Whitehaven Coal Limited (WHC) Earnings Call Transcript

[Audio Gap] Gentlemen to Whitehaven Coal Q4 FY '26 Quarterly Production Report. [Operator Instructions] Thank you for joining us today. I would now like to hand over to Managing Director and CEO, Paul Flynn. Please go ahead.

Good morning, everybody, and thanks very much for joining us now for the June quarter production report. Very pleased to put a final quarter to this financial year that rounded out a year full of second half disruptions. In fact, whether that be weather or conflicts obviously around the world. But despite all that, I think we've done well to button down the year and record some positive numbers to give us aggregate positive outcomes. So as usual, I'll just go through the highlights, and then we'll get to Q&A. And as usual, I'm joined by our COO, Ian Humphris, and our CFO, Kevin Ball. So just to round out the Q4 round out to the year. Our total recordable injury frequency rate was a very positive outcome for the group. So safety has delivered 3.3 million is the TRIFR and that's actually a record for the expanded business, which is very positive to see. The June quarter ROM production at 10.7 million tonnes was a nice increment over and above the weather affected March, and we've crested 40 million tonnes, 40.3 in fact, for the year as a group, which is very positive to see. The June quarter equity sales at 6.3 million tonnes and again, the total for the year on an equity basis of 26 million tonnes. Our revenue mix at 57%, metallurgical 43% thermal for the year. The FY unit cost -- '26 unit costs of $132 came out well, and I'm sure we'll talk a little bit about that a little bit later in Q&A. And our CapEx, again, on the lower side of our range that we've provided at $350 million. On the cost-saving initiatives, we have done well coming in between the $60 million to $80 million range of annualized savings that we mentioned before, and I'll talk a little bit about that further. Net debt at AUD 1.3 billion is as expected and where we were sort of guiding you earlier. That is after paying the second of the large payments to BHP or to BMA of USD 500 million. Just in terms of the highlights quickly on Queensland versus New South Wales, Queensland on production at 5.7. New South Wales at 5 million tonnes around. Queensland equity sales at 3.2 million tonnes and New South Wales equity sales tonnes there at 3.1%. In terms of realized pricing, June quarter for Queensland at AUD 247 June quarter for New South Wales, AUD 197. So I just change it up bit more like the state of origin, but New South Wales slightly ahead there in a couple of other metrics. Over to the table here, you see the impact of, obviously, the second half, as I say, disrupted in some ways, it has been. So if you look at the totals there, 10.7, as I mentioned already, at a group level, nice recovery over 9.5 in the June quarter, weather affected as it was. You can really see the impact of that when you go drop down to the Queensland versus New South Wales comparison. Queensland, obviously, very weather effected in the March quarter, bounced back nicely at 5.7, as we mentioned, 41% improvement based on the March quarter. New South Wales is obviously bearing less of the brunt of weather in the March quarter. rounded out a good year at just on 5 million tonnes versus 5.4 million for the month March quarter. So good recoveries overall but you can see the impacts of one state versus the other with the weather in one and less so in the other. And as I say, 5.7 was a good result, 41% up on a quarter-on-quarter basis. Our managed sales at the producer level of coal of 4 million tonnes for the June quarter, slightly down on the March quarter as we sold despite the weather impacts impacting in that quarter. The June closing stocks in Queensland at 2.1 million tonnes, a reasonably healthy carrying that into the FY '27 year. A 20.1 million tonnes for Queensland for FY '26. That's a very positive outcome. And our managed sales of produced coal at 15.9 million tonnes were at the top of our guidance range for FY '26. Blackwater's June quarter of 4 million tonnes was very healthy and a nice recovery for the team based on the wet weather in the March quarter. Very positive to see that Daunia, which was less weather affected than Blackwater. You can see quarter-on-quarter has been relatively consistent and landed 1.7 million tonnes of ROM production for the June quarter, which is nicely up on March, but not proportionately the same step forward that Blackwater had given the weather affected outcomes that it had for the March quarter. Overall, very positive result. And moving on to New South Wales, 5 million