's continued focus on maintaining adequate financial flexibility while the reset program progresses. Net debt reduced to $553 million compared to $606 million at the end of June. It is important to note our net debt measure excludes the liabilities relating to Glencore and Stanwell prepayment arrangements. We have no significant debt maturities until our senior secured notes mature in October 2029. Capital expenditure for the year is expected to be around the bottom end of our $150 million to $175 million guidance range. We remain focused on liquidity preservation, cash generation and balance sheet repair. The business may not yet be exactly where we want it to be, but the trajectory is clearly improving. As operational improvements continue and inventories are converted to sales, we expect stronger earnings and cash conversion moving forward. I will now hand back to Barrie for some closing comments before we move to questions.

Thank you, Sandeep. We made good progress in the September quarter and achieved some results in the areas of open cut mining and cost, building the required inventory levels and improving product mix. The CHPPs and Mammoth still need some work, which is taking a bit of time, but we have a plan, and we're executing on it. We are looking forward to the benefit of higher pricing flowing through to the December quarter, which will be supportive of cash flow together with strong production and good cost management. I remain very excited by the potential of our long-life, high-quality assets and the potential we are unlocking. Travis, please open the line for questions. Thank you.

[Operator Instructions] The first question today comes from Vikas from Primus Asset Management.

Can you guys hear me?

Yes. Thanks, Vikas.

A few questions from my side. I understand there are some operational disruptions unexpected in 3Q. How are we positioned for 4Q or at least so far quarter-to-date, can you update on the recovery on those fronts? That's on the first question. Secondly, in terms of the inventory build, which you talked about, how much is further expected in 4Q?

Just say that last bit again, Vikas?

The inventory build-out, which you are looking to do, how much is already done so far in 3Q? And what is further expected in 4Q?

All right. I mean -- so on the first part, thanks for that. The -- so we're obviously focusing on the third quarter here and unpacking that. So we'll report on the last quarter, December quarter when that occurs. But I think if you look historically, the December quarter is usually a strong production quarter. And then with the guidance that we've put out today in terms of saleable production as well as we guided quite a bit on where the inventory is at and where we expect the inventory to end, that should give you a good idea of what we're envisaging for the last quarter, which is running well so far. So that's on that build. But In terms of the inventory builds at Curragh, so as we stood at the end of September, as we said, about 830,000 tonnes of inventory and then anticipating that to be about 1.5 million as we get to December. And as we follow the mine plan, that will just drop out.

Understand. And on your mining cost, I'm still going through the numbers, but from what I have read and what I'm seeing and your comments on it was about $18 million lower year-on-year. Can you elaborate on how should I read through -- sorry, $18 million lower quarter-on-quarter. How should I compare those numbers for September quarter versus June quarter?

Look, maybe that sounds like a bit of a detailed modeling one. Maybe you catch up with Chantelle afterwards so we just make sure we cover that one properly for you, Vikas, if that's all right.

Understand. And one more question is on hedging. Are you looking to do any sort of hedges given where the Met Coal prices are and lock in some yields?

No, nothing on coal pricing as yet. FX, we sort of consider from time to time from a short-term perspective, but no long-term hedges.

The next question comes from Glyn Lawcock from Barrenjoey.

Barrie, could you just talk a little bit about Mammoth and the faulting? You said there's faulting in the 2 panels you're currently in. I mean what drilling is being done? And is it just a case of you drilling, you've just missed the fault? And do you have any sense of the sort of medium-term outlook for faulting?

Yes, that's good, Glyn. I mean we have looked at that quite a bit over the last couple of weeks. So as it goes with these -- with mining projects, you do a feasibility. There's a certain drilling density going with that. And all of that was done appropriately. But there are gaps between these holes and because there's gaps, you do find things in between that you don't expect. And I think what's occurring, especially in the North mine section where the guys are -- so it's a mains development getting to the northern part of the mine, which sets it up for the future. The faulting just continued for longer and was more complex than what was anticipated. Faulting in the South was less intense. I think the team's learned a lot going through this. We've got some plans from an equipment point of view going into next year as to kind of using some different equipment, hiring that in at times to better navigate this kind of ground as well. And then as I touched on in the discussion piece, there's been some changes in the management of that mine made to also make sure we cover and respond to the faulting appropriately. I think safe to say that if you look at the productivity outlook for Mammoth compared to what we originally thought when the investment was approved, it will be a bit less. But we're still hopeful, as I said, that it can be a good asset if we learn to deal with these conditions properly.

Yes. That's great, Barrie. So I mean, I think it was what, originally 2 million tonnes per annum. I mean what are you thinking? Are we 10% lower, 20% lower? Do you have a sense?

Look, I think we are working to get to a 1.8 million ROM tonne position. That's what I think is doable at kind of if we do it well, Glyn. That's what we're targeting.

Okay. No, that's great. And then maybe just one for Sandeep. Just what is the aggregate then if you add in the Glencore and prepayment balance? Like how much is that now in total on top of what you've disclosed?

Just clarify that, Glyn, what do you mean in aggregate?

Well, I mean, you've obviously got -- you said the net debt excludes the Glencore and prepayment. What the balance -- what is the Glencore and prepayment balance that you have to add on top of the net debt you've disclosed today?

Yes. So the Glencore balance probably remains about just under $75 million. But if you look at the other prepayments that we would have received from Stanwell, that added another about $45 million in the quarter.

Okay. And we've got it from the half year finances for what it was then. Okay. And then, Barrie, you've given us a taste for '27 today when you've said you're aiming to get back to 16 million to 17 million tonnes. Do you think you'd be at a similar cost? I just note that the '26 guide originally was for $1,500 million of costs if you took the midpoint of volume and the midpoint of costs. You've been pushing $400 million a quarter, a little bit less in the third quarter. Does that mean we're sort of thinking 16 million to 17 million, but a slightly higher C1 than what was guided for 16 million? Or do you think with all the benefits you've got coming through, you had the 18 million down in Q3 at Curragh and so you were at $385 million quarter, not -- but you need to get it down to sort of $300 million. I don't know, what's $1,500 divided by 4. So you need to be down sort of below $350 million a quarter to hit the guidance you gave us this year?