tonnes, as I mentioned, for the managed ROM for New South Wales. As I say, New South Wales slightly got over the top of Queensland at 20.2 million tonnes, and our managed sales will produce coal at 16.8 million tonnes are at the top of the FY '26 range. The open cuts have done very well during the course of the New South Wales year. And particularly in this quarter, Maules Creek doing very nicely. The Gunnedah open cuts also being a model stability and producing consistently through the course of the quarter. Maules Creek at 3.5 million tonnes and broadly in line with the March quarter. So they've had a nice 6 months, obviously less affected by weather, and Gunnedah ops have done a similar sort of performance in this year. So both Tarrawonga and Vickery doing what they plan to do for the year, which is nice to see. Narrabri ROM production at 600,000 tonnes for the June quarter was 38% down on March, has certainly been a disappointing quarter from our perspective with the combination of the intrusions into the coal seam and the addition of a fault across -- perpendicular to the distressed directions in this panel has caused us some -- certainly some lower productivity during the course of this quarter, but it's nice to see that improving now, and we can talk about that in the Q&A section of the call. Flipping over to sales. June quarter delivered equity sales at 6.3 million tonnes, so 3.2 million versus 3.1 million for New South Wales, a 7% lower than March, with a 6% improvement on our previous corresponding period. The achieved prices for Queensland, an average of AUD 247 for the June quarter was slightly up on March. And average for the year, there are $229 for FY '26. The PLV across that period averaged $238, which is broadly in line, as I say, with where we've been in March. The PLV averaged $214 for the full year which was up on last year at U.S. average for the year, $196. Our operations realized prices of USD 176 per tonne. And that's about 74% across the 4 products of a realization relative to the PLV hard coke index. The speed of our primary coking products versus the secondary is 61% for the hard coke and semi-hard versus 35% for the PCI semi-soft and 4% attributed to thermal sales during that period. Switching over to New South Wales. As I mentioned earlier, AUD 197 a tonne for the quarter, 13% up on the March quarter, and this compares with an average of AUD 177 for the full year. The June quarter actually was USD 136 per tonne, 14% up on the March quarter at $120. Obviously, energy security concerns playing out as a result of the conflict in the Middle East in this space. the gC NEWC average is $118 for the full year, which was slightly less than last year at $121. Moving on to the dynamics in the market. As I say, the met coal market, whilst we have been recording better prices, don't forget the currency has been moving during this period when we've seen prices. And we have added in the back table on the back, just the currency that occurred on a quarter-on-quarter basis for you. Just to remind you of that fact. We've had a lot of questions about realized pricing being better, that's true. But the currency during the period of the heightened periods of the conflict has also consumed part of that face value the price benefit that we would have otherwise seen. But we are entering the period now where obviously, we've had mine closures as a result of the safety concerns in China. You definitely have had some reduced sales into the Indian market by virtue of the weather and monsoons and season being upon us now. But you've actually had better mining conditions in Queensland as a result of the period post the weather of the March quarter, which has actually seen Queensland reduced better. And so there's a little bit more coal in the market at the moment. Flipping to the New South Wales side and obviously, the thermal side of the market does benefit from the energy security concerns associated with the conflict in the Middle East. And so you've seen some volatility of that rising and falling as a result of the announcements that come from the progression of that conflict. And in more recent times, we've seen that re-elevate again as a result of further announcements. But again, there is a volatility to the news flow associated with this. And unfortunately, the thermal price seems to track it, which makes it a little bit difficult for projections going forward. The market dynamics themselves remain unchanged. So we think structurally, we're well positioned on both the met and thermal side of the market. We certainly see longer term, the met coal demand is certainly going to be short longer term. And the thermal side of things would see a similar impact there as well. I don't think anybody needs a lesson in terms of the approval time line. So no matter what the prices are, the supply side response on both the met and the thermal responses to any increase in prices would be muted. And of course, in Queensland, in particular, any supply side response needs to be viewed in the context of the royalty regime, which is going to keep a damper on any new capital being deployed into that space. Over to production costs at $132. I think we've outperformed there in terms of rounding out the year. A combination of active management and our costs and better performance across the year being at the upper end of our sales and ROM targets certainly assisted in that regard. As I say, we've done well on the cost-out targets, and we will going through the final verification processes for the landing point between the $60 million to $80 million that we've achieved for the year, and we'll confirm that at the time of the full year results. But we've done a very good job there in terms of managing the volumes. Of course, it's slightly assisted by the lower cost side of the portfolio being New South Wales, being proportionately a little bit higher in this year than it was in the previous. So that certainly has had a benefit as well. On the balance sheet side of things, I think that predictably AUD 1.3 billion net debt. There's no real excitement there. That was pretty well covered in terms of our -- of what the cash flow projections were, I could see from the various analysts, but obviously highlights during the course of the quarter was the landing of the refinancing very, very successfully as we've spoken about already, the $1.5 billion U.S. facility that we had as a result of acquisition has been refinanced through the bank and bond market, very successfully lowering our costs and of finance. And that will be a structural improvement for the business in terms of the weighted average cost of capital that now applies to Whitehaven. Payments to BMA as a result of deferred and contingent payments, of course, we paid the last of the large payments, the USD 500 million. We now enter the last year of the deferred payment schedule. So the only outstanding amount there on the deferred side of things is USD 100 million. And of course, we entered the last year of the contingent upside sharing arrangements with BMA. And we've given you the number that we paid there, $58 million for the second year of that arrangement. And then we've also given you an estimate of where we're tracking for the first quarter of this last year 3 of this arrangement being about USD 53 million. On the buyback side of things, during the course of the quarter, we purchased 2.4 million shares at a total cost of $21 million. And the total buyback expenditure during the course of the half was $32 million, consistent with the announcement that we made in February. So we have concluded the buyback program that was announced at that time. And over the course of the full year, we purchased 10.1 million shares and bought back a total of $77 million. So the buyback has performed well for us. We will give further guidance in terms of dividend and buyback related outcomes when we deliver the full year results. From a project perspective, there's nothing particular to draw your attention to there. So I'll skip right across to the conclusion for the year. And that is a good result to recover from both weather impacts and the volatility associated with the Middle East contract and diesel pricing variability as well. So I think the team has done a really good job. And if I just reflect on the guidance quickly. Managed ROM at 40.3 million tonnes, split pretty evenly across New South Wales and Queensland, very good outcome given the circumstances for the year. The sales at 32.7% at a managed level. Again New South Wales and Queensland done very well in that regard. And our cost, of course, I think that is the stand out in terms of where we've been able to land at AUD 132 per tonne for the year. Of course, that will be subject to final auditing with the full year financial results. but a very good outcome in that regard given the uncertainty that had been certainly prevailing across the entirety of the 6 months in the second half of the year. And capital expenditures as I mentioned, it's on the lower end of our guidance. So actively managing our capital and our cash flow and with the positive production outcomes for the year, I think the team has delivered a pretty solid outcome to the end of this full financial year. So with that, going to conclude, and we might hand back to the operator and start the Q&A. Thank you.

[Operator Instructions] Your first question today comes from Rahul Anand with Morgan Stanley.

Paul and team, thanks for the call.

You there, Rahul?

Ashley, can you hear us? Ashley? We can't hear you.We can't hear anything. Okay.

Let her know we can't hear anything.

Apologies. We'll move on to the next question. Your next question is -- your next question is from Dan Roden with Jefferies.

Maybe just check first, can you give hear me a bit?

Yes, Dan, we can hear you now. Yes, keep going. Well, we got you.

Awesome, cheers. I just wanted to get a bit of commentary. Obviously, your Q4 costs were fairly low, and I think lower than most people had expected for the quarter, just given the commentary on diesel from Q3 I just wondered if you could provide a bit of commentary on, I guess, what underlying drivers you were seeing in the quarter? How much diesel cost did contribute to your Q4? And then I guess how much was inventory driven or, I guess, a lower stripping volume?

Yes, Dan. I'll make a couple of comments there. Look, the cost performance, you may recall when we had our March quarter despite the weather impacts. We had commented at that time that cost-wise, we had done better than the first half in Q3. We rounded out the half year at $135, and we had gone under that to a good measure in Q3, but we were forecasting that with the volatility that was confronting us, particularly with the escalation in diesel costs, we were seeing quite a significant jump in diesel costs. And at 1 point there, it went double what our budgeted rate of diesel was during the course of Q4. But as you're right to say, not so much strip ratio impact. So I wouldn't say that's really played too much of a part. There's definitely a mix between New South Wales and Queensland, which helps. The Q4 volumes have been good in particular. You've seen the open cuts in New South Wales do very well. And Queensland, Blackwater in particular, having had a very subdued weather affected March did really nicely in June. And as I say, Daunia was actually quite consistent during the course of the year. But the spikes in diesel prices, so no change in the consumption of diesel. In fact, you'd say generally, we consumed a little bit more because the volumes are a little bit higher. But it did come off the peak of it quite quickly in June. And so that was a good relief. Now that's not to say it's going to come down to pre-conflict levels. But it's definitely improved. And as I say, the volumetric equation and the weighting between New South Wales and Queensland worked in our favor, not just in the quarter but over the course of the year. Anything you want to add to that, Kevin, on diesel?

No, I'd probably say when we gave you that guidance in April, that was about the peak of diesel prices. And almost the week after that, you started -- the discussion started between Iran and the U.S. and diesel prices came off quite quickly. So I think our guidance was based on the fact that, that $2 a liter for diesel would have carried through the quarter. And in fact, we really only saw 1 month of it in the period. And I agree with Paul, it's a mixed combination between New South Wales and Queensland, the open cuts in New South Wales, very mining conditions, and they performed very strongly.

Awesome. That was good. And maybe just a bit of color on Narrabri. Obviously, a bit of a pushback in I guess, the recovery there in the longwall panel move and it's pushed out from 8 weeks to 9 weeks. Just wondering if you can provide a little, I guess, color and I guess, what your confidence is that this is, I guess, isolated to longwall 204 and you're not going to -- I guess, what's your confidence that you're not going to see this go through to the next 205 panel and I guess, the rest of the 200 series?

Yes. Thanks, Dan. Look, Narrabri definitely had tough time. We did encounter a relatively isolated fault that was, as I mentioned, running perpendicular to the stress directions across the panel, which sort of caused some roof instability. So an abundance of caution and bumpiness from a production perspective, we did stop to reinforce the roof structure, particularly on the main gate side, where obviously where all our infrastructure is. So that did take some time out of the quarter for us, but that was the right thing to do. And and we're seeing better performance as a result of having put the time into that. So as disappointing as the quarter's tally was, we feel like we're in a better place already and starting to see better production rates already now. You just want to see some consistency of that as that improvement continues. So Ian, do you want to add anything?

I think just building on what Paul said, I mean, we have to do the extra, I'll call it, preventative work in that main gate area, which we're largely through now. And we're starting to see the benefit of the actual work we did on the leaks earlier on in April. So we're setting some steadier run rates now to get through the rest of this block.

Yes. I think, look, from my perspective, it's a little frustrating at a level because we've done very well across the year. You can see the cost base. If we had more Narrabri tonnes, that cost would have come down further because they are our cheapest tonnes. And we certainly feel whilst the change out is a little bit longer because we want to do a little bit more work in that and what we've previously told everyone is that step 2 of the large overhaul that we're giving the wall as a result of making a decision not to go and buy another wall. So the wall certainly is performing better in the areas that have had the full overhaul already, but it's to say we've still got plenty of work to do in this next change out. And once that's done and moving into 205, where we know the intrusions are much less intrusive, we're certainly expecting to see much better performance than what we've seen to date.

Your next question comes from Paul Young with Goldman Sachs.

Question on just Queensland volumes, looking at where the year ended on Blackwater and Daunia. Blackwater declined a little bit year-on-year. Daunia increased a bit year-on-year and actually to above the 6 million tonne rate on run-of-mine, which is sort of the medium-term target. Obviously, weather impacted Blackwater maybe more so in the June half. But just curious around looking into '27, not expecting guidance, of course, now. But like is there a bit of stripping catch-up required on Blackwater? And on Daunia, I see you're moving into the Southern Mining domain in FY '27. Is that going to impact production at all just with that transition?

Yes. Good question, Paul. Yes, we will give you some guidance in another 4 weeks. So I'll try and answer that without forecasting anything for 4 weeks' time. Look, definitely, Blackwater was much more weather affected, as you know, not just from us is what we've told you, but our neighbors in terms of their reporting and commentary about the rainfall. I mean there was significant rainfall, you had 3/4 of the year's average in 1 quarter. And so that was -- that's significant. So I think everyone's actually recovered pretty well. And even though, as you say, a little bit less than last year at Blackwater. I actually think that's a really good recovery from the team. So happy with that. Daunia just wasn't the same, wasn't impacted in the same way. So it actually it's -- if you look -- draw a straight line through their quarters, they were rising as the year went on, which is positive. So look, we feel pretty good about that. Is there a deficit of stripping as a result? Yes, look, we're we've taken a short-term hit there, and we're going to have to do little bit extra work for sure in the new year. So that will be baked into the outcomes for guidance for FY '27. At...

And then -- yes, just on Daunia...

Sorry...

I know you're in the Titan North and Titan Central area just to move to the southern domain.

Yes. Yes. We've been obviously, taking advantage of, obviously, the shorter-haul proximity of those focus areas that you mentioned relative to the infrastructure. And at some point here, you've got to go south. And so we're taking the -- ripping the Band-Aid off there a little earlier. And we are gravitating towards the south. And so you'll see that in our guidance for the new year. So there's -- that will be in there in 4 weeks' time. But that needs to be done. And so the balance of all this is just making sure we continue to explore the finality of the central areas in the north, but then start to work our way into the southern areas during the course of not just -- obviously next year because that's not the prior to 1 year's work. That will be over a couple of years.

Yes, understood. And then a question actually on purchased coal, which stepped up materially. I know you do this from time to time depending on blending, but was that purchased coal step up a function of Narrabri underperforming and just having to fill contracts for?

Yes, unfortunately, Paul, that is -- there's 2 things that we purchased coal for, quality, a quality issue that we're trying to deal with or a production shortfall. And yes, that was just Narrabri. It's -- that end of the market is actually -- the coal is more freely available. So if you've got a shortfall of malls, that's hard to find. But at the Narrabri end of the curve, you can find it, but it was solely Narrabri that we needed to fill some spots in there, particularly as we had some pretty harsh demurrage outcomes in the first half of the year. We didn't want to have any more of that sort of stuff. So we got on top of that and purchased as required.

Okay. And just part B, I mean, when you blend you typically can make money, but when you're filling contracts, is it washing your face exercise or losing money on that purchased coal?

Generally, it's been positive because we have good contracts at good pricing that we're putting the coal into.

The next question comes from Fintan Collins with UBS.

Strong result. Just wondering, so the half year result, you reset medium-term Queensland unit costs higher sort of on a combination of temporary and structural cost pressures. Following the strong quarter and FY costs finishing at the low end of guidance, how should we think about the sustainability of the current cost base and has some confidence in the Queensland medium-term cost outlook changed since that reset?

Look, I think the key driver in that is volume. So when you've got -- you've got the volumes coming out the way you expect them to be, then the balance of where we've been has been easier to manage. New South Wales, as I mentioned earlier, did do a little better this year. So we dragged our average cost down. The cost-out program across the group. So that's not New South Wales exclusive of Queensland, it's corporate as well. So that has delivered some positive outcomes for us as well. The key for this new year, and we'll talk about when in 4 years' time -- 4 week's time, when we deliver our guidance is just what's going on with conflict and what does that mean for diesel because that's been probably one of the most difficult ones to layer them into your budget outlook for this new year. We all hope that concludes as soon as possible, but we've been hoping that for some time. And having all this activity reemerge or reignite is terrible on all fronts, but it's making it difficult to plan from a diesel perspective. And so that definitely is driving cost outcomes.